Will Brexit shatter the EU or is it still too early to predict?

Discussion between Theresa May and Jean-Claude Juncker (in the foreground, from left to right) Date: 21/10/2016. Location: Brussels – EC/Berlaymont. © European Union , 2016 / Source: EC – Audiovisual Service / Photo: Etienne Ansotte

The president of the European Commission together with EU and German officials fear that Brexit will divide the EU after the negotiations have been concluded. Theresa May is about to trigger Article 50 of the Lisbon Treaty and begin the talks for UK’s exit once the House of Lords grants permission.

In addition to the Brexit procedure, Europe has other threats to worry about such as migration crisis, the elections that are taking place in various European countries this year and the effect of Donald Trump’s policies. But let’s focus on Brexit which according to Jean Claude Junker is able to cause severe turbulences to the unity of the 27 EU member states.

Britain’s plan

The UK prime minister is planning to start the Brexit negotiations by the end of March. The UK intends to seek a new partnership with Europe and the procedure will be transitional in order to have minimum impact on the EU. Furthermore, trade deals will be seeked with the U.S., China, Brazil, Australia, New Zealand, India and states in the Persian Gulf and decide for the future of the 2.8 million EU people who live in Britain. However, UK aims to protect only the common travel area that exists between Northern Ireland and the Republic of Ireland.

EU and German officials warn UK about Brexit repercussions

Valdis Dombrovskis, European Commission’s vice president, pointed that UK will most likely face economic disruption and worse trading agreements when it will lose access to the European single market. More specifically, the European Commissioner for the Euro and Social Dialogue stated that: “Inevitably there will be some economic disruption by clearing out decades of economic integration. Unfortunately, it will be a situation where we will be spending lots of time and energy moving from Point A to Point B, when we already know that Point B is likely to be worse than Point A. That, unfortunately, is the reality that we are in.”

What is more, the European Commissioner for Budget and Human Resources Guenther Oettinger mentioned last Sunday that the Brexit impact on the EU budget might cost Germany of up to one billion euros in case the budget remains the same. In case though the budget is cut by Britain’s share , then no other EU member state will have to contribute but it would mean that many EU countries and especially the southern ones will have to face further problems since there will be less financial aid by the EU.

Germany‘s approach to Brexit

“The current model of using London as a gateway to Europe is likely to end,” Andreas Dombret, executive board member for the Bundesbank said at a private meeting of German businesses and banks organised by Boston Consulting Group in Frankfurt last week. It seems that Germany is having a tough approach towards Britain regarding the last one’s exit from the EU.

The senior banking regulator said also that even if banking rules were “equivalent” between the UK and the rest of the European Union that was “miles away from access to the single market”. What is more, the Germany’s central bank executive expressed his concern that the UK will attempt to cut taxes and relax financial regulations in order to persuade banks and businesses to invest in Britain.

Juncker’s pessimistic views

Jean Claude Juncker has decided not to run for a second term as EC president at the end of the five-year term which expires in 2019. The current president of the EC has stated at the German Deutschlandfunk radio that is not optimistic about the European unity during and after the Brexit talks.

More in detail, the EU official said that: “The other EU 27 don’t know it yet, but the Brits know very well how they can tackle this. They could promise country A this, country B that and country C something else and the endgame is that there is not united European front.”

However, UK Brexit department refused to comment on Jean Claude Juncker’s statement, but refered to Theresa May’s recent speech where the UK Prime Minister had said that she wanted a “strong and constructive” partnership with the EU.

There is still long way ahead

The fears of the EU officials are reasonable but it is too early to judge how, if and to what extent Brexit is going to affect the rest of the EU. Besides, it should not be forgotten that the imminent impact of the UK-EU referendum’s result was absorbed very quickly. Thus, the financial markets managed to adopt easily compared to the Armageddon that was expected to come.

Last Monday, the UK economy has exceeded the EC’s expectations regarding GDP growth reaching 1.5% from 1% that was forecasted last November. Furthermore, the EC forecasts 1.6% GDP growth for the euro area in 2017 and 1.8% in 2018, revealing potential growth of all EU member states for the first time in 10 years.

All in all, it is imperative that the EU watches closely UK’s plans on Brexit but there are still many more problems, as elections are taking place in France, the Netherlands and Germany in 2017, that the EU should currently worry about which could have critical consequences to the European unity in the short run.