The media storm that has engulfed Brexit reached its pinnacle when Theresa May’s letter which triggered Article 50 was finally delivered to the European Council President, Donald Tusk. After months of delays and upsets, any remaining hope that Brexit may not become a reality has been firmly extinguished by the delivery of said letter, and in its place comes the gritty reality of the negotiations that will occur over the next two years.
Firstly, it is important to understand what is at stake in these negotiations. The EU will be negotiating on behalf of its remaining 27 member states, all of which have very different outlooks when it comes to an EU free of Britain. At the heart of the European Project is the political goal to remain a strong and evermore interconnected union. If this goal were to be followed, the EU would seek a ‘hard’ Brexit whereby Britain would no longer have access to the Single Market and would be subject to the minimal World Trade Organisation trading standards. The aim here, of course, being to deter other countries from leaving. However, the economics of the situation regarding Britain’s exit are far too dire to be ignored and it is this which will most likely direct discussions among member states.
In a report compiled by the ratings agency, Standard and Poor, they analysed 20 countries which they predicted would be the most affected by Britain leaving the EU, so named the “The Brexit Sensitivity Index”. Unsurprisingly, with its shared history and common border with the UK, Ireland tops the list. Following Ireland, small financial services centres such as Malta, Cyprus, Luxembourg and Switzerland are the next most likely to suffer from Brexit. Following them are countries such as Belgium and the Netherlands, who are some of Britain’s main trading partners in the EU.
Four factors were taken into account when calculating the index as follows;
i)The yearly exports of goods and services by each country to the UK, as a % of GDP
- ii) the financial sector’s risk exposure to the UK
iii) The amount of foreign direct investment (or FDI) into the UK, as a % of GDP
- iv) The total number of migrants, both to and from the UK, as a % of each country’s population.
Each of these factors was then standardised and given a value from 0 – 1. With the four of these summed up to give a number between 0 – 4. The median score was 0.8.
Ireland’s score of 3.5 was well above that of any other country, and more than four times the median score. With significant trading links, and a huge level of migration, Ireland is high up in all four of the factors. It has the highest number of exports as a percentage of GDP, at 10.6%, and the most Irish nationals resident in the UK and vice versa, with 17.2% of the population either living in the UK as an Irish national, or living in Ireland as a UK national. However the report concludes, that with it’s highly flexible economy and potential to gain investment in the financial sector post-Brexit, Ireland should be able to recover strongly.
That being said, the report fails to accurately depict many other factors that affect Ireland and its economy due to its close ties to Britain. Primarily, the potential creation of a customs border between the UK and Ireland could result in increased tensions and disruption of the peace in Northern Ireland. On top of this, businesses located in and around the border are set to suffer hugely as their ability to trade across this border is essential to their business structure. Finally, Ireland’s infrastructural disadvantages would only be worsened in the case of a ‘hard’ Brexit. The need to develop new distribution links would be essential as currently our primary link to Europe is via British ports. Furthermore, our ability to attract the financial sector into Ireland is underpinned by our ability to provide adequate housing and other essential services, something which appears difficult in a capital caught in a web of planning regulation and bureaucracy.
Similarly, Spain also shares a border with the UK, being that of its overseas territory of Gibraltar. Though having an indisputably smaller population and landmass than that of Ireland, Gibraltar poses an equally difficult challenge in Brexit negotiations with its citizens facing a very restricted future within the confines of the small territory. Lord Howard, the former Tory leader, has even said that Theresa May “would go to war to defend Gibraltar’s sovereignty”, a most worrying statement indeed and one that does not necessarily place the interests of the people of Gibraltar at the forefront, 96% of whom voted to remain in the EU.
Though the case of Gibraltar is indeed difficult and something that will not be easily resolved, Spain itself will otherwise not be greatly affected by Brexit, according to the index. Its main risks lie in its large financial and FDI exposures to the UK, particularly through its retail banking subsidiaries and telecom operations. Despite British tourism to Spain accounting for a large portion of Spain’s services exports, Spain’s overall goods and services exports to the UK only amount to 2.7% of GDP, which though substantial for such a large economy, is only barely above the median of the 20 economies included in the survey.
Interestingly, two of the most dominant players in the EU, Germany and France, are ranked at the lower end of the index. By comparison, much smaller countries with equally small GDPs are set to be greatly affected by Brexit such as Malta, Cyprus, and Luxembourg. This could be become very divisive in negotiations among EU member states on a definitive Brexit strategy. Though the union is supposed to treat all of its member states and their respective viewpoints equally, Angela Merkel, in particular, has become a leading figure who is at the forefront of EU decision-making. Both her and Germany’s views as a whole on the EU and its original goals of European integration and coordination could be detrimental for the future of Britain and the economies to which it is closely tied.
The next stage in negotiations will be revealed at a meeting of the European Council set to take place on April 29th. As European citizens place their economic futures into the hands of their respective Heads of State, one must continue to eagerly watch the oncoming House of many Cards.