Internship report: Kilian Heutte, European Commission

Internship report - Killian Heutte

Where did you do your internship and what was your role?

Last summer I did my internship in Brussels at the European Commission in the Directorate General for Competition, F4 Merger Unit, which is specialised in Post and Transport Services.

The European Commission is an EU institution with a power of investigation and intervention. The working languages are English, French and German. It is a big institution, counting more than 32,000 European civil servants. They are divided into departments called “Directorates-General” – DG – which are sub-divided into services – specialised in particular market sectors – which are also sub-divided into units – policy areas.

My work consisted in the treatment of companies’ merger cases. I had to draft legal documents, all following strict templates; some were internal to the European Commission, and some others were to be published to inform EU citizens and companies. I also helped to interpret outputs of market investigations that were specifically made for the cases I was working on.

 

How did your studies / courses at TSE help you during the internship?

The mathematical skills I gained at TSE enabled me to create a methodology to compute different market shares for many sub-segmentations of given markets.

 

How did you find your internship? What advice would you give to students to find a similar internship?

I heard from other TSE students that the European Commission was helping students by offering them the possibility to get an understanding of its work through some special programs. I was looking for hands-on experience in the competition sector to complement my theoretical knowledge. It was clear to me that I wanted to work for such an institution, so I applied. To students who would like to find a similar internship, I would suggest to send an e-mail as soon as possible to “comp-visitors-scheme@ec.europa.eu”. You should provide some details concerning your availability, your motivation, the service/unit you would be interested in working in, etc,  with a CV and a cover letter.

 

 

La Zone Euro est-elle une zone monétaire optimale?

Au sein du continent européen, l’existence de la Zone Euro offre la possibilité d’effectuer des transactions à l’aide d’une devise commune à 19 pays. Avec les récents problèmes des crises de la dette de certains États membres, le scepticisme autour de l’union monétaire s’est accru cette dernière décennie. Cela alimente le débat économique autour des régimes de taux de change.

Les deux options s’offrant à un État, le taux de change fixe ou le taux flottant, présentent chacune leurs avantages et leurs inconvénients. Dans le cas d’un régime de change fixe, les coûts des transactions commerciales ou des investissements sont réduits. Pour des pays qui échangent beaucoup entre eux cela peut être d’une importance considérable. Un second avantage est la facilité pour les agents économiques de faire des prévisions sur les cours de change. Au contraire, l’incertitude autour des fluctuations d’une devise flottante peut s’avérer problématique (réduction des investissements directs et des échanges).

En contrepartie, un État qui adopte un taux de change fixe se voit dans l’obligation d’accumuler des réserves de devises étrangères, en particulier si des forces poussent la monnaie nationale à se déprécier. L’autre problème important est la perte d’indépendance de la politique monétaire, laquelle devient conditionnée au maintien de la stabilité du taux de change.

Dès lors, il semble légitime de se demander si, dans le cas européen, les dix-neuf pays qui ont décidé de passer à l’étape ultime qu’est l’union monétaire tirent vraiment parti de cette intégration monétaire.

Une théorie influente

La théorie économique des zones monétaires optimales (optimum currency areas) a été développée par Robert Mundell, Robert McKinnon et Peter Kenen dans les années 1960. Elle apporte un éclairage intéressant sur les raisons justifiant l’adoption d’une monnaie commune. Essentiellement, cette théorie établit qu’une zone monétaire considérée comme optimale (ZMO) est telle que les coûts des chocs asymétriques sur l’économie y sont minimisés. Par choc asymétrique, on entend ici un facteur externe qui vient affecter différemment deux régions, soit l’une positivement et l’autre négativement. Six critères, trois de nature économique et trois d’ordre politique, permettent d’établir ce qui fait d’une union monétaire une ZMO.

Le premier critère fait référence à la mobilité des travailleurs. Il est développé par Robert Mundell, premier auteur à formuler la notion de ZMO. Au sein des États membres d’une telle union, la facilité de déplacer les facteurs de production permettrait de contrer plus efficacement les chocs asymétriques. Par exemple, la réallocation des facteurs d’un pays où sévit le chômage vers un autre où l’inflation est forte aurait un effet positif pour les deux membres.

