Will Norway suffer from a hard Brexit?

Hard Brexit, hard times?

Cars and banks are the first to warn

But there are also clear warning signs: if you take a closer look, the British economy grew more slowly last year than it has since 2013. In addition, growth is primarily being driven by private consumption. Industry and manufacturing, on the other hand, only have a share of around ten percent of GDP. And that shouldn't change anytime soon. In response to uncertainty about future trade relations, automakers on the island cut their announced investments by a third to £ 1.7 billion in 2016. In the worst case, the UK's exit from the customs union with the EU could mean that British manufacturers would have to pay the usual external tariff of ten percent if they want to sell their products in EU countries. And even if trade were to remain duty-free, leaving the customs union threatens investments: British factories purchase many parts from mainland Europe and Ireland. Delays caused by customs controls would jeopardize the reliable and efficient supply of the plants.

The banking industry was also critical of May's plans. Both the British HSBC and major international banks such as UBS and Goldman Sachs have confirmed their intentions to pull employees out of London on a large scale in the event of a hard Brexit. HSBC boss Stuart Gulliver spoke of around 1,000 jobs, which represent at least 20 percent of the turnover of the London investment bank. Theresa May is striving for a solution according to which the financial institutions can continue to do business in the EU from London in the future. But this is by no means certain. Therefore, the banking industry will probably be one of the first to draw conclusions from the scenario of a hard Brexit.

Ambitious Brexit schedule

Because whether and, above all, when a corresponding negotiated solution will be established cannot currently be foreseen. Prime Minister May is striving to tie down both the “divorce treaty” and a comprehensive follow-up regulation on future trade relations with the EU within the two-year period. However, this goal seems extremely ambitious: the typical negotiation period for bilateral trade agreements is at least five years. For example, the recently signed CETA agreement between the EU and Canada has been in the political process since 2009. Ratification in the national parliaments of the EU states alone took around two years. In addition, the upcoming elections in the Netherlands, France and Germany in 2017 are likely to delay negotiations from the EU side.

For this reason, too, Theresa May is increasingly turning to the USA. Donald Trump had congratulated May on Britain's planned exit from the EU: Brexit will be wonderful for her country, said Trump. May was also the first foreign head of government the new president received after taking office. The British government therefore wants to sign a bilateral free trade agreement with the USA as soon as possible. But here, too, May's negotiating position is not the best: the import-export balance between the two countries is - in contrast to China, Mexico, Japan or Germany - balanced. Still, Trump is unlikely to have much interest in favoring Great Britain in particular. Trade with the British only accounts for three percent of the US flow of goods. For comparison: China, Canada and Mexico each have around 15 percent.

German companies would suffer

The question remains, what effects a hard Brexit would have on the German economy, after all Great Britain ranks third among the most important trading partners of the Federal Republic of Germany. In 2015, German companies with an export volume of almost 90 billion euros sold more goods in Great Britain than ever before. In the overall rather moderate export year 2016, however, exports to the island fell by 3.3 percent by November. The reason for this is probably only an indirect consequence of Brexit: the euro, which is strong in relation to the pound, makes German goods more expensive in Great Britain.

If the British economy were to come to an emergency as a result of a hard Brexit, German companies would also be affected to a considerable extent. Falling investments and exports inevitably led to lower economic growth. This also applies in different ways to other EU countries, which is why the EU is also interested in a correspondingly advantageous negotiated solution. However, she will not be able to make too many concessions. The fear of a further breakup of the confederation always resonates. In such a case, the entire continent is likely to slide into recession.

Conclusion

Great Britain's exit from the EU remains fraught with many uncertainties. Will Prime Minister Theresa May succeed in the almost impossible task of agreeing both the details of the exit and a completely new trade agreement with the EU within two years? One thing is clear: May is striving for a hard Brexit, which is likely to affect the UK economy in particular, but also those on mainland Europe.