Eight Reasons the EU Will Suffer Far More Than UK in Brexit

-edited

The EU would be wise to make a deal with the UK. It will get clobbered in the event of no deal.

Conventional wisdom says the UK will get hit harder than the EU in the event of a no deal Brexit. Conventional wisdom is wrong.

Here are eight reasons the EU will suffer more in both the short and long term.

Reason 1: Corporate Taxes

The UK can and likely will slash corporate tax rates. A lower corporate tax rate will mitigate much of the profit damage suffered by UK corporations in the event of no deal.

Note that one of the EU's biggest complaints against Ireland now is the "unfair" corporate tax structure of Ireland.

Reason 2: Currency Fluctuations

A falling currency is good for exporters and bad for importers. The British Pound has been falling in anticipation of Brexit.

Reason 3: Balance of Trade

In the event of no deal, WTO tariffs kick unless the EU offers to work out a trade deal. Under WTO rules, the EU could do that and rules allow a lengthy 10 years to get it done. The EU should agree to do that, but with animosity rising, it probably won't.

In a rising tariff setup, exporters will suffer far more than importers. Germany has an enormous trade surplus with the UK.

Image from Order of Rank of Germany's Trading Partners.

Angela Merkel is very concerned about German exports as well she should be.

Throw in the increasing chance of Trump putting tariffs on German cars and the EU will get crucified. A very severe German recession is in the cards and the EU faces a double whammy of Brexit plus Trump.

Note that a falling currency will mitigate some of the Tariff damage on UK exporters while compounding the problems for the EU.

Reason 4: Fishing Rights

In Brexit, the UK halts all EU fishing rights. EU fishermen will get clobbered.

Reason 5: Trade Deals

The UK will be able to make its own trade deals and set tariffs how it pleases.

Reason 6: Rules and Regulations

The UK will finally be free of inane EU rules and regulations on basically everything but especially agriculture.

Reason 7: Brexit Fees and Pay to Play Fee

Some dispute this, but the UK can halt the Brexit breakup fee. Boris Johnson has threatened to do that. Regardless, the UK will stop paying into the EU coffers even it does pay the breakup bill. The EU has budgeted for UK payments. When the UK stops paying, the EU will have to raise taxes to cover the difference.

Reason 8: Long Term Consequences

Both the EU and UK will suffer in the event of no deal but the long-term consequences strongly favor of the UK.

Mike "Mish" Shedlock

Comments (60)
No. 1-18
Stuki
Stuki

Lowering "Corporate Taxes" only matter, if other taxes aren't simultaneously increased. Otherwise, it's just simple redistribution from one group of lobbyers to another.

A falling currency makes British people poorer. Their salaries lower. Their savings less worth.... It takes some real dedication to parroting regime sustaining nonsense, to claim that British people getting poorer, is somehow "good" for Britain.

In a rising tariff/increasing barriers to trade, environment, the larger entity generally suffers less than the smaller. Simply because larger size render domestic substitutes more likely and viable. Monaco imports darned near everything it consumes (which is a lot). Increasing trade barriers sufficiently, and they starve to death, unless dehydration beats starvation to it. Germany have both water and the ability to produce food. The only reason Trump can even remotely get away with posturing the way he is, is that America is large enough to suffer less from a trade shutdown than smaller countries individually. The EU is in a similar position. As is China. The UK..... it ain't Monaco, but at the same time, it's a lot smaller, and more dependent on imports, than the EU.

The potential benefit to be derived from Brexit, is simply one of (possibly) less regulation and other externally imposed inefficiencies. Like fishing rights (UK is an Island with lots of water per capita or area), lack of transfer payments, lack of plain weird regulations imposed for political posturing reasons by politicians removed even further from their "constituency" than those in London already are etc....

avidremainer
avidremainer

Mish you are normally rational but repeating Brexit unicorns doesn't make it so. I repeat a question that you have consistently ducked. What is the point of a WTO exit that only covers 20% of the UKs economy and ignores services?

PatchesRips
PatchesRips

Cut taxes to 0 if you want. If nobody can import from the place without tacking on vast tariffs as per WTO rules, what corporation in its right might will stay in the UK, let alone move there? We're already seeing the reverse trend, and the UK hasn't even left yet. And this is one of those rare analyses I've seen that champions a crumbling currency... yes, that's exactly how the US (and Britain, for that matter) got rich in the first place: by having a worthless currency nobody wanted to be holding when the music stopped and flushed out of their reserves because they had so little faith in its future. Terrific if all you export is bananas and straw hats and your people grow their own beans and never heard of a cell phone. And I'm truly impressed by the ability of supposedly grown man to read just one line in a list and ignore dozens of others that add up to vastly more. Now how about the corollary list showing Britain's partners with EVERYBODY highlighted in yellow, since Britain won't be losing tariff-free access to just ONE of its partners, but essentially ALL of them? And if Trump shuts out German cars, ALL of the EU will shut out American cars; it's as simple as that. The Yankees won't sell a car from Lisbon to Latvia if they pull that. That's WHY most European nations find it indispensable to be in the EU. Britain never got that, but it's about to. As for refusing to pay "the divorce bill", which is money Britain COMMITTED TO PAY AS A MEMBER OF THE EU, that will be seen by the bulk of mankind as a default on a promissory debt. Good luck ever getting a loan below 20% interest anytime in the next 50 years if you do that. EU fishermen will get clobbered? By what? Losing about 5% of their fishing grounds? They still have 60-some countries to sell their fish to, tariff-free. Just where are British fishermen going to sell their fish when WTO rules insist countries slap tariffs on them? It's the British fishermen who'll be watching their nets dry up and blow away in the wind. Brexit's going to be a disaster for everything except the writing of new tunes to whistle while passing grave yards... just like the one you've presented us with here today.

ZZR600
ZZR600

not much being said about UK pensioners living in Europe, who have seen a real cut in their income due to Euro/£ exchange rate