Pour sa part, Robert McKinnon considère que des États très ouverts au commerce et effectuant beaucoup d’échanges entre eux forment une ZMO. Le raisonnement tient au fait que, lorsque deux pays échangent beaucoup, les prix des biens, qu’ils soient domestiques ou étrangers, finissent par devenir équivalents. En d’autres termes, les prix sont plus flexibles de sorte qu’un changement de taux de change n’a presque aucun effet sur la compétitivité. Dans ce cas, l’adoption d’une monnaie commune ne restreint pas vraiment l’indépendance de la politique monétaire.

Le critère établi par Kenen touche quant à lui à la diversification de la production. Son idée peut se résumer assez simplement : une économie qui repose essentiellement sur un unique secteur d’activité serait plus susceptible de souffrir d’un choc asymétrique. L’exemple des pays africains riches en ressources naturelles, au sein desquels l’essentiel de la production repose sur l’extraction de ces ressources, semble être une bonne illustration de ce propos. Une chute du prix du pétrole, affecterait par exemple négativement les membres de l’OPEP alors que les autres pays verraient leurs coûts de transport réduits, créant ainsi un choc asymétrique. Ce choc sera de faible importance dans des États pour lesquels la production s’étend sur un plus large éventail de domaines et dans lesquels l’économie est d’une structure similaire.

Les trois autres critères pour définir une ZMO sont de nature politique et sont proposés par Richard Baldwin et Charles Wiplosz. En premier lieu, les membres de l’union monétaire se doivent de compenser financièrement leurs partenaires lorsqu’ils sont dans le besoin. Autrement dit, les membres connaissant un boom économique inflationniste peuvent transférer des fonds aux pays en récession, fonds qui contribueront à redresser l’économie de ces derniers.

Par ailleurs, il n’existe pas vraiment de manière unique de réagir aux variations soudaines de l’économie. Certains pays vont préférer favoriser les exportateurs en optant pour un taux de change faible alors que d’autres viendront en aide aux consommateurs en haussant leur pouvoir d’achat. Il est donc nécessaire, au sein d’une union monétaire, de faire en sorte que les différents membres s’entendent sur la politique monétaire à adopter.

Enfin, le dernier critère concerne l’intégration politique entre les membres. Si il est normal que les conséquences des chocs économiques (même s’ils sont symétriques) créent des tensions politiques entre les membres, ces derniers doivent toutefois être en mesure d’accepter les coûts générés par les fluctuations économiques au nom d’une «destinée commune».

La Zone Euro, remplit bien deux de ces six critères (diversification et ouverture) mais semble particulièrement échouer sur le critère relatif à la mobilité des travailleurs. En effet, dans presque tous les pays de l’UE (la Belgique faisant ici cas d’exception), la proportion d’immigrants en provenance d’autres pays membres est faible par rapport au nombre total d’immigrants. C’est donc dire que peu d’Européens profitent de l’opportunité que leur offre le marché commun de se déplacer librement entre les frontières. L’union monétaire ne remplit pas non plus les conditions nécessaires à un système de transfert fiscal adéquat.

Par ailleurs, les critères politiques, moins faciles à évaluer, ne permettent pas de tirer de conclusion tranchée quant aux bénéfices de l’intégration monétaire. C’est justement ce manque de potentiel analytique qui explique pourquoi cette théorie a perdu en popularité dès la fin des années 1980. En particulier, les auteurs du rapport «One Money, One Market» (1990) estiment que les bénéfices de l’intégration monétaire sont fortement sous-estimés par les critères de la théorie des ZMO.

Vers une «nouvelle» théorie des ZMO

Bien que la «vieille» théorie de Mundell, McKinnon et Kenen soit difficile à évaluer, leurs critères restent encore étudiés aujourd’hui. Avec les progrès de l’économétrie et de l’accessibilité des données, certains critères ont pu être testés empiriquement. Une seconde vague d’intérêt pour l’étude de l’union monétaire européenne dans les années 1970 a redirigé le consensus vers les avantages visibles de l’intégration économique du continent.

