February 2021
Summary
Réalités industrielles
The United Kingdom’ new business model
Complete issue
This issue was coordinated
by Pierre-Charles PRADIER
This issue was coordinated
Introduction : Pierre-Charles PRADIER,
A macroscopic view
EU Membership: A Cost-Benefit Analysis for the UK
By Nicholas CRAFTS
Emeritus Professor of Economic History, University of Warwick
This paper reviews the evidence on the economic implications of the UK’s accession to the European Economic Community and subsequent EU membership. The benefits were much greater than the costs, probably by a ratio of about 6 to 1. The UK benefited from lower trade costs and higher volumes of trade with other member countries and this raised productivity. Different estimation methods point to permanent gains in the level of real GDP of 8.6 per cent after 10 or 15 years. The costs to the UK were a net contribution to the EU budget which averaged about 0.5 per cent of GDP per year and the adoption of regulations for which compliance costs exceeded benefits, estimated at about 0.9 per cent of GDP per year. Voters in favour of Brexit who were protesting about government policies gave little or no weight to its productivity implications.
Brexit: What macroeconomic impact has the literature foreseen?
By Catherine MATHIEU
Économiste, OFCE
The referendum of June 2016, which resulted in the exit of the United Kingdom from the European Union, has opened a period of economic and political uncertainty. Several studies have been published about the economic impact of Brexit. The studies that have focused on the short- and long-term effects under different scenarios, ranging from a ‟soft” to a ‟hard” Brexit, are reviewed. Their findings differ significantly depending on their methods and hypotheses about the future relations between the United Kingdom and the EU-27. The studies that use calculable gravity and general equilibrium models have mostly predicted very weak negative effects on the British GDP. Some have foreseen a stronger impact by adding the negative effects on labor productivity given that the country will be less open to foreign markets (even though Brexiters want to open the United Kingdom to non-European economies). Other studies think that a shock of ‟liberalization” could stimulate production (even though the United Kingdom is already a very ‟liberal” economy).
The UK-EU relationship in retrospect – And prospect
By Julie SMITH
Cambridge University
The Brexit separation between the UK and continental Europe can, in a way, be seen as a continuation of the history of post-war relations across the Channel. While the six founding Member States of the European Communities were in favour of pooling their sovereignty to ensure mutual benefit, the UK chose a different path, reflecting a long-standing preference for free trade rather than political cooperation. Reluctance to anything beyond the free market has been an essential feature of British participation in the European Union.
Brexit and the Changing Discourse of the Conservatives
By Nicholas SOWELS
Université Sorbonne Nouvelle ‒ Paris 3
The road to Brexit has been strewn with falsehoods, hype and fantasies. Boris Johnson, as an opportunistic campaigner for leaving the European Union and now Prime Minister, has excelled in this genre of political communication, and played a key role in securing electoral support for Brexit. He has not been alone, as this review of the Conservative discourse shows. However, a longer term examination of the European Union as viewed by British Conservatives, including by Margaret Thatcher who promoted the Single Market strongly, suggests that Britain’s historically different approach to the EU – favouring trade but not economic and political integration – perhaps made something like today’s Brexit inevitable.
The limits of a global agreement
Negotiations about Brexit between the European Union and United Kingdom: A festival of strategic errors
By Franklin DEHOUSSE
Professeur à l’Université de Liège
Highly contradictory analyzes have been made of Brexit. Understanding this phenomenon is complicated owing to the games played by politicians on both sides of the English Channel, who have often covered up long-term strategic issues. Brexit raises complex questions for the European Union that should be seriously pondered, since they affect the projection of the single European market, which lacks the requisite institutional base, toward countries outside the EU. Underneath Brexit and underlying these projections is the essential question for the Union since 1952: how to create a highly integrated market without strong institutions? This question carries even more weight when making plans that require sustained public interventions about, for instance, immigration, defense or the fight against global warming. This essential question, which accounts for many of the complexities in the new agreement reached on 24 December 2020, should definitely be debated in order to avoid repeating without limits British misinterpretations.
