An MEP colleague, former head of German industry through the BDI, recently announced that German business is “panicking” about the possibility of a no deal with the UK. He says the EU is only just waking up to the fact a post-Brexit UK will become the largest market for the rest of the EU.
In the referendum, the notion the EU needed the UK market much was mocked, but now the cold factual reality is setting in.
The UK is not some sad little island but the sixth largest economy in the world, has the largest financial centre in the world, and is the second largest importer after the USA.
President Juncker has correctly analysed that the EU’s solidarity to date – who would argue with demanding billions more for the EU? – is about to break up as member states put their own trading and economic interests first. He fears big business will allow British “cherry picking” and that “in the end we’ll have several extras, several exceptions that will make Europe a mess”.
These interests vary markedly. 90 per cent of all EU exports to the UK come from just eight of the EU-27 countries and just under a quarter of all EU-27 exports comes from Germany alone. The UK market funds the jobs of between a million to a million and a half Germans as with BMWs and Mercedes. 4 per cent of the Dutch economy and 3 per cent of the Belgian economy would disappear without a deal (for comparison the entire UK defence budget is 2 per cent UK GDP). 40 per cent tariffs on French cheeses or 12 per cent on wines would bring farmer retribution.
We are the second largest export market for Germany, Ireland and Poland, third to Denmark, fourth to Belgium, France and the Netherlands, fifth to Spain, Italy and Sweden.
In contrast, we do very little trade with countries such as Bulgaria and Romania, so their interest in our trade deal will be far less than over issues of EU support grants and immigration controls.
Another reality not acknowledged to date is that the EU27 economies depend on exports to far higher extent than the UK: whilst UK exports to the EU represent just 12 per cent of the U.K. economy (and to the rest of the world 16 per cent), Belgium exports to EU as percentage of their economy is 59 per cent, Ireland 61 per cent, the Netherlands 56 per cent, Hungary 70 per cent, and even Germany is 26 per cent.
Also there is the differential effect of new UK bilateral trade agreements. At a recent visit to New Zealand wine growers, we discussed what would happen to their wine exports if the UK did not achieve a trade deal with the EU but the UK did one with New Zealand: 12 per cent tariffs added to French, Spanish and Italian wines, 12 per cent deducted off New Zealand (& Australian & South American) wines: a 24% differential, before any drop in the pound in a no deal scenario. This could tip the most competitive wine market in the world – ours – towards New World wines.
In short, the UK has a highly valuable domestic market that these countries need a piece of, and the EU is now finally in a mood for a deal.
February 1st, 2018: Telegraph