Tel qu’espéré, l’adoption de la monnaie commune a effectivement conduit à une intensification des échanges commerciaux entre les États membres. Les études sur le sujet tendent à confirmer que les échanges bilatéraux ont crû de 5 à 10% de plus parmi les membres de la Zone Euro que parmi les pays qui n’en font pas partie dans la décennie suivant l’adoption de la devise. Par ailleurs, l’Euro a également stimulé le commerce avec des États en dehors de la zone.

En termes d’intégration économique, les évidences empiriques démontrent que la hausse des investissements directs étrangers (IDE) et celle du nombre de fusions et d’acquisitions d’entreprises dans la Zone sont attribuables à l’adoption de la monnaie commune. En outre, l’intégration monétaire aurait entraîné une hausse d’environ 50% des IDE dans le secteur manufacturier.

L’un des avantages indéniables de l’existence de l’euro demeure son statut de seconde devise de référence dans le monde. Grâce à l’intérêt de plusieurs pays pour la devise, l’euro a des cours relativement stables et subit donc peu de fluctuations importantes qui pourraient avoir des effets néfastes sur l’investissement. La Banque Centrale Européenne jouit par ailleurs d’une grande crédibilité à l’international et parvient à stabiliser l’inflation dans une région où les situations nationales sont pourtant hétérogènes.

Ainsi, bien que la Zone Euro ne satisfasse pas tous les critères de la théorie des ZMO, elle demeure une union monétaire qui fonctionne et qui a su bénéficier des avantages d’une plus grande intégration économique. Faire partie d’une union monétaire peut donc être bénéfique pour chacun des États Européens. Par ailleurs, ces bénéfices s’observent ailleurs. Prenons l’exemple de la Californie : ce sont probablement les avantages de l’intégration dans la zone monétaire du dollar américain qui expliquent que, malgré une croissance économique différente de celle du reste des États-Unis dans son histoire récente, l’État n’ait jamais vraiment pensé à adopter sa propre devise. Face à la montée des partis « séparatistes » en Europe, il semble ainsi important de rappeler que l’intégration monétaire présente certains avantages auxquels le retour aux monnaies nationales mettrait un terme …

par Sébastien Montpetit

Europe’s response to plastic issues

Over the past fifty years, global production of plastic has multiplied by twenty, and so has its waste. Since you began to read these words, between one and a half and four kilogrammes of plastic waste has ended up in the oceans, representing approximately between five and thirteen million tonnes of plastic leakage every year. At this speed, scientists say that by 2050 there could be more plastic than fish in the oceans. In addition to obvious environmental issues, this could also have an impact on human health. For example, microplastics, tiny pieces of plastic smaller than five millimetres, have been found in the air, drinking water, fish, salt, and honey. By 2030, environmental damages could be valued at twenty-two billion euros.

European citizens generate around twenty-six million tonnes of plastic waste every year. An average of thirty percent of this amount is recycled (this number varies a lot across European countries); the rest is either incinerated or landfilled. A substantial share is sent to third countries to be treated, where different standards apply. Most of this share is shipped to China, a situation that may soon end as China has now banned certain types of foreign plastic waste. Although incineration can be a tempting alternative to landfill, it produces a high amount of CO2 and destroys raw materials after a very short lifespan. On top of the dependence on fuel extraction for production, plastic’s environmental footprint is significant and growing; in fact, its production is expected to double over the next twenty years. What happens with traditional plastic also applies to plastic labelled as biodegradable. The latter actually degrades under very specific conditions that may not be easily met in natural environments and therefore still causes degradations. If other alternatives are available, the share they occupy in the market remains modest. For example, bio-based plastic, plastic made out of carbon dioxide or methane have a lower impact on the environment. Even though they have the same features as traditional plastic, they struggle to expand and to replace it.

