It is up to the UK to take the first step. That is the pronounced outcome of our panel discussion in cooperation with the Association of German Banks on September 5 in Brussels, which featured UK MEP Kay Swinburne, German MEP Markus Ferber, the Director of the Cologne Institute for Economic Research, Prof Michael Hüther and Michael Kemmer, General Manager of the Association of German Banks.
The debate was the kick-off for a series of events between the two organizations, which will focus on different aspects of the financial market. Discussing the impacts of Brexit today inevitably means having to make educated guesses as to whether, when and with what in mind the United Kingdom is starting the divorce negotiations.
The UK population voted to leave the European Union, it was the electorate’s democratic decision. Markus Ferber, MEP and First Vice-Chair of the Committee on Economic and Monetary Affairs, remarks rightly that “we did not ask them to leave”. Therefore, the responsibility for a proposal on how to organize its future relationship with the EU clearly lies with the British government.
Prof Hüther agreed: “Brexit is a British problem, but also a European challenge.” Referring to the upcoming negotiations and the question how willing both parties are to compromise, Michael Hüther presented a game-theory-inspired approach to the discussion. He assessed four possible results depending on how tough or easy the UK’s and the EU’s negotiating strategies might be; namely Exit-WTO, Cherry-Picking-UK, Norway and Norway+ (see graph).
|UK||Tough||„Exit-WTO“: UK becomes WTO-member without institutional bonds to EU (no free market access, no free movement of people, no contributions)||„Cherry-Picking-UK“: UK enforces all demands (free market access, no free movement of people, no contributions)|
|UK||Easy||„Norway“: UK loses political participation within the EU, institutional bonds remain (free market access, free movement of people, high contributions)||„Norway+“: Comparable to „Norway“, institutional bonds mostly remain (free market access, restricted movement of people, low contributions)|
Following these theories, both parties may follow a tough strategy, which would possibly lead to a so-called Exit-WTO solution as an outcome of negotiations. This would mean the complete loss of British access to the single market as well as an exemption from payments to the EU budget. The desired restriction of the free movement of persons could thus be achieved; however, economic integration between the two actors would stall.
The Brits being rigid and the EU playing soft, the negotiations could result in a Cherry-Picking-UK scenario. Britain would gain free access to the European internal market but is not expected to pay any fees in return nor to ensure the free movement of persons.
Another possible outcome could be provided by the well-known Norway scenario. An alternative to such an agreement could also be Norway+, a negotiation outcome where the UK as well as the EU are willing to compromise. In this way, Britain could fully participate in the internal market and would not have to guarantee the free movement of persons fully. Moreover, it would make lower payments to the EU but would not take part in the EU’s political decision-making process.
Michael Hüther argued that the UK has always been a member solely acting in its own interests. Since that strategy proved rather successful, the British were able to negotiate some significant exceptions for themselves in the past. Therefore, the EU should pursue a much more rigid strategy during the negotiations on Brexit. According to his opinion, the EU must not allow the Brits to restrict the free movement of workers since it is an essential element of the single market. Thus, an easy attitude towards the Brits would probably lead to a spiral of exemption claims by other members and eventually to a breakdown of the European system. This scenario has to be avoided. Instead, a common approach should be developed, which maintains confidence in the European Union and fosters again a common European spirit. The European Union has to revamp it attraction for its own citizens. Structural reforms and increased transparency with regard to its political processes are vital.
While the British government obviously hesitates to take measures, the industry does not. European companies prepare themselves and set priorities for the forthcoming events. Wales-based MEP Kay Swinburne urged to keep in mind that the EU’s economy is intertwined with the British; i.e. influences on the UK market will as well affect the Union.
However, several forecasts of an economic slow-down or the relocation of financial headquarters or entire companies from the British Isles to the continent have not been confirmed, yet. So what will eventually happen to London, the European, and global, financial market place? Michael Kemmer, in unison with the other panelists, is convinced that “London will retain its status as a global financial center.” Nevertheless, new financial centers in Europe such as Amsterdam, Dublin and Frankfurt will become stark competitors for investments.
Bottom-line: the discussion reaffirmed the huge amount of uncertainties surrounding the UK and the EU in the wake of the Brexit decision.
Michael Kemmer, General Manager of the Association of German Banks
Michael Hüther, Director of the Cologne Institute for Economic Research
- Kay Swinburne MEP, ECR Coordinator in the Committee on Economic and Monetary Affairs
- Markus Ferber MEP, First Vice-Chair of the Committee on Economic and Monetary Affairs
- Michael Hüther, Cologne Institute for Economic Research
- Michael Kemmer, Association of German Banks
Jörg Münchenberg, Brussels Correspondent, Deutschlandradio