Monday, February 25, 2019

An overview of how the EU27 aren't well prepared for no-deal Brexit

Published by The Spectator  

Auf Deutsch:

As 29 March gets nearer and Theresa May tries to get a Brexit deal through parliament, preparations for no deal continue in both London and mainland Europe. It’s been well-documented that the UK government’s preparations haven’t been optimal, and many British companies aren’t really prepared for no deal. However, on the other side of the Channel, things aren’t going all that well either.

Here is an overview of the EU27’s no-deal plans:
In Germany, the government decided to hire an extra 900 customs officials (trade unions claim that 1300 are needed) to prepare for no deal, but at the end of January, none of these had been employed yet.
‘In no other country is the effect on overall employment as big as it is in Germany’, economics professor Oliver Holtemöller has concluded, commenting on his study that said no deal would cause 100,000 job losses. It’s making German industry nervous. Eric Schweitzer, president of Germany’s chamber of industry and trade last month warned that ‘around 750,000 German jobs depend on free trade with the UK… without a deal, millions of Euros would be due in customs’ registration fees and billions in duty.’ This followed similar warnings from Germany’s car manufacturers and the BGA, which represents the German wholesale, foreign trade, and services sectors.
Perhaps German companies themselves are taking up the task then, if German government action is lacking? Unfortunately, that’s not the case. According to the German central bank, ‘many companies are so far insufficiently prepared for Brexit’. Some big companies are taking measures, but most haven’t made the expensive investments needed into new staff or IT. Germany’s central customs office is especially worriedabout how under-prepared small and medium-sized companies are. Meanwhile, the German farmers federation has warned that a no-deal Brexit, would create ‘chaos’ and have ‘enormous consequences’ for German farmers, due to the impact on the EU budget and market access restrictions.
Surely in France, where the government is more centralised, the situation is more under control? The French government has begun recruiting an extra 740 customs officials and veterinary inspectors. It’s also spending millions on security at ports and airports, and is passing legislation granting it the right to push through laws by emergency decree.
Nevertheless, Medef, France’s largest employer federation, thinks there will be severe trade disruption and ‘absolute chaos in Calais and other ports which export goods to the UK’ in the event of a hard exit.
Jean-Marc Puissesseau, the chief executive of the port of Calais, received a lot of attention when he claimedthat the port ‘will be ready’ for no deal. ‘There will not be any delay’ for trucks, he declared. But it was only in March 2018 that he was claiming the opposite: that customs and sanitary checks could lead to 30-mile tailbacks.
His latest stance is likely in response to concerns that Calais may lose trade to its northern rivals in Belgium and the Netherlands. Xavier Bertrand, chairman of the Hauts-de-France region has basically correctedPuissesseau, stating there was a real danger the port could grind to a standstill, because ‘even at the moment you can see queues of more than half a mile to the tunnel and that is where there are no checks. Imagine what it will be like with checks.’
The National Federation of Road Transporters have pointed out that ‘the new buildings for the extra checks haven’t been built yet and we just don’t know if things will be ready for March 30.’ They also worry that if there are more lorries backed up on roads, it will be harder to stop migrants desperate to reach the UK from trying to sneak in.
That doesn’t really sound like France is ‘ready’ at all.
In the Netherlands, often portrayed as a Calvinist nation where everything is orderly and planned, the Dutch government aims to boost its customs force by around 20 per cent, hiring 928 extra staff. However, only around one third of those will be deployed by the end of March, and only two thirds of the 143 additional staff for the Food and Consumer Product Safety Authority will be ready to help by Brexit day. This, amongst other things, has led the Dutch Court of Audit to criticise the government in December, also highlighting that ‘it will only be possible for new recruits to be operational under guidance. This because they have only had a new, shortened training.’
Despite the fact that the Dutch government has started a campaign featuring a fluffy blue monster, including a comprehensive website, urging companies to prepare, only a minority of Dutch industrial companies are ready for Brexit, a KPMG survey revealed.
The Dutch government is busy implementing legislation to prepare for no deal, but it has faced resistance fromthe Dutch Parliament over the sizeable powers it grants to the executive. One of the measures being taken is to grant UK-based asset managers a temporary exemption for providing services in the Netherlands in case of no deal.