Europe is now responding to this plastic crisis by taking several measures, particularly by banning the ten single-use plastics products most frequently found on European beaches and in lost fishing gears, which together account for seventy percent of marine litter. Single-use plastic products such as cigarette butts, balloon sticks, plastic bags, straws, cutlery, and so on, are often used away from home and are thus very difficult to recycle. The Members of the European Commission (MECs) have announced that by 2021, all these products will have to be replaced by non-plastic alternatives. Some of them will be banned immediately since alternatives are already available. MECs also introduced the so-called producer responsibility strategy: producers of cigarette filters, wrappers, and other plastic products will have the obligation to support the waste management cost of these items.

As sixty percent of plastic waste comes from packaging, the European Commission published a report on the “Strategy for plastic in a circular economy”. Recyclable or reusable plastic is currently meeting six percent of the total plastic demand; the objective for 2030 set in the report is a hundred percent of plastic packaging composed of this particular type of plastic. That way, a significant amount of waste could be avoided as the raw material could be reused. However, this policy implies a proper waste collection and investment in recycling capacities. Lately, product brands and manufacturers have been reluctant to use recycled plastic because they fear that it could not meet their needs of constant quality, high-volume, and reliable plastic. Therefore, this sector has suffered from uncertain outlets and low profitability. Moreover, the success of such a measure rests upon the goodwill of all the actors of the plastic chain, as mostly non-coercive actions have been announced.

The creation of a virtuous circle for plastic is one solution that Europe chose to implement. In order to limit plastic pollution, would it not be easier to eliminate the problem at the root by directly banning any plastic packaging, which is the main source of plastic waste? However, consumers and brands might not be ready yet for such a drastic step, as this implies making an effort or giving up on a considerable marketing tool.

by Noémie Martin

 

*Featured image: A plastic-throwing dragon was set up in front of the European Commission by the NGO Rethink Plastic.

English after Brexit

As the reality of Brexit approaches at a fast pace (at least, it seemed so by the time this article was written), the European Union faces many troubling issues to be solved. One of the less known – and arguably less important as well – is of linguistic nature: The EU´s most commonly used language will lose almost all of its native speakers. English will then be spoken as a first language only by most of the country´s 4.5 million Irishmen and around half a million Maltese. That is roughly one percent of the entire EU population.

With the EU having a colourful history of bitter disputes over its use of languages, this is a fact looking for trouble. Within days of the Brexit vote, politicians from continental Europe proposed to knock English out from the list of official languages. Theresa May, the current British Prime Minister even had to dismiss reports claiming that Brexit negotiations would be held entirely in French. Nonetheless, are these suggestions realistic motions or mere cravings for long lost power?

Today the European Union has 24 official languages, which can be used in parliament and for official correspondence. Three of them, English, French, and German, are used for work at the commission. In its day-to-day reality, however, they are not equal. German is barely spoken whereas English dominates being used in most meetings and for most reports.

That has not always been the case. Before the entrance of the UK to the European Economic Community, the EU´s predecessor, in 1973, only French and German had been the club´s official languages. Nonetheless, becoming an official language did not help much to stop the domination of French. Only in the 1990s, English started to become important with the admission of the Scandinavian countries. They have always been much closer culturally and linguistically to Great Britain than France, and therefore have a greater inclination to discuss in the corresponding language. The eastern enlargement of the EU in 2004 and 2007, as well as the growing global dominance of English, finally put it in the place it holds today in the union.

Is the exit of the UK likely to change this? Among the EU´s citizens, English is much more commonly used than the other contenders are. According to Eurobarometer, 51% of EU-citizens were able to converse in English in 2012. French, although frequently used by bureaucrats and diplomats, was spoken by only 26% of the EU total population, even below German’s 32%.

Anyway, the future seems to belong to English. Two thirds of EU-citizens deem English to be a useful language compared to only one sixth who hold this belief for German or French. Additionally, over 80% of primary school children are taught English whereas other languages are usually brought in much later, if at all. Part of the rise of English can be explained by the relatively few grammatical hurdles learners face in early stages. Setting up simple conversations is easier than in most other `natural` languages with plenty of conjugations and declinations. The more difficult parts come up only later, for example, the often seemingly arbitrary pronunciation. Nevertheless, if someone has already made it to that point she is unlikely to give up.

