New Year will bring Article 50

18 January 2017

Last week the European Parliament went back to work in Brussels and as Members gathered from the 28 EU states an oft repeated refrain, linked to greetings of ‘Happy New Year’, was, ‘Hopefully 2017 will be a better year than 2016!’

Yet even a cursory look at the next 12 months suggests we are still in decidedly choppy waters, with more political upsets a distinct possibility. 

Soon the UK will trigger the Article 50 process when the Prime Minister writes to formally notify the other 27 Members States of our intention to leave the EU.  The popular perception in the UK is that we will then have a long period of negotiations lasting around two years during which time British politicians and civil servants will spend countless hours sitting in the negotiating room with representatives of the EU to thrash out a deal.  Such a view is a serious misconception.  The reality is that for long periods of the negotiation, in fact for the majority of the time, the UK won’t be in the room at all, rather we will be ‘sitting in the corridor’.

What will actually happen is that the EU 27 member states will discuss the contents of the deal they will in due course offer us, without the UK being present.  No doubt at times on points that need clarifying and out of courtesy we will be invited into the room but most of the time we will not be part of the process.

Not only will we hardly be in the room the remorseless logic is that they will offer us a fairly brutal deal as it is simply not in their interests to offer us a good deal.  The Remain campaign pointed this out during the referendum campaign but many voters saw it as a threat and as such it became a counter-productive argument to use.   Not using it doesn’t mean it wasn’t true, as we shall find out later this year or next. 

If the UK were to be given a good deal then populist parties like UKIP all over Europe will start saying, ‘Look you can leave the EU and it will all be fine.  Look at the UK’s deal, we should do the same’.  This could then trigger a domino effect as other Member States are encouraged to hold referendums and vote to leave.

To prevent such a domino effect, and rather like cauterizing a wound with a red hot poker, the EU 27 governments have to make an example of the UK and it’s going to be very painful for us and the lower your income the more it will hurt.

In response UKIP howl, ‘This will never happen, they need us more than we need them!  They will still allow our Nissan cars tariff free into the EU because the Germans want to sell us their Mercedes cars tariff free’, but pause and look at the figures and especially the ratios.  We have 3 million jobs linked to the EU market and the EU in return have 5 million jobs linked to the UK market.  Clearly five is bigger than three but we are talking about the exports of one country pitted against the exports of 27 countries.  As a consequence 12% of UK jobs are impacted compared to only 3% of EU jobs and that’s why the UK will be the bigger losers from a hard Brexit.

Clearly in these difficult economic times the politicians who lead our EU neighbours won’t want to lose any jobs in their own countries. Nor do those same politicians in power want to see the further break-up of the EU.  Pity Angela Merkel as she prepares for this year’s general election in Germany.  Any hint that Germany supports a soft Brexit will enable Alternative For Deutschland (think UKIP) to make a stronger case for Germany leaving the EU.  Oppositely if she indicates that all she is willing to offer the UK is a hard Brexit then job losses in Germany are on the way and in the UK, disproportionately so in the North East given we are a major manufacturing and exporting region. 

The 2017 outlook is indeed for choppy waters.

Do you think the North East needs its own voice in the EU exit negotiations?

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