Britain should cancel Brexit or at least delay it until the end of 2020 because of the “far reaching impact” it would have, according to Germany’s most senior economic advisers.
The economists who form the country’s Council of Economic Experts – also known as the “funf wirtschaftsweisen”, or the “five wise men” – have the ear of Chancellor Angela Merkel and warned in an annual report to Merkel that there must be a Brexit deal that minimizes the damage for both sides.
With talks still bogged down on the key issues of the divorce bill, expat citizens’ rights and the Irish border, the planned Brexit date of March 2019 should be extended by almost two years, the council said.
“The Council of Experts believes a one-off extension (of Brexit negotiations) that largely preserves the status quo would be sensible,” the “wise men” said. “Due to the wide-ranging impact of a UK exit from the EU, the council continues to urge that it be prevented. The economic cost of Brexit will hit the UK significantly harder than the rest of the EU.”
The five “wise men”, who actually include one woman, said Britain should retain its EU membership conditions until the end of 2020, when the EU budget completes its current cycle. “The council believes a one-off extension of Brexit negotiations that largely preserves the status quo would be sensible,” the group said.
Still Slow Progress
The bloc’s 27 members, excluding the UK, are due to meet next week to discuss what they want to see from a proposed transition arrangement, raised by Prime Minister Theresa May during a speech in Florence in September.
The EU’s chief Brexit negotiator Michel Barnier and his British counterpart David Davis have constantly disagreed about how much progress has been made.
They hope to be in a united position by the time of a full summit of EU leaders in December, but even if that summit gives the green light to full-on trade talks there will be limited time to handle the extremely complex trade issues involved. The slow progress on the “preliminary” issues has convinced many in Europe that it will be impossible to deliver a trade agreement early enough to avoid massive disruption.
“There is still a risk of an uncontrolled exit and sudden adjustment reactions by economic agents,” the German government advisers said. “Conversely, the possibility of the UK staying in the EU can’t be completely excluded.”
The best outcome would be simply to call off Brexit to avoid the political and economic disruption it would create, the council said. “If preventing Brexit is not possible, the objective of the negotiations should be to conclude a follow-up agreement that minimises damage from both sides. It is likely more time will be needed to negotiate this kind of agreement.”
Fears Shared in US
The German wise men are not the only senior international financial experts harboring deep worries about Brexit.
The OECD has urged Britain to cancel Brexit and some of Wall Street’s biggest players this week warned Donald Trump’s administration that Brexit is reaching a tipping point.
They have said the grinding lack of progress on negotiations and Theresa May’s tenuous grip on power in Downing Street means they could soon be forced to ship thousands of jobs out of London.
A chronic lack of clarity on what deal the UK could achieve – as well as scant detail on the proposed transition agreement – would hasten plans for a worst-case scenario, the US banks warned.
Leading figures from the likes of JPMorgan Chase, Goldman Sachs and HSBC met the US Commerce Secretary Wilbur Ross in London last week and warned him the “point of no return” was rapidly approaching when they would have to start moving staff and money out of London and into Europe or back home to the US.
“The fear of a crash-out is rising,” confirmed Catherine McGuinness, the policy chair of the City of London Corporation, who headed a delegation from London to the US last week. McGuinness said US Treasury officials and financial regulation executives she had met in Washington and New York were deeply worried about Brexit.
“Those who were closely involved in the financial services are becoming nervous. It wasn’t just curiosity, it was concern at the lack of progress that we have been making and nervousness that it had implications beyond Europe’s borders in terms of causing disruption to markets,” she said.
“We need action, not warm words. We really need progress.”
by Bob Graham