This, of course, does not have to imply that the Union’s parliament and administration follow these trends, especially because the Union has, from time to time, struggled to be seen as down-to-earth and close to its citizens. Still, the power balance in the EU has shifted in the last 30 years. The traditional Franco-German alliance has lost its clout due to the massive enlargement of the EU and the internal rifts. For example, during the Euro crisis when France `led` the southern alliance of Mediterranean countries, pushing for more spending and a devaluation of the Euro. On the opposite side, Germany represented the northern countries advocating for austerity measures.  It is unlikely that other countries just let these two have their cake and eat it. Ireland and Malta want to protect ´their´ English and other large countries could seize the opportunity to advertise their national languages as well.

In fact, even within Germany and France, not everyone promotes their own language with absolute vigour. Although a supporter of the French language, Emmanuel Macron likes to spice it up with English terms such as `bottom-up`. Among the first ones to refute suggestions of using less English was the German commissioner Günther Oettinger. Ironically, when he was initially sent to Europe in 2010, his poor command of English was largely ridiculed by the German media.

Furthermore, the biggest advantage of English is not even internal but external. It is the language of a globalised world. It is the mostly spoken language worldwide, over half of all websites on the internet are in English, all aviation communication is conducted in English and all major economics journals are published in English. Even here at TSE most courses are taught in English. Considering this power, it is doubtful whether the EU can afford to rely on a rather inward looking language like German when the rest of the world uses one global language.

Finally, the loss of most of its native speakers does not have to be a bad thing for the significance of the English language in the EU. Instead, it could benefit from posing as a `neutral` language. If an Austrian and a Latvian speak German, the former is more likely to feel comfortable while doing so. If they instead speak English, no one can build on a natural advantage.

It could pose as a modern-day Esperanto. This language was designed in Eastern Europe at the end of the 19th century to promote understanding between different groups of the population by using a neutral language. It borrows from Romanic, Germanic, as well as Slavic languages, and uses straightforward declinations and conjugations without many irregularities. Estimates of speakers range from half a million to two millions. It is tough business to create a new language from scratch and compete against existing and deep-rooted contenders, so these figures should not necessarily be seen as failure.

Why did Esperanto never really take off? Like many international projects, it flourished before the first-world war and had a revival in the interwar period. Many 20th century regimes, however, did not like its cosmopolite sprit and therefore tried to suppress it. After the wars, it lacked the political and intellectual support required to reach the critical mass a language demands. Later, with the rise of global English, the need for an artificial international language has strongly deteriorated. At the beginning of the 21st century, Europe seems close to reach the goal of having a neutral language for international communication set by the Esperanto´s creator L.L. Zamenhof. Only that it is not Esperanto but English.

Being a neutral language also offers other opportunities. No longer under the watchful eyes of British language puritans, English could flourish and create its own style: Euro-English. Whereas a cynic might decry the downfall of culture and civilisation, one could also embrace these new developments. In reality, the first steps towards this new language have already been made. The term `handy`, for example, is recognised by eurocrats more often as the slightly bizarre German word for `mobile phone` rather than the original English meaning of `easy to use`.

Overall, we do not have to worry about the position of the English language in the EU after Brexit. It is likely to dominate further even though it might develop its own distinct style, as it is no longer being under the protection of the United Kingdom.

by Robert Lindner

Brexit – The State Of The Art

On the 14th of March 2018, the debate “Brexit – What’s next?“ took a glance at the current state of affairs around the opaque Brexit topic. For the economics expertise, Professor Paul Seabright from the TSE and IAST, and Professor Louise Curran from the TBS were present. For the policy and legal perspective Pieter Cleppe, head of the British Think Tank Open Europe, and Professor Lukas Rass-Masson from the ESL, attended the high-level debate.

Due to a high level of uncertainty still surrounding the negotiations in Brussels, it became clear in advance of the debate that it is not an easy topic to discuss right now. For this reason it was truly interesting to talk about the current negotiations and shed some light on the current issues being discussed in Brussels and Westminster.  

A Short Wrap Up – Where do we stand in the negotiations?

