Conference Presentation, Panel
A Continental Wake-up Call: Challenges and Opportunities for a Post-Brexit Europe
Milken InstituteMichael Klowden, Stephanie Flanders, Tina Fordham, Michał Krupiński, Lord Mandelson, Michael O'Sullivan, Mark Wilson
- The European Council is expected to decide within the next week that sufficient progress has been made to advance UK negotiations to a second trade phase, though a Conservative Cabinet agreement on a specific trade relationship is not expected until Phase 1 unity is secured.
- Political friction within the UK is predicted to create a "very, very rocky passage" toward a final deal expected next autumn, with the default position being a no-deal exit under WTO rules due to an inability to secure a customs union or single market arrangement.
- In the second phase, the EU27 are expected to present a menu of choices while the UK lacks defined negotiating guidelines, and a solution resembling the "one country, two systems" model in Hong Kong is considered applicable to UK-EU border issues.
- Global political dynamics are expected to see mainstream leaders in Germany, France, and the Netherlands finish first with Angela Merkel securing a fourth term despite undermined capital, while populist parties are predicted to finish second or third with no imminent in-out referendums in Europe.
- Germany is expected to have a caretaker government for the next three months while a new coalition is negotiated, whereas Theresa May is expected to step down "one crisis away" potentially coinciding with the UK's March deal deadline.
- European reform outlooks are expected to be tempered following recent elections, with France's President Macron predicted to drive reforms by transforming "En Marche" into a permanent movement, potentially backed by a grand coalition with Germany.
- Structural economic reforms and the interplay between monetary and fiscal policy are expected to determine success in the Eurozone over the next four to five years, with small states predicted to form a political alliance due to the difficulty of extracting flexibility from the EU as a whole.
- Unprecedented growth is expected in Poland (4.7%) and Romania (8%), boosting corporate profits to record levels and potentially alleviating labor pressure through migration, while Italy is expected to post slow growth that does not improve living standards or resolve sovereign-bank connections.
- Inflation in Europe is expected to rise next year as the ECB adjusts its QE program, and the Euro is not expected to break up, which is considered a non-risk for investors despite political risks impacting local currencies and bond markets.
- A future recession in 2019 or 2020 is expected to be led by the US rather than Europe, with Europe facing acute problems if no reforms occur during the current high-growth period, though a severe recession is not expected in Europe due to low leverage among consumers and corporates.
- Seven out of ten of the world's biggest listed companies are expected to be linked to the Fourth Industrial Revolution, prompting smaller countries to form a policy leadership group while mainstream leaders focus on productivity boosts and banking union development.
- Migration is expected to remain a primary driver of tension between Central and Eastern Europe and the rest of the continent, while a "wake-up call" is anticipated to foster a stronger Europe focused on productivity and the construction of a Eurozone capital banking union.
- Political risks are expected to push Central and Eastern European countries to step outside core EU integration due to rising protectionism rather than seek exits, while the EU is expected to lose a key ally regarding economic freedoms and security policy due to Brexit.
- The EU is expected to continue focusing internally while the US, China, and Japan compete for a larger share of the global economy, with a mega merger in sectors like TMT and banking predicted to boost market confidence.
- The ECB is expected to bring political risks at the periphery back into the market space next year, while a German or French successor to Mario Draghi is not expected to be the preferred choice compared to an Irish or Finnish candidate to avoid leadership monopolization.
- Political landscapes are expected to differentiate by reforms and accountability, with younger leaders under 50 expected to address automation, and politicians required to accept a new "insiders and outsiders" rule rather than traditional left-right divides.
- Multinational corporations are expected to feel they pay insufficient tax with no voluntary increase anticipated, risking a significant backlash in the US if European arrangements force US tech firms to pay more tax.