© Fotolia / norbel

24.05.2016

THE BREXIT MYSTERY

Brexit, the portmanteau combining the words "Britain" and "exit", stands for the political aim of many British people to leave the European Union (EU). A referendum in June - in favor of or against the EU - will define the future: An analysis from Brussels.

By Eike Radszuhn

Jean-Claude Juncker and David Cameron. <br>© European Union 2016 / Etienne AnsotteIn the famous Harry Potter novels, the name of villain Lord Voldemort is hardly said - the characters from the wizard world prefer to refer to him as "He-who-must-not-be-named". In Brussels, worried politicians seem to have chosen a similar approach to deal with a possible Brexit. On June 23, the people of the UK will ultimately vote on whether or not the country will remain in the European Union (EU). However, representatives from European institutions rarely dare to publicly discuss a Brexit and its consequences; little is known as to how a future European Union without the British might look.

For the mechanical engineering industry as well as for the whole European economy, the uncertain outcome of the referendum in the UK has become a burden. Not only because of the importance of the British market - for German mechanical engineering companies, for example, the country is the fourth biggest export market behind the USA, China and France with an export volume of EUR 7.2 billion. The vote will also be decisive for the future of the EU itself. The UK leaving the EU would likely plunge Europe in an existential crisis and endanger some pillars of the industrial base in the EU.

Few answers, many concerns

Since spring 2015, the United Kingdom and the European Union have had time to prepare for the Brexit referendum. However, many fundamental questions still remain. Will the UK remain part of the EU Single Market? What happens to the trade agreements the country has signed as a part of the European Union? Nobody can tell for sure, since the exit of an EU member state is a case without precedent. On top of that, there are economic uncertainties. Will investors turn their backs on the UK? Will the country suffer a recession? Economists believe so, while Brexit supporters doubt such predictions.

While the British people are generally divided in their preferences for or against the Brexit, British industry representatives warn mostly against turning their back on the continent - they fear an immediate economic crisis in the country followed by lasting negative consequences in the long term. "The economy would slowly recover over time but never quite tracks back to where it would have been," said Carolyn Fairbairn, head of the Confederation of British Industry (CBI) in a speech at London Business School in March. "Leaving the EU would mean a smaller economy in 2030."

The costs of leaving the club

VDMA has always expressed grave concerns regarding the perspective of the UK leaving the EU. At first, access to the British market would likely become more complicated for foreign companies. This would be especially the case if the UK were to restrict the flow of goods and workers with the continent. "If the UK leaves the club, the rules for doing business with British companies will change. This will alienate investors," predicts Holger Kunze, Head of VDMA's European Office. "However, the immediate effects of a Brexit might be more severe in Britain than within the rest of the EU."

In the long run, a Brexit would hit the EU's credibility and effectiveness, VDMA believes. "The referendum in the UK comes in a time where the European Union is already in a difficult situation," says Kunze. "People have lost some of their enthusiasm about Europe, for example, because of the ongoing controversies with the euro or the current refugee crises. The result is the growing success of parties skeptical of the EU in many member states. It does not seem impossible that a Brexit would lead to a chain reaction and finally to a severe destabilisation of the EU."

Although the United Kingdom would be the first country to leave the European Union, it might not be the last one. One implication that could be expected of a Brexit would be that other States will be pushed by national populists to hold their own follow-up-referendum - or that they will threat the EU to do so in order to give weight to their political demands. In a recent survey by the British polling institute Ipsos Mori, a majority of French and Italians would support an own referendum in their country. On average, 33 percent of the EU population was in favor of their respective country leaving the EU.

Dawn of hope for the Europhiles

However, the whole discussion on Britain leaving the European Union might ultimately lead to some benefits as well. As VDMA has stressed before, one can indeed argue that the EU has some distinct flaws that lead to a lack of transparency and bureaucracy for companies. Instead, it has proved to become increasingly difficult for the 28 member states to find common ground on political decisions. "There is no doubt that the British are right with some of their criticism towards the EU," says Kunze. VDMA, for instance, has called on the EU to evaluate whether existing legislation is still up to date and necessary.

Today, most polls suggest that on June 23, the British will ultimately vote to stay in the European Union - although by a quite thin margin. From an industrial point of view, this might be an acceptable outcome for the referendum. On the one hand, the EU economy would not have to face political turmoil and a fraction within its home market. On the other hand, the unrest on the other side of the Channel would send a clear signal that the EU needs to change if it is means to survive - and denying this danger won't be enough in the future.

© VDMA
Contact
Holger Kunze, Director VDMA European Office.

Eike Radszuhn
, VDMA European Office.