“Painful, unpleasant, and costly. That’s where we are.” – Michel Barnier, European Chief Negotiator for the United Kingdom Exiting the European Union, September 2017

On the 23rd of June 2016, the British people decided to leave the European Union with a vote to leave by 51.9%. While the vote could have been clearer, it was unambiguous that there was a majority opinion in the British society for leaving the EU.

In light of the deadline of the 29th of March 2019 for an agreement on the withdrawal terms, a transition deal for the implementation phase until 2021, and guidelines for a future relationship agreement, which will be specified during the implementation phase, time is running out. The withdrawal deal has to be voted by a qualified majority in the European Council and by consent from the European Parliament. The final deal will also be subjected to a vote in the British parliament; due to a diminishing majority behind Theresa May’s Brexit course, it will be a Herculean task for her to get an adequate majority for the withdrawal deal.

On December 15th 2017, a first settlement between the divorcing partners was reached on the subjects of citizens’ rights, the financial obligations, and the Irish border. One can find the underlying law respectively in part two, “Citizens’ Rights”, part five, “Financial Provisions”, and in the “Protocol on Ireland and Northern Ireland” part of the draft agreement, which was released by the European Commission and by the British Government.

There are three crucial matters. The first one is about the rights of EU citizen in the UK: they will be reserved for incoming citizens during the transition period and the jurisdiction of the European Court of Justice will be respected for them. This can be found in part two of the joint withdrawal agreement of the UK and the EU. The UK government has agreed that EU citizens and their families arriving during the implementation period will be able to stay on the same terms as EU citizens living in the UK right now. Both of them have to apply for a so-called settled status, with an online application for which the procedure can only begin after five years of living in the UK. As a settled status cannot be denied for arbitrary reasons, it is arguably certain that EU citizens arriving before the deadline in 2021 will obtain the status. It is, however, important to note that for EU citizens arriving after the transition period has ended, the migration and status of EU nationals will be subject to the United Kingdom’s law and immigration regime.

The second critical concern is financial: Both sides have agreed on a withdrawal invoice of around 35 to 39 billion pounds for the UK to pay. In his spring statement, the British Chancellor of the Exchequer, Philip Hammond, announced that Britain will pay £37.1 billion to the EU over the next 45 years, a figure also present in part five of the joint withdrawal bill of the UK and the EU. Chancellor Philip Hammond laid out that the UK would pay almost half of its outstanding commitments to Brussels by the end of 2020; the sum of £16.4 billion will be paid until 2020, when the EUs’ seven-year budget runs out. In the coming EU budget, the UK will obviously not have any further financial commitments. Nevertheless, between 2021 and the end of 2028, the UK will pay a further £18.2 billion towards projects that have been signed off by the UK but have not yet been paid for. On top of this, the UK has to pay a further £2.5 billion over the next 45 years to cover ongoing expenses such as the pensions of British EU officials and British MEPs. These figures are estimated by the British Office of Budget Responsibility and agreed on by the UK government.

The third hurdle is the Irish border, which might be the most difficult point to agree on. While both sides are committed to having a frictionless Irish border after Brexit, and to the Belfast Agreement of 1998 – the so-called ‘Good Friday Agreement’ – common ground has not yet been found on the issue of a common regulatory area on the island of Ireland.  Both parties agree on the outcome of a frictionless Irish border for people and goods, but disagree on the means to achieve it, with the EU reserving the option to keep Ireland in the EU customs union as a last resort.

Phase 2 of the Brexit negotiations is currently on, with talks concerning the framework of a future trade deal and other future relationship issues. The UK negotiations team would love to keep all resources and emphasis on the future trade deal, but EU officials have reiterated that concrete talks about a future trade deal would only commence during the transition period. Several officials have made it clear that a final deal on the withdrawal agreement and the transition period should be ready by October, so that the European Parliament and the European Council have time to vote on it. Whether this ambitious time frame will be feasible is another question.

Economic Consequences

“There will be no downside to Brexit, only a considerable upside.” – David Davis, British Secretary of State for Exiting the European Union, October 2016

When discussing the economic consequences of Brexit, it becomes apparent that there is still a lot of uncertainty surrounding what Brexit really means for the economy. When just looking at the numbers, the forecasts are predicting that Brexit will cost the British economy between 2% and 8% of GDP growth in the long run. To understand these costs, which are engendered by trade reduction, business dissolution, and less foreign direct investment in Britain, three important factors were outlined by Professor Paul Seabright from the TSE.

