Economic experts went to great lengths to warn voters about the risks of Brexit, but now it is here. What this will mean for the UK, and Germany, is the centre of fierce debate. EURACTIV Germany reports.
Dr. Bert Van Roosebeke is a financial expert at the Centre for European Policy (CEP).
Van Roosebeke spoke with euractiv.de’s Editor-in-Chief, Ama Lorenz.
British voters have made their decision. The big question from Germany’s point of view is over how this will affect the economic relationship between the two countries.
First, we have to wait for the exit negotiations, which will not be upon us until the autumn at the earliest. Only then will we be able to answer that question. The starting point will be what is decided between the UK and the EU, which will determine conditions for German companies, including export goods and services.
Cameron and many anti-Brexit campaigners warned that leaving could drive investors away from the UK. Is the result really going to cause investors to flee?
The British economy has been running a current account deficit of 5% of GDP for a number of years now. That’s quite a lot. By comparison, Germany has a surplus of about 7%. For the UK, this means that they are forced to rely on foreign capital and they rack up debt abroad on a daily basis. This can only be maintained if there is a regular stream of money.
The UK regulates this through direct investment. Germany plays its part in this, for example, there is direct investment in automotive factories. However, investors are only interested in this if the goods being produced in the UK can easily be put onto the internal market. Whether this will be the case for the British in two or three years is up in the air. How attractive Britain will remain to investors is definitely unclear right now.
What does this mean exactly for the UK?
Many economists still see the country as being competitive because of the fundamental aspects of its economy. It is still there even after the vote. The importance of rules, laws and conditions cannot be underestimated. Cameron rolled the dice. How serious the consequences for the British will be is going to depend on two factors – how quickly they deal with the EU and how they go about it.
If the British go for and are successful in following the Norwegian model, little would change for German companies. But that seems an unlikely scenario, given that the UK would still have to abide with the vast majority of EU laws, which would go completely against the narrative written by the Leave camp. And even if the UK stays in the EU for the next two years, every investor is going to have this in the back of their mind. And that is kryptonite for investment.
…the same for access to the single market as well, presumably.
The entire world is talking about the exit negotiations, which have to be agreed and raitified by a majority of 20 of the remaining 27 member states. In my opinion, the decisive factor is going to be the economic agreement going forward. If this agreement materialises, they’ll need a unanimous vote on it. That means the UK will need all 27 to agree on it. That’s a terrible negotiating position to be in.
We need the British, because we want to export to them, but they need us more and certainly need the EU more.
Before the referendum, there was speculation in Germany about whether we could take over from the UK as the financial centre. Is this discussion going to become more realistic now?
That will depend on what internal market rules are set down for the British. For the City of London, the decisive factor will be the so-called EU Passport. The passport allows bankers to operate across the EU, while keeping their base of operations in the UK. If they are no longer entitled to it, then banks will move to Frankfurt, Paris or Dublin.
Despite all the drawbacks for the British that we can see from outside, why then was David Cameron unsuccessful in convincing the British people to vote remain?
Cameron’s decision to try and use the referendum to prevent a schism in the Tory party was a fateful one. The plan, which two years ago drew on polls that looked very different to now, to win the referendum and silence their party critics has clearly not panned out. Although he laid out arguments to remain that, in my mind, were sound and convincing, albeit not passionately delivered, the result shows that he failed to take into account the emotional component of the debate.
We know a thing or two in Germany about politicians using populist arguments against the EU. But populism does not go hand in hand with realpolitik. Is Brexit going to change the balance of power in the EU?
It’s a difficult question to answer. It remains to be seen how the situation will develop in countries like France, Poland, Hungary and even Denmark over the next two to three years, and how the UK will fare after it has left. If the EU follows through with its intention to negotiate hard with the British on access to the internal market, then populists in other countries could be dissuaded from leading people down the same path. We can only hope that voters pay enough heed to what is happening and realise that turning your back on the EU is not a good idea.