© Fotolia / Stuart Monk

26.07.2016

BREXIT: UNDECIDED AFTER THE DECISION

Now that the decision has been made in the British EU referendum, people in Europe seem to know just as little as before. On June 23, Great Britain indeed voted to leave the European Union (EU). So far, however, no one can tell when (or even if ever) the country will formally apply for its exit out of the EU, let alone how relations with the continent will look like afterwards.

By Eike Radszuhn

David Cameron (left) meets Jean-Claude Juncker <br>© European Union, 2016 / Etienne AnsotteFor the European industry, the nightmare scenario has thereby become true. Companies need to plan for the long term and depend therefore on reliable framework conditions for their business. In situations where everything is in limbo, investors tend to wait and see. Since value chains do not stop at borders, this problem is not only a British one. For the German mechanical engineering industry, for example, the UK was the fourth biggest export market in 2015 after the USA, China and France.

Days after the British vote to exit the EU, VDMA issued a statement with two key demands for policy makers for the negotiations between the EU and the United Kingdom that will follow in the coming weeks and months. First off: hurry up! The period of uncertainty should be kept as short as possible. And second: don't make things worse! The so-called Brexit must under no circumstances lead to the end of the European Union itself.

No place for freeloaders

There is no doubt that the exit negotiations will be a complex task for both sides. This is yet another reason to not waste time unnecessarily. "The UK and the EU have to start exit negotiations as quickly as possible," said VDMA President Dr. Reinhold Festge. "A long period of uncertainty could poison the investment atmosphere in Europe." Festge underlined that domestic struggles in UK politics must not hold the entire EU hostage: "The British need to clarify what they expect their future relationship with the EU to look like."

Since then, David Cameron has stepped down as British Prime Minister and has been replaced by Theresa May. But still, fundamental questions remain unanswered. Several British politicians have, for example, expressed their desire to stay in the European Single Market. The EU in return has made it clear that there will be no benefits without accepting the obligations - a view that is shared by VDMA. "A position as a kind of freeloader, with all the advantages of the single market but no need to meet the obligations of EU membership, can certainly not be the solution," stated VDMA President Festge.

No one-way street

The formal way for a country to leave the European Union is to invoke article 50 of the Treaty of the European Union. Afterwards, the country leaving and the EU have two years to negotiate the terms for the separation. The EU and several member states, among them Germany, have made it clear that there will be no negotiations before the UK has formally declared its desire to leave the Union. On the other hand, there is no legal way for the other 27 countries to simply throw the Brits out. Therefore, the ball is in the UK's court.

There are examples of non-member countries affiliated with the EU: The Norwegian model, which one can describe as a half membership for some areas of legislation, or the Swiss model, basically a bouquet of single agreements with the EU. However, both sides expect negotiations about the terms for the future relations to be complicated and full of obstacles.

Europe comes first

With so many variables in the equation, it remains difficult to say what exactly will happen to companies who do business in the UK or even have a production site there. In VDMA's view, the most important thing in the long run will be to contain the problem and prevent a major fire in Europe. Right wing parties in France and the Netherlands have already called for EU referendums in their respective countries. A rupture of the EU itself, however, would be a real disaster for Europe as an industrial location.

That is especially true for the mechanical engineering industry, where companies have high export rates and rely heavily on the benefits of an EU single market. "The decision of British citizens to leave the EU is very unfortunate and will not be without political and economic effects. That makes it all the more important now to support European ideals," said VDMA President Festge. "The EU and its member countries are called upon to do everything they can to make sure that Brexit remains a one-off. We have to fight for a strong Europe."

Further Information

VDMAimpulse 03-2016: "The Brexit Mystery" | First impressions of German mechanical engineering companies regarding Brexit | Chart Pack United Kingdom

© VDMA
Contact
Holger Kunze, Director VDMA European Office.
Eike Radszuhn
, VDMA European Office.