The Breckoning: The Endgame for Great Britain and Europe in 2019

Panel Composition and Context

• Moderator: Sets agenda by framing the event's focus on Europe despite global priorities on China, India, and the Middle East.
• Panelists:
  • Lord Peter Mandelson: Former UK Cabinet Minister, EU Commissioner, and architect of historic non-Conservative UK election victories.
  • Sir Michael Hintze: Founder/CEO of CQS hedge fund and outspoken Brexit proponent.
  • Miho Krupinski: CEO of Bank Pico (Poland's largest bank), former Polish minister, and former EU official.
  • Peter Beyer: Member of the German Bundestag (CDU), Foreign Relations Committee member, and new Federal Minister for Transatlantic Affairs.

Economic Performance and Historical Context

• UK GDP Growth (1993–2018): Britain has outperformed all other European countries and closely trailed the US (adjusted for population) over the last 25 years.
• Living Standards: Adjusted for population growth, the UK recorded the highest rise in national income per head of any G7 nation since 1993.
• Pre-1993 Performance: Between 1974 and 1992, UK economic performance was merely inline with France and slightly behind Italy.
• Causal Factor: The 1993 creation of the European Single Market is identified as the catalyst for Britain's surge, specifically benefiting its comparative advantage in service industries.
• Structural Dependence: The UK economy is uniquely dependent on services, unlike other advanced economies that rely more on manufacturing or agriculture.

Brexit Strategy and Trade Implications

• Official Strategy: The UK government plans to leave the EU and Single Market by March (next year), enter a 21-month transition period ending in 2020, and negotiate a new relationship outside the customs union.
• Trade Deficit: The UK runs a £14 billion surplus in services with Europe but a £92 billion deficit in goods trade with the bloc.
• Liberalization Reversal: Brexit is characterized as a process of "incremental de-liberalization" of trade in goods and services after 45 years of embedded market access.
• Rejection of "Halfway House": The EU offered a deal allowing the UK to remain in the Single Market and Customs Union; the UK government rejected this to pursue full autonomy.
• Service Sector Risks: Mandelson notes that while goods trade might be managed via Free Trade Agreements (FTAs), services (the UK's primary export) face significant regulatory and access barriers not covered by WTO rules.
• Global Deals Feasibility: Hintze argues that UK trade deficits with China and India persist due to behind-the-border non-tariff barriers (regulatory hurdles) which the UK cannot dismantle unilaterally or without EU leverage.

European Political and Economic Impact

• Economic Shock: Poland (Krupinski) notes the UK economy is currently in shock, with households and businesses postponing investment due to uncertainty.
• Political Divisions: The Brexit process is expected to heighten political polarization in the UK, with risks of extended friction for the next two years.
• EU Internal Dynamics: Krupinski warns that a "protectionist camp" is gaining influence in Brussels, shifting away from federal liberalization, exemplified by France blaming Polish truck drivers for domestic issues.
• German Manufacturing: Beyer highlights that the UK is the second-largest market for German car exports; German supply chains crossing the British border are vulnerable to non-tariff barriers.
• Job Relocation: Financial firms (e.g., JP Morgan, Goldman Sachs) and Polish banks have already begun relocating jobs and hiring key personnel in Warsaw to prepare for Brexit.
• Security and Territorial Issues: Beyer identifies unresolved security, Gibraltar, and Northern Ireland border issues as major hurdles beyond pure trade negotiations.

Negotiation Capabilities and Constraints

• Negotiating Manpower: Mandelson contrasts the EU's fleet of 700 trade officials with the UK's capacity, which he estimates can be counted "on the fingers of two hands."
• Existing Trade Deals: 54+ existing FTAs covering 85% of UK trade with non-EU nations must be re-confirmed; these are not automatically transferable upon Brexit.
• No-Deal Scenario: Both the EU and UK governments are preparing contingency plans for a "no-deal" exit, including a potential "cliff-edge" scenario.
• Legislative Shifts: The UK House of Lords recently passed an amendment allowing Parliament to vote on an alternative outcome (remaining in the EU) rather than a binary choice of "Accept Deal" or "No-Deal."
• Customs Union Vote: Over 100 Conservative peers voted to support a Brexit arrangement that keeps the UK within the EU Customs Union to secure tariff-free goods trade.

Political Scenarios and Future Outlook

• Binary Choice: Mandelson frames the ultimate UK decision as a choice between "alignment" (keeping EU standards to maintain market access) and "autonomy" (diverging regulations and sacrificing market access).
• Government Position: The UK government claims to seek autonomy with the right to diverge on standards, which Mandelson describes as a non-starter for trade negotiations.
• Referendum Possibility: Mandelson suggests that if Parliament fails to pass a deal, the resulting legislative deadlock may force a second referendum to ratify a decision to remain in the EU.
• Labour Party Criticism: Both Hintze and Mandelson criticize Labour leader Jeremy Corbyn for lacking policy depth, citing his populist stance and desire for "socialism in one country" (which implies leaving EU constraints) as factors hindering the debate.
• Defence Contribution: The UK provides 26% of the EU defence budget and 40% of its R&D, yet this contribution is currently excluded from Brexit negotiations.
• Economic Projections: All major analyses (Government, Bank of England, IMF) project the UK economy will be smaller over the next 10–15 years due to Brexit, potentially reducing public spending capacity for defence and social services.
• Compensation: Beyer states definitively that there is no compensation scheme within the EU welfare state for political incompetence or poor negotiation outcomes.

Forward-Looking Statements and Uncertainty

• Bank of England View: Hintze notes that Bank of England officials believe the long-term economic impact (7–10 years) may be less severe than currently feared, though the transition involves winners and losers.
• Market Adjustment: Hintze expresses optimism regarding the resilience of UK technology and markets to adjust via currency fluctuation.
• German Leadership Outlook: Beyer cites former German Finance Minister Wolfgang Schäuble, who predicted "no Brexit," suggesting potential political shifts could reverse the process.
• Force Majeure: Mandelson predicts an unforeseen event ("force majeure") will eventually force a resolution, either resulting in an "extremely suboptimal" exit or a decision to remain.
• Timeline: Key legislative votes on the withdrawal agreement are expected in the UK Parliament during the summer and autumn.