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Money talks as we begin to make plans for future

Whether or not the EU's tough stance over the UK is all a game of smoke and mirrors, exporters have some crucial negotiations ahead, as Theresa May now appears to be benefiting in the light of Boris Johnson's withdrawal, says broadcaster and author Richard Curran

By Richard Curran

Published 05/07/2016

Michael Gove (left) and Boris Johnson during the recent Leave campaign
Michael Gove (left) and Boris Johnson during the recent Leave campaign
Angela Merkel

The EU may well be involved in a massive game of bluff with the UK as it continues to take a tough stance on negotiating the UK's future relationship with the union.

The tough stance began right away, when Angela Merkel said there would be no talks until the UK triggered the treaty clause announcing its intention to leave the EU.

Then last Friday, EU Trade Commissioner Cecilia Malmstrom dropped a new bombshell when she said detailed talks on a new trading relationship between the UK and the European Union should not start until after the process of leaving politically under Article 50 of the Lisbon Treaty.

In other words, the UK would spend two years negotiating its exit - and once out, it would begin the process of negotiating its future trade relationship with the union.

As a bluff, it is about piling pressure on the UK to consider a second referendum or begin the long exit process as quickly as possible to allay continuing economic uncertainty.

If it isn't a bluff, then the UK (and Ireland) might not know the future trading position and status of the border for several years - possibly not this side of 2020.

It is hard to see how the EU could retain this stance because the uncertainty will undermine the performance of many key businesses in countries such as Germany and France.

Take Germany, for example. Last year, Germany's trade surplus with the UK came in at €51bn (£43bn). This means it sold that much more goods and services to Britain than it imported from the UK.

With around €90bn (£76bn) worth of exports to the UK last year, Britain is Germany's third-largest export market, after the US and France. Germany sells more cars to Britain than any other country, with 810,000 exported last year. Also, half of the 2.6 million cars made in Britain last year were built by German-owned firms, such as BMW, which runs Mini and Rolls Royce.

Other big German exports include mechanical engineering products, with the UK as the fourth-most important foreign market for the sector.

All of these highly influential companies will be bending the ear of Ms Merkel to do a deal with the UK that is based on access to the single market.

The French are not that different. During the week, Renault said it may have to raise prices on cars it exports to Britain, as its rival Peugeot and others scrambled to adjust to the weakening of sterling.

Ironically, Renault is more vulnerable because, as an exporter to the UK, it doesn't have any production facilities in Britain, which gives it little protection against currency swings.

But Renault might not be the only ones putting up its prices in the UK. Retailers in London, from local shops to luxury stores, will weigh up the effect the fall in sterling will have on their business.

They may have to accept smaller profits, because buying in their goods will cost them more, or pass on the increase to consumers.

That is why Bank of England governor Mark Carney is talking about a recession in the UK and the need to take measures on interest rates and/or quantitative easing to combat it.

But the knife delivered by Michael Gove between the shoulder blades of Boris Johnson last Thursday may have done us all a favour. Gove is unelectable as Prime Minister - and it has left Home Secretary Theresa May as the front runner.

She was in the Remain camp and would be more amenable to push for a deal that concedes freedom of movement in return for ongoing access to the single market. That is why both sterling and the stock market went up on the news that Johnson was out of the race to lead the Conservative Party.

A single market deal would be good for Ireland, because it would preserve the status quo along the border and with our UK export markets.

But - as ever - there are some big prospective problems with the 'Theresa May to the rescue' scenario.

It would be welcomed by major exporting business interests in Germany and France but it might be too good a deal for the UK and one that would encourage others to also consider leaving the EU.

That is where Ms Malmstrom's comments come in. If the EU is eventually going to do that kind of deal with the UK down the road, best to make it look like you have beaten them up a bit first. It would also make it look like the British government had won some concessions when the time comes.

Money will talk at the end of this process.

It always does.

Belfast Telegraph

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