The Dutch Central Bank has prepared a survey on the preparations of the Dutch financial market for a possible no-deal Brexit. Their concern is that many Dutch financial institutions use the derivatives markets in London to hedge their risks, and large Dutch insurers and banks’ risk losing access to those clearing house. Europe’s markets regulator ESMA has, however, been showing flexibility, stating that three UK clearing houses can continue to provide services to the EU after March 29, even if there is no deal.
There still are quite a few unresolved challenges regarding no deal, which could cost every Dutch citizen 164 Euros a year, and may lead to a shortage of medicines and medical supplies. A hospital federation has warned ‘we foresee great risks for our daily operations if Britain leaves the EU without a deal… This varies from medicines, tissues and medical supplies becoming unavailable, to problems with data storage and the registration of doctors. The safety of patients is at risk.’ Another hospital federation admitted last month it did not even have a clear idea of the scale of the problem yet.
Europe’s largest port, Rotterdam, handles around 40 million tonnes of goods to and from Britain, and has pointed out that major traffic jams could be caused by no deal, due to lack of space for trucks without the right paperwork and for inspections of goods arriving from the UK. The CEO of the port complained that ‘real talks about how both sides will handle the implications of Brexit were impossible as long as the negotiations between Britain and the EU went on’.
Belgium is particularly vulnerable to no deal. Their central bank has warned it could hit its GDP by 1.2 per cent and lead to 40,000 jobs losses. The government is preparing emergency legislation and has requested the EU Commission to exempt it from EU state aid rules in case of no deal.
Plans to hire to hire extra customs officials and to make sure they are ready by April 2019 are not going smoothly. Last month, trade unions representing customs staff accussed the government of being ‘completely unprepared’. In an optimistic scenario, Belgium will be able to deploy 141 out of the 400 extra customs staff needed by the end of March. Another challenge for Belgium is to find enough new veterinarians to inspect animals at the border, as the Netherlands is also attracting veterinarians from Belgium.
Belgian industry isn’t exactly well prepared either. Last month, one survey found that four in five Belgian companies dealing with the UK are not ready to cope with a no-deal Brexit.
The Belgian medical profession is also worried. Belgian hospitals are stockpiling medicines to prevent shortages and there is a worry that medical equipment, like pacemakers or catheters, may no longer be certified if it’s imported from the UK.
The stakes to avoid no deal are higher for Ireland than for any other EU member state. Not only is there the potential economic cost – estimated at 4 per cent of Irish GDP – but also the risk to the peace process in Northern Ireland. There is even the risk that no-deal border checks would move from Ireland to France or Netherlands. Leo Varadkar, the Taoiseach, has apparently told Irish party leaders in private that this may happen, amid reports that German Chancellor Merkel and other EU26 policy makers are considering it as a policy. There are also rumours – which have been denied – that the Irish government has been drafting emergency plans to deploy uniformed police to the border in the event of no deal.
Around 1000 extra customs staff are being hired by the government, but Taoiseach Varadkar already admittedlast summer that it wouldn’t be possible to deploy them by the end of March. Land near ports has been acquired by the government for border inspection infrastructure, truck parks and offices. Last month, Fianna Fáil, the largest opposition party, expressed concern over the upgrading of port infrastructure, while criticising the government for only managing to hire 53 of the 300 new veterinary officials needed.
Ireland’s €4.5bn exports to Britain could be badly hit by a no-deal scenario. Tariffs would, according to the Irish government, be an ‘existential challenge’ for the food and drink sector. The Irish Farmers Association has warned that UK tariffs have the potential to wipe out beef production in Ireland altogether. However, even if the UK were to apply a zero tariff policy, Irish businesses may suffer, as this could mean non-European producers would out-compete Irish products from shelves in UK shops.
To cover some of the potential losses, Ireland is already discussing a possible substantial Brexit emergency fund with the EU. However, one source points out to the Guardian that apart from ‘flexibility on state aid rules’, this would be dealt with during European budget discussions, which only start in April. And complicating matters, the Flemish government and others are requesting similar compensation as well.
