The Strategist

What will happen if the Brexit talks fail? Five most severe blows to the country


09/21/2017 - 13:26



British politician and British Foreign Secretary Boris Johnson believes that Brexit talks will fail. And, it should be noted, he is not the only one who adheres to this point of view: British political advisor Dominic Cummings said on Monday that the upcoming talks could "collapse" due to "unforgivable" mistakes on the part of the government.



Ilovetheeu
Ilovetheeu
Some Tories, especially those who signed the letter to Theresa May calling for a tough Brexit, really want the negotiations to fail.

So, what happens if the negotiations fail, and the agreement is not concluded?

The trade will suffer the most

In the absence of an agreement to replace or expand the membership of the UK in a single EU market, Britain will begin to trade with the EU on the terms of the World Trade Organization (WTO). This is worse than it seems: the WTO is known for its promotion of free trade ideas, but the free trade terms that it provides for its members are less full than the current agreement of the UK with the EU, on which many companies rely.

The parliamentary report on this state of affairs concluded that "this will almost certainly be due to the immediate introduction of tariffs in various sectors." Some tariffs will be more significant than others. British farmers, for example, may face 30-40% of charges for exports to the EU, which in fact makes many exports unviable. Lower tariffs will affect items such as car parts, where a fee of 5% will be charged.

These tariffs are that the UK, currently a member of the EU, levies from non-EU countries as a member of the trading zone. Britain outside the EU will find itself on the other side of the barricade.

The financial system will be ruined

Trade on the terms of the WTO will lead to the immediate loss of so-called "passport rights" for banks and other financial institutions, headquartered in London. British banks currently have these rights, which means that a bank can conduct business throughout the EU without creating a subsidiary in this EU country. The loss of passport rights would mean the immediate cessation of any business that the British banks own in the EU now. The city's regulator notes that 5,476 British firms rely on passport rights and that their business generates an annual income of 9 billion pounds sterling in the UK. Paris, Frankfurt or Dublin are considered as alternative places to host banks, which will allow conducting business with hundreds of millions of EU citizens. This would have a significant impact on the UK economy: the UK has a trade surplus when it comes to the services sector, rather than products where there is a deficit. In the third quarter of 2016, the surplus amounted to 25.1 billion pounds.

The Office of National Statistics said that financial services were the largest source of this surplus, with 11 billion pounds sterling in total.

The UK economy growth will slow down

It is not known what effect such a significant reduction in UK trade and exports can have on the British economy, but it is fair to say that nothing good can be expected. Before the referendum, the Treasury’s most pessimistic scenario was based on the collapse of the talks, that Brexit would "push the UK to a recession and lead to a sharp increase in unemployment." Given the WTO rules scenario, the Treasury forecast assumes that unemployment will increase by 820,000 places in two years, and the pound sterling will fall by 15%; inflation will increase by 2.7%.

Impact on the EU

The EU economy is likely to suffer as a result of the failure of the talks, but the consequences are difficult to quantify. 53% of British exports come from the EU, and any violation of trade will affect both directions. Yet, the economy of 27 EU countries amounts to about $ 13.5 trillion compared with $ 2.6 trillion in the UK. This cannot be compared in terms of volume, so the relative importance of the UK economy to the EU as a bloc is relatively small. The effect is likely to be implicit: certain sectors and businesses that work closely with the UK would suffer the hardest.

Politics

Theresa May has repeatedly stated that "there is nothing worse than a bad deal", so if you do not make a deal now, this does not mean that you will never conclude it. Economic problems and incompetence, probably, would cause serious damage to the government in the public eye. Nevertheless, many Tory representatives who do not approve the deal are likely to be satisfied with the result. Boris Johnson and anyone else with the ambitions of the leader may face such a political blow in May as the work of the parliament may possibly be blocked.