15 July 2016

UK should hug EU business close as it prepares for Brexit talks

As the British government prepares for years of tricky negotiations with the EU, it should not forget about the need to cultivate support from within the EU to achieve the best outcome for all involved. Business in particular, driven by the need to secure a pragmatic economic relationship beyond any impulse to “punish” the Brits for their decision to leave, can provide such an opportunity.

During the referendum campaign, the German auto industry, in particular, became a symbol of why it would EU’s interest to strike a good post-Brexit deal: the UK runs a trade deficit with the EU in cars of £13.9bn, of which Germany accounts for £10.85bn. BMW et al wouldn’t want to imperil one of their biggest export markets as the argument went. “It would hurt them more than it would hurt us.” There is some truth to this, but it shouldn’t be overdone

It would be a mistake to rely too heavily on the German car industry and Chancellor Angela Merkel to deliver a sound deal, while neglecting others. UK Governments have made this mistake before, notably over David Cameron’s attempt to thwart the appointment of Commission President Jean-Claude Juncker. The UK has plenty of  potential allies who might be willing to make the case – especially in the countries that share the UK’s liberal, open and free-trading impulses: the Nordics, the Baltics, the Netherlands and Ireland. What’s more, any agreement will need to be approved by all member states and the European Parliament – a broad consensus is needed.

There are already some encouraging signs, although it remains very early days, and it is something the UK government needs to foster. Maria Rankka and Risto Penttilä, the CEOs of the Stockholm and the Finnish Chamber of Commerce respectively, argue in a letter to the Financial Times today, that the reaction in the Nordics can be:

described more in terms of sadness and concern than anger and revenge. Public officials as well as the business community have clearly stated the importance of a collaborative approach, both short term and long term. The consequences of Brexit will be devastating for countries like ours if they are not properly managed. The UK has been one of our best allies in the EU. We stand together on a wide array of issues for a more free trade-oriented and competitive Europe.”

They continue:

“No matter whether the UK remains a member of the EU or not, we must find ways to strengthen the economic and political relationship between the EU and the UK…Representing the business community in entrepreneurial Sweden and Finland our message is that we want to deepen our exchange with Britain. In order to do that, we need a mutually beneficial and comprehensive trade and investment partnership between the EU and UK. It is absolutely key to find a way that allows trade both in goods and services as well as joint research and development projects, student exchange and free movement of labour.”

Meanwhile, a poll out today also shows that a large majority of entrepreneurs from the Belgian region of Flanders, which accounts for 80% of Belgian exports, fears Brexit more than terrorism. 86% of 600 companies surveyed say that Brexit will lead to uncertainty and slow down investment. Only a third say they don’t expect to suffer from Brexit.

The politics will not be defined by pragmatism

Politicians may be less practical, however. An IFOP survey of six EU countries out today shows, how support for the EU project has skyrocketed in the wake of the Brexit vote. It’s up 18 points from January 2014 to 81% in Germany, and up 19 points to 67% in France. It is not hard to imagine that some continental politicians will use this to push their own agenda for renewed EU integration and a more punitive approach to the EU negotiations (something which we have already seen from the EU institutions and France). The same poll also shows 55% of Germans, 53% of French and 51% of Spaniards want the EU to make “no concessions” to the UK in the negotiations.

The Greek saga has taught to never underestimate the political will to keep the European project together. (Remember last summer, when we all thought we were hours away from Grexit?) Calculating economic self-interest does not always trump politics in the EU. Given the numerous existential threats facing the bloc right now: from Brexit, to the migrant crisis and cross-border terrorism, I should imagine that politicians will fight tooth and nail to keep the bloc afloat.

The British government should take steps to try and minimize the temptation to make the UK a stage on which to play out these existential fears. The UK will need allies. Those newly installed at the top of government should take heed from these early indicators. A broad coalition of businesses and interests outside politics will be vital to helping promote a more pragmatic approach to the negotiations.