Economist on the consequences of Brexit: “Low esteem for the EU”

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What is happening to the UK economy around Brexit? Dorothea Schäfer from the German Institute for Economic Research dares to make a forecast.

Fishing – here a small protest on the Thames – is a controversial issue Photo: Facundo Arrizabalaga / dpa

taz: Ms. Schäfer, will Brexit still be able to conclude a trade agreement?

Dorothea Schäfer: I don’t expect it. The British government is still very much focused on the needs of Central England, i.e. England without the financial center London. The appreciation for the EU remains low.

What are the interests of Central England?

Boris Johnson promises a “new deal”. The British government appears to be pursuing the idea of ​​trying to create new industrial jobs with a lot of money. They want to return to old England, which grew up as a result of industrialization.

That was in the 19th century.

Great Britain actually left its industry very early and turned to financial services. But now there is growing awareness that the countries that still have industrial jobs are doing better. Like Germany.

Where should the new industrial jobs come from?

It is not entirely wrong that the British can develop innovative industries with a lot of money. After all, they have very good universities.

Many Germans would think: If the British state prints money constantly, there will soon be a threatening inflation.

This is not to be expected. Uncontrollable hyperinflation actually only arises after wars – when there is a lot of money on the move, but the goods are missing. This is not the case now. There are enough goods in the UK.

In the UK, many of these goods come from abroad. The country has a chronic trade deficit. Will Brexit make it more difficult to finance this deficit?

The UK deficits are not a problem as long as foreign investors lend. But the bigger the deficit gets, the more the risk of speculative attacks and the sudden withdrawal of money from the UK increases. With Brexit, this risk increases because the financial center of London is weakened. So far, financial services have always produced a surplus, which has then financed the deficits in foreign trade.

How much will the London financial center shrink?

I expect about 30 percent.

Immediately? So from January 1st, 2021?

No. This process should take about three years. At the beginning there will be transitional rules, because it would be far too dangerous if the financial center London were suddenly disconnected. The British central bank has already announced that it will not change the regulation for the time being. First of all, the rules of the European single market will still apply in London.

is Research Director Financial Markets at the German Institute for Economic Research.

But it is the British government’s declared aim to set “its own standards”.

This is precisely why London can no longer handle financial transactions for Europeans in the medium term. The lucrative business with derivatives will also move to the continent, the so-called “euro clearing”.

Although London will lose part of its financial operations, British banks remain silent. How can this be explained?

This only shows that the banks do not expect to announce loud resistance to Brexit. Your image is too bad. Obviously, the vast majority of Britons do not feel that they have benefited from London as a financial center in any way. So they’re ready to sacrifice some of these financial deals for Brexit.

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