Panel, Conference Presentation
Brexit and the Domino Effect: What to Expect In the Year Ahead
Milken InstituteMatthew Bishop, Mark Blyth, Nicholas Candy, Jim Mellon, Howard Shore, Janet Thomas, Nick Candy, Peter Mandelson
- A rising trend of populist movements driven by a shift away from conventional wisdom, potentially triggered by Brexit, is expected to sweep globally within a few years, with Italy, Greece, or France (where a Le Pen victory with 45% of the vote would signal deep systemic disgust) facing crises that could alter the negotiation landscape for the UK.
- German Chancellor Angela Merkel is predicted to narrowly retain power with full focus on staying in office, while the German Mittelstand, described as the most powerful lobby, will push for a deal due to their export dependence, though negotiations are anticipated to conclude at the last minute in a patchwork arrangement following a temporary two-year post-Article 50 period.
- The UK is expected to make annual payments to the EU as part of a divorce settlement for a duration that may not be permanent, involving a lesser net sum than prior contributions, contradicting the figure of 50-60 billion pounds which is characterized as fictitious, while the final outcome is likely to involve "grey" areas regarding access, payments, and immigration.
- Direct negotiations are predicted to occur primarily between the British and German governments, with the French government playing a lesser role, rather than involving Brussels bureaucrats, and a hard or deal-less Brexit is forecast to cause a slow, steady, incremental loss of the UK's economic standing over the next decade, including the potential relocation of up to 150,000 jobs in the clearing and foreign exchange sectors to Europe or the US.
- The Eurozone faces significant fragility with predictions that Greece will exit within six months and Italy will follow within one to three years, leading to financial chaos that would leave the UK as an incredibly strong position for international investors, though others argue the EU may attempt to keep Italy in to avoid banking defaults or extend negotiations by four months to facilitate a softer Brexit.
- Economic indicators show the UK currently growing at 2% a year for the seventh consecutive year, higher than any other major European economy, with a current account deficit that has fallen by two-thirds and inflation at 2.3%, while the pound has recovered 10% of its initial 20% fall and is down roughly 10% on a trade-weighted basis.
- Risks to the UK include the EU publishing proposals in June to force the financial clearing industry out of the UK, potentially affecting 100,000 people, and the relocation of manufacturing such as Nissan's North East factory due to tariffs, while leaving the single market could place 80% of the UK economy, dominated by services, behind barriers unless regulatory standards remain equivalent.
- The UK's net contribution to the EU since 1973 totals 320 billion pounds, and while international arbitration could theoretically result in funds being returned rather than paid, some experts suggest the UK should act as an open border nation with free tariffs, though the German car industry selling 850,000 cars annually to the UK serves as a counter-pressure for an unresolved situation.
- Global growth has returned to a long-run trend of 1.5% to 2%, contrasting with low growth in developed nations due to aging populations and over-saving, with the average Italian aged 43.1 and the average European 42.7, while the UK's status as the world's biggest creditor nation means a falling pound increases the value of incoming profits and dividends.
- Political scenarios include the possibility of another major referendum within the next two years, a Conservative election victory providing Mrs. May with a united front, and the potential for the UK to emerge as a deregulated offshore tax haven within the next year or so, which is viewed as commercially sound but politically risky.