Last but not least, there’s the issue of medicines, particularly as Ireland is heavily dependent on drugs produced in the UK. Just like the UK government, the Irish government was forced to issue a warning that ‘pharmacists and people in general should not be stockpiling medicines because actually stockpiling in itself sometimes causes problems with supply’. For anyone still in doubt about how prepared Ireland is for no deal, Irish Deputy PM Simon Coveney stressed last week that ‘I wouldn’t like to give the impression that we could easily manage a no-deal Brexit… It would put huge strain on the Irish economy.’
Other member states
Other member states that aren’t likely to be as affected by a no-deal Brexit have also taken measures. This ranges from pushing the EU institutions to secure fisheries access – which is a Spanish concern — to taking national measures to secure the settlement of financial transactions, which Sweden has done. Hiring extra customs staff is something that’s being done by the likes of Latvia and also Denmark, which has even put money aside to pay into the EU budget in case the UK doesn’t. If that isn’t the behaviour of a model EU pupil, what is? Like most member states, Austria is trying to help companies with possible customs bureaucracy, and it may even allow Austrians citizens living in the UK to have dual nationality in case they become British subjects. Most EU member states have also provided reassurance to Britons living in the EU27, saying they can stay in the case of no deal, including Greece. Even in Italy, where the stakes aren’t that high, the ‘sovereignist’ government coalition is considering a bilateral deal with the UK to safeguard financial stability and keep trade with the UK flowing even if there is a no-deal Brexit.
The EU institutions
Last December, the European Council called for increased preparation for all Brexit scenarios, including no deal. As well as multiple other measures, the EU council has made no-deal emergency provisions to help EU fishing fleets, and protect rail services through the Channel Tunnel as well as road transport.
But when it comes to food, we are are far from a satisfying no-deal arrangement. Representatives of companies, farmers and agri-cooperatives from both the EU and the UK have warned the EU that preperation measures ‘will not prevent significant disruption of supply chains in case of no deal.’
When it comes to financial access, UK clearing houses have been recognised and steps have been taken to guarantee that insurance claims can be paid by UK insurers in the EU single market. However, the financial industry wants more to be done, and also wants derivatives contracts that aren’t settled at clearinghouses to be catered for. It wants the EU to allow UK exchanges and trading venues to be used for equities and derivatives transactions before they are then settled at the clearinghouses.
Data also hasn’t been resolved. The UK has said that data will be able to flow after a no-deal Brexit, but the EU still needs to reciprocate. The European Data Protection Board (EDPB), an EU body, has only published a note explaining what kind of paperwork businesses will have to endure to minimise the damage from the UK becoming a ‘third country’. Think the introduction of the EU’s data regulation GDPR last year was a bureaucratic mess? Wait for a no-deal Brexit. Even if data are likely to flow freely, ‘data privacy activists’ mayhave a field day finding violations of the rules, which could cause companies to face legal action.
EU institutions have also made contingency plans for no deal that will give airlines a transition period of six months to align themselves with EU ownership rules, conditional on the UK granting the same rights. Even if it only aims to deliver ‘basic connectivity between the EU and the UK’, it should help the likes of Spanish airline Iberia, which is owned by the UK holding company IAG. It follows warnings by the IATA that up to 5 million airline seats were at risk of being cancelled in case of a no-deal Brexit. Then current arrangements do not appear to be sufficient. The European Regions Airline Association (ERA) has blamed the lack of comprehensive post Brexit EU-UK aviation agreement for the collapse of British airline flybmi. In other words: unilateral no-deal measures are all very nice, but ultimately more deals between the EU and the UK are the only proper safeguard against disruption.
Both the EU, member states and companies are trying to prepare for a no-deal Brexit, but since I looked at this last summer, arranging to limit some of the worst damage seems to be the main thing they have managed to do. Economic estimates of the effect of a no deal are notoriously difficult, but the damage has been estimated at 500,000 jobs for the UK and around 1 million for the EU27. However, even if the reality of no-deal is half as bad as those economic predictions, it won’t be a rosy prospect for anyone and most certainly not for the EU, whose institutions, member states and companies are everything but well-prepared for it.

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