London Wants Brexit at all Costs
British Brexit Minister Stephen Barkley warned EU chief negotiator Michel Barnier that the United Kingdom would leave the EU on Halloween on October 31, in any case with or without a deal, which he boasted about on his Twitter.
The new British Prime Minister, Boris Johnson, is also in the same mood, proudly announcing that all members of his cabinet are supporters of Brexit. Boris claims that the kingdom is “better prepared” for leaving the EU than many people think, and that as a result, by 2050 it will become “the best place on earth.”
What do they want?
Johnson and Co. declare that they are ready for Brexit in any form, intend to achieve it through the head of the House of Commons, which does not want to “divorce” from the EU, where they have a formal majority together with their allies.
However, let us leave aside the question of whether Johnson will be able to overcome the resistance of the parliament. Let's not laugh at the idle speculations of Brexit supporters about whether they will be able to withdraw the country from the EU in order to regain control of its borders, pursue their own policies, including foreign trade, but at the same time maintain free access to the European market for their goods, services and capital.
It is clear that they are unlikely to succeed, and that even for the very attempt to do so, they will have to go to early parliamentary elections, which will become a new referendum on Brexit, or, less likely, a second referendum, which supporters of the "divorce" from the EU this time will lose .
What are the options?
Let us now consider another: what are the options for the development of further relations between Britain and the EU, and what they will really mean for it. By the way, negotiations on future relations themselves three years after the referendum have not even begun.
This time was spent to agree only on the general principles of “separation of property”, guarantees of the rights of the British in the EU and citizens of the community in the United Kingdom, measures to preserve indefinitely the transparency of the intra-Irish border, which actually make Ulster part of the EU customs space (Johnson wants to cancel this arrangement with Brussels of its predecessor Theresa May). It was also possible to agree on a transitional period and the amount of "compensation" for the initiator of the "divorce" - 39 billion pounds.
Theoretically, there are only three options for Brexit: “soft”, “hard” and “catastrophic”, that is, without a deal.
There are five options for economic relations between Britain and the EU. Firstly, as it is now, if London does change its mind to leave the EU. Secondly, it is a single market without a customs union, like Norway and Switzerland. Thirdly, the customs union without a single market, like Turkey. Fourth, the conclusion of a free trade agreement, which Ukraine, Moldova and Georgia have. Fifth, trade on the basic conditions of the WTO following the example of Russia.
What's real option?
Of the three Brexit options, only two are real - the second and third. The first, “soft” option, which provides for the preservation of Britain in one form or another as part of the customs union and the single EU market, or only within the framework of the latter, is unacceptable for strong Brexit supporters. At least by the fact that it does not provide for the return by the British of control over their borders. Johnson himself is therefore inclined in favor of the second option, if Brussels makes concessions, but he does not mind the third, which, according to him, will allow London to "save" 39 billion pounds, which the kingdom pledged to pay the EU as compensation.
Currently, Britain is preparing for the third option - activities in the context of WTO rules, which will become a real disaster for it, at least in the short and medium term. Well, since Brussels does not intend to concede, including in order not to create an undesirable precedent for other willful EU member states, the third option is actually the main one.
How can this be ignored?
A review of the British press, writing a lot with reference to government reports on the opinions of economists and experts on the consequences of Brexit, leads to the most disappointing conclusions for Britain: under the leadership of Boris, the country will end badly. Outside the common European market and the customs union, its GDP will fall by 9.3% over the next 15 years. The budget deficit will increase to 80 billion pounds (111 billion dollars). To patch this hole for 15 years, The Guardian notes, it will take 120 billion pounds. The rate of the British pound, according to the forecast of the Bank of England, will fall by 25%, residential real estate prices - by 30%, commercial real estate will become cheaper by half. The unemployment rate will double (up to 7.5%). Inflation will reach 6.5%. The British will flee from their country, including due to a shortage of imported medicines, food and many other goods and products, as well as due to social tensions.
Thus, according to the Financial Times, within six months after the resumption of customs inspections along the main supply route between Calais and Dover, due to traffic jams on British territory, no more than 12-25% of the current volume of goods can be moved.
It is not clear how the transport connecting Britain with the outside world will work. British airlines, for example, will have to obtain permission to fly to each country individually. Because of the “divorce” from the EU, problems will arise literally everywhere: in the fight against terrorism and organized crime, federal relations (Scotland, which does not want to break with the EU, for example, threatens to leave the United Kingdom), even in the military sphere. Britain will face the loss of Gibraltar, whose population does not want to part with the EU, as well as the Falkland Islands, which Argentina considers its own. The British bases in Cyprus will be isolated, which are now being supplied through the EU Republic of Cyprus.
Why will Britain become weak?
Moreover, as soon as Britain leaves the EU, its negotiating positions will noticeably weaken. Since the population of the EU without Britain is 450 million people, and the British - 65 million. The GDP of the remaining EU countries is 16 trillion dollars, the British - 2.8 trillion, that is, seven times less.
This means that the weight category of Britain is such that it will not be able to conclude profitable deals not only with the EU, but also with other countries, especially the United States or China. And it will cease to be of value to them as a platform for economic expansion into Europe. Currently, the EU, Britain's largest trading partner, accounts for 44% of exports and 53% of imports. In particular, the British export half of the food consumed in the country, 60% of which comes from EU countries.
Britain's industrial cooperation with the EU is very large. Trade in the new conditions will not only lead to a significant reduction in it. Many British companies themselves will "run" to the EU in order to maintain access to its market. And others will not be allowed on it if they do not obey the rules and standards of the EU. The same applies to British banks, insurance companies and other financial institutions, bringing a tenth of revenue to the treasury (75 billion pounds annually). They will also have to partially relocate to other EU countries in order to continue to serve customers on the continent. Moreover, this process is already in full swing.
Thus, the services sector, which accounts for 80% of Britain’s economy and 40% of its exports to the EU, is hit hard. If it has a deficit of almost 100 billion pounds in the sale of goods with the continent, then it sells services for 30 billion pounds more than it buys.
After Brexit, free trade negotiations with the EU will need to start from scratch, and it is clear that the conditions for access to the EU market for British companies will not be comparable with those that are now. In addition, such complex and complex negotiations have been going on for years. Preparation of the EU trade deal with Canada, for example, took seven years, with Japan eight. Moreover, such transactions practically do not remove restrictions for the services sector, which is key for the British economy.
Trade with foreign countries according to WTO rules will mean that Brussels will be able to establish import duties on British goods, which will make them uncompetitive. So, the average duty on food in the WTO countries is 20-35%, for meat - 45-50% ...
They don't care
Brexit supporters surrounding Boris say in response that all this is “horror stories” with which they are “fed up”, that their opponents specifically “fan the fears”, and that “this is not the end of the world,” and “the conditions of the WTO are much better than fetters of the EU. ” They are right in the sense that Brexit is a political and not an economic project, and therefore the British will have to pay the price for “independence”. But do they not overestimate the will of their compatriots for independence, which is impossible for a country of the size of Britain in the modern world?
Only one thing is absolutely clear: Johnson and his team will not do anything worthwhile.