Firstly, it is important to note that trade policy conflicts are less often conflicts between two countries but rather principally between different interest groups within the same country. Thus, Trump’s steel tariffs pit steel exporters against other manufacturers who use imported steel. The latter will lose many more jobs than gained by the former. In the case of Brexit, the issue is not principally between the UK and the EU, but rather a deep division within the UK itself. There will be collateral damage to Ireland and other countries as a result of an internal conflict inside the UK.

The second point is that it makes no sense to talk about national economies in today’s production models. Germany doesn’t make cars: German firms make cars. While they used to produce cars in partnership with German workers, they now do it mainly in partnership with Polish and Chinese workers. Supply chains are thoroughly international in a way that Trump and the Brexiteers do not understand. If Germany stopped importing parts, it would be unable to produce a single car.

The last point is that trade is still determined to a great extent by proximity. The components of an Apple computer may be assembled in China but the principal sources of valued added – intellectual property, legal services, and so on – are still traded within a short radius of Apple’s headquarters in California. It is a fantasy to think that for the UK, trade with Australia, New Zealand or other Commonwealth countries can easily replace trade with the EU.

From all of this, it becomes clear that Brexit will have consequences for all kinds of businesses and industries. For example, British Airlines, the airline company, will no longer be entitled to operate in the European Union unless there is a new agreement on take-off and landing permits.  There is also uncertainty surrounding the Open Skies agreement that the EU has with the United States: the UK would also formally leave this agreement, which would make it impossible for British and American airlines to operate in each other’s airspace. Furthermore, companies like Airbus or BMW, who have big plant sites in the United Kingdom, make products that have to cross the channel several times before the final product is made. European supply and value chains that include the UK might become unprofitable in the future.

But don’t panic: negotiations in all kinds of areas are currently ongoing. The goal for the UK must be to find solutions in many areas to all kinds of regulatory voids they will be facing, thereby ensuring a smooth operation of business in the UK and reducing the business clear out after Brexit. The UK will need to negotiate with the EU while simultaneously finding substitutes to all of the regulatory agreements currently covered by the EU regime. There is a lot of work for the British government right now, in this challenging two-sided negotiation.

It is important to point out that leaving the EU on the 29th of March 2019 without a future trade deal would be disastrous, since this would mean a fall back on the WTO terms in trade relations, which is in neither side’s interest. Since the British government reiterated that they want to leave the single market and the customs union, only a deal like the CETA free trade agreement, which the EU negotiated successfully with Canada, is feasible. It will depend on how much the EU is willing to give into a similar deal with the UK.

Recent Developments

An important part to play in the negotiations may be the leadership change in the two major state economies in the European Union: Germany and France.

On the one hand, French president Macron is unlikely to give any favourable deal to Britain since he wants to strengthen and reform the EU, and is a politician with clear federalist ideas. For him, it would be unfavourable to give Britain a too good of a deal, since this would make the case for leaving the union.

On the other hand, Germany’s political change – or non-change – might be more favourable for Britain. The new finance minister, Olaf Scholz, a new strong voice in the government as the vice-chancellor, could play a crucial part. There is a good chance that he will advocate for a more lenient Brexit, with strong economic ties to the UK kept open in the future. He apparently has a good relationship with Philip Hammond, his British counterpart, and he is the former mayor of Hamburg, a city that is sometimes dubbed as the most British city of Germany. Furthermore, the trade pendency of Hamburg is important, with a great bulk of container cargo coming from British ports into the harbour of Hamburg. It is unlikely that he wants to actively harm the region where he comes from by advocating for a punishable Brexit.

Finally, it is important to note that after the chemical attack in Salisbury, there was a clear united response, with the United Kingdom, Germany and France standing side by side. It is interesting that despite difficulties in trade talks, there remains European support for Britain, especially in crucial issues like defence.

 by Niels Kirst