Bad Brexit deal will hurt some EU states more than others

Several European nations will be badly damaged if European Union (EU) negotiators do not strike a reasonable trade and investment deal with the UK.

A Centre for European Policy Studies paper for the European Parliament contends that the economic impact of Brexit would hurt Britain about 10 times more than the EU. But this is based on the average economic cost of the 27 member nations of the Union. Much more significant is the potential negative economic impact on individual nations.

Germany, by far, is the biggest exporter to the UK, but the proportion to overall gross domestic product (GDP) is small, said the study.

In contrast, several small member states and in particular, those with close historic ties with the UK, would be severely damaged if there is a disadvantageous deal with Britain.

The study said Ireland would suffer the same magnitude of losses as does the UK because of its trade dependency on the UK.

Malta and Cyprus are also among the most exposed member states. A similar picture emerges for Belgium and the Netherlands, although there may be some bias in the statistics as they include some trade that goes through Dutch and Belgian sea ports, and this could be business from other nations.

Robert Stehrer and Richard Grieveson of the Vienna Institute for International Economic Studies contend that, whatever the outcome of the trade negotiations, "the economic impact will be negative".

"However, it is unlikely to be significantly so, and the burden will fall disproportionately on the UK side".

Another factor of uncertainty is the future exchange rate between the pound and the euro. The devaluation of the pound since the June 2016 referendum is hurting EU exporters.

"For services trade regulations and passporting rights for financial institutions, it is hard to predict where negotiations will go."

Mr Stehrer and Mr Grieveson believe, however, that "the biggest impact will be political", as "the negotiations could reveal important differences of interests between member states, which will be hard to reconcile".

A key issue is the future of the EU budget; other aspects include migration and labour mobility, differences regarding trade and single-market issues (depending on the importance of particular industries for certain countries), freedom of movement, and how a smaller EU budget should be spent.

Source: Bloomberg

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