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Simon Hearn talking about Brexit to 70 members of IIC Partners at a conference in Warsaw

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We are with Europe………..but not of it.”  Sir Winston Churchill

The current situation

  • The economy is seen as strong but with a weak Pound
  • The World Economic Forum (WEF) recently pushed the UK to 7th place in the world rankings of competitive economies.  The only other Europeans in the top 10 are The Netherlands, Germany and Sweden
  • So far we have had a 15% decline on a trade weighted basis for the Pound since 23rd June.  This has brought a big increase in tourism and boosted FTSE 100 companies.  Life also easier for UK exporters (FT) – short term
  • Sterling has been the “essential safety valve” that has protected the UK economy (FT) since June
  • At $1.32, the Pound is still about 13% below its pre-referendum level against the Dollar
  • Let us not forget the UK national debt is now at £1tn (£28,201 per person) with a budget deficit of £19bn
  • There has been noise about a second Scottish referendum but the belief is this will not happen for the following reasons: the current North Sea oil price; England is their largest trading market and finally, the Spanish/Catalan situation (Chatham House)

What has to be done?

  • The Centre for European Reform counts 6 interlocking negotiations for the UK Government to consider:
  • Legal exit from the EU
  • The ultimate trading relationship
  • An interim arrangement between the two
  • Joining the World Trade Organisation (WTO)
  • Trade agreements therefore with 53 countries to replace the EU deals
  • Cooperation on European security and defence

The Chancellor of the Exchequer, Philip Hammond, will probably produce a UK autumn statement (for the economy) in November and the likelihood is he will shake things up with big spending on infrastructure

Negotiation

We have a shortage of negotiators in UK Government.  There is a Negotiation team but they have very little experience in trade negotiation which was always conducted on our behalf by the EU.  This is a crucial weakness and one of the reasons the PM is delaying the triggering of Article 50 – she is “getting her ducks in a row.”

The first area of major debate will be around the auto industry/industrial passporting versus financial services passporting

The UK is Germany’s 3rd largest market.  But does this matter to them?

Hard and soft – the difference

Soft exit – an extensive free trade agreement or just stay in the European economic area and Single Market – this means free movement.  Slower

Hard exit – leave EU and Single Market without much of a free trade agreement.  Faster

May fires the Brexit starting gun

A “great repeal bill” that will scrap legislation that took Britain into Europe more than 40 years ago – March/April 2017

Commentary from two Germans

Eric Schweitzer – President of the German Chamber of Commerce (DIHK)

“You cannot model the future arrangements on the Swiss and Norwegian models – they were never in the EU.  There is no blueprint – nobody has ever left the EU.”

“The Brits need to understand – this will need to be a ‘hard Brexit’”.

“Britain will suffer economically.  That is not a threat but simply the logical consequence of the process.”

Mathias Döpfner – CEO, Axel Springer

“This will be more painful for the rest of Europe than for Britain and a UK outside of the EU might prove ‘highly attractive’ to foreign investors.”

“You basically integrate and invite the people that you benefit from and not the people who benefit from your welfare system.”

“There will be short term pain for the UK, including currency fluctuations and uncertainty in its property market – but in 3-5 years they will be better off.”

“Britain will move towards a more free market orientated model while Europe is step by step transforming into a transfer union – and by that I mean with funds being channelled from successful states to the struggling ones and that puts off a lot of investors.” (FT)

“The UK will turn into a low tax, global trading hub like Hong Kong or Singapore, with a more deregulated and dynamic economy.” (FT)

“More than ¾ of British bosses are considering moving their HQ or some of their operations overseas following the Brexit vote.”  (KPMG survey)

In the KPMG survey 72% of bosses wanted to remain, 76% are considering some form of move but having said that, 69% said that Britain will continue to grow over the next year.  (The survey included 100 CEOs of companies with revenues of over £100m and over 500 staff)

“The Eurosceptic, populist Five Star Movement Party in Italy, has a worrying ‘UKIP’ feel about it.  No one wants Italy to leave which would be the beginning of the end for the EU.”

So what is the conclusion? 

Nobody has a clue!

Winston Churchill to his Cabinet: “We are not merged with a United Europe, we are separated closely – and specially related – an ally and friend, but we will not be subordinated into a federal system.”

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