Whilst the UK’s assessments on the impact of Brexit are shrouded in secrecy, the European Parliament has already openly published an assessment of the impact of Brexit on the remaining 27 EU member states.
The European Parliament commissioned the independent report on the economic impact of Brexit and it was published last March without any fanfare and made available on their website.
The report was prepared by the Centre for European Policy Studies (CEPS) and requested by the European Parliament’s Committee on Internal Market and Consumer Protection.
The CEPS describes itself as, “One of the EU’s leading independent think tanks.”
Their report for the European Parliament, which specifically assesses the likely impact of Brexit on the EU27, makes for stark and sobering reading for all Britons. Its summary stated:
‘For the EU 27, the losses [of Brexit] are found to be virtually insignificant, and hardly noticed in the aggregate. By contrast, for the UK, the losses could be highly significant, over ten times greater as a share of GDP.’
The summary adds, ‘Impacts on various Member States – in particular Ireland – and sectors in the EU27 could be more pronounced.’
The 60-page report concluded:
1. Trade between the UK and the EU27 is large and of a similar order of magnitude as transatlantic trade (between the EU and the US). Investment links between the UK and EU27 appear to be stronger, but the picture is heavily influenced by financial transactions whose main purpose might be tax optimisation.
2. The EEA option seems no longer relevant after the speech by Prime Minister May. However, there are still many variants possible of the free trade agreement which the UK is apparently seeking.
3. All available studies concur that a significant disruption of trade links will impose economic costs on both sides. However, the EU27 would bear only a disproportionally small share of the total cost.
The report, which does not necessarily represent the official position of the European Parliament, researched several possible economic scenarios on the impact of Brexit on the EU27, in particular:
► The current level of trade in goods and services between the UK and EU27 as a share of GDP, and labour flows, distinguishing between member state and sectors
► An indication of the possible economic impact of at least two alternative scenarios:
- European Economic Area (EEA)
- World Trade Organisation
► An indication of the key characteristics of a wider range of different types of bilateral agreements that exist between the EU and third countries.
These include customs unions, free trade agreements, association agreements, stabilisation and association agreements, partnership and cooperation agreements, etc.
The assessment study gave particular attention to the idea of a Comprehensive Free Trade Agreement (CFTA), since this is what Prime Minister Theresa May announced as the UK’s objective in her Lancaster House speech of 17 January 2017.
The report stated that Brexit would cause economic losses for both parties (the UK and the EU27) but there would be a disproportionate loss suffered by the UK.
For the EU27, the losses would be virtually insignificant, averaging between 0.11% and 0.52% of their GDP, according to either an optimistic or pessimistic outlook.
By stark contrast, for the UK the losses of Brexit were predicted to average between 1.31% and 4.21% of GDP for the optimistic and pessimistic scenarios respectively, or 0.13% to 0.41% of GDP annually.
Other economic models prepared by the OECD and the UK Treasury reported negative impacts on foreign direct investment (FDI), which would be redirected in some degree away from the UK and into the EU27.
“In their pessimistic scenarios,” pointed out the assessment, “the losses cumulate to about 7.5% of GDP, or 0.75% annually, which are highly significant amounts macroeconomically.”
The assessment surmised that, “most of the additional economic cost of a ratcheting up of trade barriers would be borne by the UK.”
As a result of Brexit, the EU is likely to face a €9 billion ‘hole’ in its annual budget, being the estimated net current contribution made by the UK to the EU, according to the report.
If the UK had a Comprehensive Free Trade Agreement with the EU after Brexit, the annual amount paid by the UK to the EU for such access might be similar to Norway’s, which is about €3.5 billion a year.
On the other hand, if the UK has only a WTO-based relationship with the EU after Brexit, “then the EU would receive additional tariff revenues, estimated at roughly €4.5 billion.”
So, concluded the report, in either scenario, “the EU would recuperate around one-third to half of its loss of UK contributions.”
In addition, there were also the ‘legacy’ costs of the divorce of the UK from the EU, but “there has been no definition so far of what such costs would consist of.”
The CEPS assessment covered various possible trading agreements between the UK and the EU27, too comprehensive to summarise here (a link to the full report is given at the end of this article).
However, the option of the UK remaining a member of the Single Market was not considered in depth by the report, as this was specifically excluded by Theresa May in her Lancaster House speech.
Although the report concludes that the impact of Brexit as a whole on the EU27 would be modest, there would be a significant adverse impact felt by Ireland, which would suffer the “same magnitude of losses” from Brexit as the UK.
Explained the report, “This is plausibly explained by the fact that Ireland relates to the UK in the same way that the UK relates to the EU27 aggregate; i.e. Ireland’s greater trade dependency on the UK is greater than vice versa, in roughly the same proportions that the UK has a greater trade dependency on the EU27 than vice versa.”
Malta and Cyprus, together with Belgium and the Netherlands, would also suffer more disproportionately from the impact of Brexit than the other EU member states. The EU countries least affected by Brexit would be the Baltic states, Finland and Romania.
The report concluded:
“Our main finding is that the available studies largely agree that Brexit will inflict losses on both sides. All studies agree that the losses will be considerably larger for the UK than for the EU27. Only in very pessimistic scenarios would the losses for the EU27 reach a significant size.”
What’s striking about this in-depth assessment of the economic impact of Brexit is that there are absolutely no benefits for anyone.
The UK government’s own Brexit impact reports – which they have so far refused to publish, even though Parliament voted this week for them to do so – are unlikely to reach a different conclusion.
So, the question that needs to be asked over and over and over again: why on earth is Britain going ahead with it?
Please let me know if you discover a rational answer.
• Link to ‘An Assessment of the Economic Impact of Brexit on the EU27’ prepared by Centre for European Policy Studies for the European Parliament
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