UK: March 29, 2019, 13.00h GMT

Análisis de Luís Morral Managing Director of Doka UK and Doka Ireland

You will agree with me on this assessment: “The British exit of the European Union is the most significant economic demerger between major economies since the Second World War and much about the forthcoming process of transitioning out of the EU has no precedent. But we know already that both the UK and the EU will be significantly changed by what is about to unfold”.  

On March 29, 2019, at 13:00 GMT, UK will de facto leave the European Union, as announced by the Prime Minister, Theresa May. We will record the real effects of Brexit as of this date. For the time being, it is necessary to be informed and to the extent possible to anticipate the consequences.”.

Experts today fixed position.

I have extracted the following analyzes from three major economic media outlets: The Economist, Reuters and Bloomberg. It is, first of all, analysis of the present and more ahead of possible scenarios in the future Post-Brexit. I have selected them, regardless of my personal opinion, because they are values that the British read, day day. The next few months will indicate who is right and who gets the most right.

In that pursuit, a sea of troubles has washed about her, and about the country. Many in her cabinet are not Brexiteers; they believe that exit is folly, and seek to extend the period of leaving the Union in order to give British business and finance more time to prepare for the new conditions. The three cabinet members most concerned with Brexit include Boris Johnson, the unpredictable Foreign Secretary, who differed sharply with the cautious chancellor, Philip Hammond, a Remainer, on the timetable for leaving. David Davis, the main negotiator with the EU on the terms of Brexit, was called stupid, lazy and “vain as Narcissus” by the former campaign director of the Vote Leave campaign, a supposed ally. The upper reaches of the governing party are murderous. Negotiations are, in any case, going badly. The EU negotiator, Michel Barnier, has insisted on a rigid timetable which doesn’t suit the U.K., while issues like the amount the U.K. must pay before leaving remain an obstacle to progress.The U.K. wants the European Union to allow negotiations to start on their post-Brexit relationship by the end of the year. After a summit in October ended in failure, hopes are now pinned on a gathering in mid-December.

EU leaders need to judge there’s been “sufficient progress” on the most pressing issues of separation before attention can turn to trade. There’s a long way still to go, particularly on the issue of the financial settlement. Here’s a guide to the most crucial five weeks yet in the Brexit negotiations.

14, 16 and 17: Life After Brexit

The EU has refused to start discussing with the U.K. what it wants out of their future relationship but has begun its own internal preparations. They step up a gear this week as Brexit diplomats hash out a common stance over the course of three days. Their aim is to be ready to talk about trade and transition as soon as leaders fire the starting gun on the next phase of negotiations.

17: A Swedish Break

The EU’s leaders hold a summit in Gothenburg. Brexit isn’t on the official agenda, but it wouldn’t be unreasonable to expect Prime Minister Theresa May to try to talk to counterparts in the corridors about the U.K.’s most pressing problem.

Ministers Meet

For the first time since the October summit failed to reach a breakthrough, representatives from all 27 governments convene in Brussels. They will gauge the state of the negotiations and start discussing the chances of success at the December leaders meeting. They’ll also vote on where the two EU agencies currently based in the U.K. should move to.

22: Contemplating Transition

With just three weeks to the summit, the EU’s Brussels-based ambassadors gather to talk about the likelihood of a breakthrough, as well as assessing the internal preparations for the transition arrangement and future relationship.

27: More Negotiations?

No further talks between the U.K. and the EU have been confirmed, but officials say the last week of November is their best bet for another round. It’s pretty much now or never. After this week just 10 days remain before the summit. EU diplomats will want to use that time to draft their response to present to leaders. 

29: Prep Starts

Ambassadors have penciled in a possible meeting in Brussels to start drafting the summit conclusions. These words will hold the key to whether the second phase of negotiations — the trade talks — can start.

6: Heads Down

With a week to go, the ambassadors get serious. Whatever the state of the negotiations and the EU’s view of any British concessions, they get to work drafting the conclusions.

11: Sherpa Session

Summit week. From the 27 national capitals, the presidents’ and prime ministers’ right-hand men and women travel to Brussels to cast their eye over and revise the draft conclusions. They’ll come with important messages from their leaders about whether to give Britain what it wants.

12: Dotting the ‘i’s

European ministers come from the capitals to put the finishing touches to the summit conclusions. By now we should have a firm idea of whether the U.K. will get sufficient progress at the summit.

December 14-15: D-Day

It all comes down to this. 28 leaders locked in a room. While the discussion can go in any direction when they all meet face to face, leaders rarely rip up the preparatory work done in Brussels in the weeks before. The EU doesn’t want May to go to the summit to negotiate. Instead, they just want to deliver a verdict.

Post – Brexit 

As I said before, now The Economist, Reuters and Bloomberg talk about the day after, about Post-Brexit.

The EU holds the strongest cards because what matters most for Britain is its future trading arrangements with the huge market on its doorstep. The deadline under the Article 50 withdrawal procedure increases the EU’s leverage since Britain must leave with or without a deal in March 2019 (unless the 27 European states agree unanimously on an extension.) Despite hyped-up talk in London about preparing for no deal at all, Britain will do its utmost to avoid what would be a ruinous outcome, grounding flights to Europe and causing long hold-ups at border crossings, such as Dover on the south coast of England. If economic size and time favor the EU, the British government’s strongest card is money – one that it has played in various guises for centuries with its continental neighbors – and it is naturally reluctant to show its full hand too early. Even so May has already made an important concession. 

As part of the transition period of around two years that she called for in her emollient Florence speech last month, Britain would continue to pay in to the EU budget to ensure that none of the member states was out of pocket owing to the decision to leave. These net payments of around €10 billion ($11.8 billion) a year would fix the immediate problem facing the EU, the hole that would otherwise open up in its finances during the final two years of its current budgetary framework, which runs from 2014 to 2020. But that extra money from aligning Britain’s effective date of departure with the end of the EU’s budgeting plan will not be enough, for two reasons. One is the way the EU in effect borrows from the future, by making spending commitments that it pays for later. In principle, the EU cannot borrow to pay for expenditure. 

But, through its accounting procedures, the EU can and does commit it to spending that will be paid for by future receipts from the member states. What this means is that even after 2020 there will still be payments due on commitments made under the current seven-year spending plan. That pile of unpaid bills, eloquently called the “reste ? liquider” (the amount yet to be settled), is forecast to be €254 billion ($300 billion) at the end of 2020.

Estimates of what Britain might owe towards this vary, but taking into account what might have been spent on British projects it could be around €20 billion ($23.6 billion). On top of that – and the second main reason why the EU is holding out for more – the EU has liabilities, notably arising from the unfunded retirement benefits of European staff estimated at €67 billion ($79 billion) at the end of 2016, which it is expecting Britain to share. Even taking into account some potential offsets from its share of assets, Britain may face a bill of between €30 billion ($35 billion) and €40 billion ($47 billion) on top of the €20 billion ($23.6 billion) paid during the transition period. Although money is Britain’s strongest card in the negotiations, there are political limits to the amount that the government can stump up. 

Brexit campaigners used inflated figures to exaggerate the money that could supposedly be switched into the health service from Britain’s contribution to the EU. That means the reality of having to pay a large exit bill could be electorally toxic. Yet in order to secure what really matters for Britain – access on reasonable terms to the huge European market – May’s government will have to confront the public with this cost. The British predicament is so extreme and rifts between Conservative ministers over how much ground to concede so acute that a breakdown in the negotiations is conceivable later this year. With so much attention focused on the political drama playing out in London, it is easy to lose sight of the fact that the EU will face a harsh budgetary future even with a substantial divorce settlement. Indeed the insistence that Britain pay up is a sign of the strains that will come to the fore after the transition period ends. 

The EU will lose one of its big net contributors, the second largest after Germany in 2015. The EU’s budget of around 1 percent of GDP is in any case puny given the scale of its ambitions. Those hoping for greater generosity on the part of the remaining rich countries are likely to be disappointed. With German Chancellor Angela Merkel weakened following her poor performance in the federal election, Germany will be even more tight-fisted than before in its efforts to avoid anything that smacks even faintly of a “transfer union.” Yet if the poorer countries receive less, that will sharpen the north-south divide that emerged so starkly during the euro crisis when countries such as Finland resented having to contribute to bailouts – especially to Greece – while southern states smarted at the imposition of austerity. And it will exacerbate tensions with eastern countries such as Poland that are big beneficiaries from the EU budget.