The United Kingdom and standardization in the context of Brexit
By Olivier PEYRAT
Directeur général du Groupe AFNOR
et Alain COSTES
Conseiller spécial du directeur général du Groupe AFNOR
For 35 years now, European Standards (ENs) have been a major factor in the construction of the single European market. They have dissolved national particularisms through an elaborate procedure for building a consensus and by proposing rules that are clear and fair for all firms and valid in all EU lands. The three major players in this process have been Germany, France and the United Kingdom via the implication of their standard-making organizations (respectively DIN, AFNOR and BSI) and stakeholders. This means that 1 January 2021 is a crucial date for standard-making organizations in Europe. One of the three major players will change its status and probably its strategy given the autonomy it is claiming. However the voluntary process of standardization has permeated all sectors in our highly interdependent economies. The European market is as crucial for the United Kingdom as the latter is for many sectors in national economies on the continent. The EU wants to retain technical standards and specifications that are as homogeneous as possible at a time when the British government is insisting on its newly found autonomy. This article dares formulate a few suggestions about how standard-making organizations in France and elsewhere are preparing to manage these contradictions. What are the expectations for the coming months and years about this passage from an often turbulent marriage, which lasted more than four decades, to relations as good neighbors?
“Singapore on the Thames”: The mirage vanishes
By Michel PEREZ
Labex ReFi, Senior Fellow, NYU School of Law
The original myth promoted in 2017 by Brexiters was to turn England into a new, prosperous ‟Singapore on the Thames”. Four years later, the mirage has proven costly in terms of jobs and investments. To the pandemic has been added the negative impact of Brexit; and the uncertainty stemming from the agreement with EU authorities has eroded confidence. The relations between the United Kingdom and European Union are now subject to a system of equivalences, in replacement of the ‟European passport”. In-depth analyses must be made of this new, complicated system, which might come under pressure and yield very temporary results as one party or the other exercises its right of veto. Without, at least, a framework agreement, the outcome will be a regulatory imbroglio that will be hard to clear up.
A few sectors in commerce and industry
UK higher education after Brexit
By Ken MAYHEW
Oxford and Maastricht Universities
This article explores the likely impact of Brexit on UK higher education. Because negotiations between the UK and the EU remain inconclusive at the time of writing, much remains uncertain. There is likely to be a fall in the number of EU students studying in the UK. The loss will be concentrated in a limited number of universities and the financial consequences could well be mitigated by increasing numbers of foreign students from outside the EU. It is hoped that the UK will retain some access to EU research funds by obtaining associate status in the new framework programme. After the Brexit vote there was great concern that the UK would lose large numbers of academic staff from EU countries. Now that there is greater clarity about a new immigration policy, these fears have lessened somewhat. Threats on all these fronts remain but what is certain is that a sector which has thrived on its internationalism will feel diminished as it ceases to be a participant in European decision making about higher education and instead a client.
The meaning of ‘Take back control’ in the energy sector
By Dominique AUVERLOT
Conseil général de l’environnement et du développement durable (CGEDD)
The determination of British citizens, after the financial meltdown in 2008, to ‟take back control” and be freed from European regulations motivated the vote for Brexit. However it will be a real challenge to take back control in the energy sector. This means retaining the advantages acquired due to the EU and limiting the unwanted effects of Brexit while being free from European standards and the opinions rendered by the Court of European Justice and avoiding the erection of a new border between the two Irelands. Hopefully, the provisions in the Brexit agreement will make it possible to continue trading in electricity and gas, install new electricity lines across borders, and maintain commerce in the nuclear industry (in particular, the radioactive isotopes used for medical purposes). However Brexit is but one step. Only the future will tell whether the new relations between the United Kingdom and European Union will settle into a series of successive disputes (resembling current negotiations) or will, thanks to a positive ‟competitive” synergy understood by all parties, allow for, in the short run, relaunching the world climate program during COP26 and, in the long run, adopting reforms (in particular for the electricity market) that will be positive for the continent’s economy.
Brexit and negotiations about the future relations between the United Kingdom and European Union: The stakes and scenarios for the British and European automobile industries
By Maria IANCULESCU
Directrice des affaires internationales du Comité des constructeurs français d’automobiles (CCFA)
et Marc MORTUREUX
Directeur général de la Plateforme de la filière automobile et mobilités (PFA)
The vote for Brexit in June 2016 was a shock, in particular to the automobile industry, which might have less expected the result than other sectors. After all, the benefits for British industry of access to the markets of its 27 partners seemed obvious. Nevertheless, the areas with factories built by foreign (in particular Japanese) automakers voted in the majority against ‟remain”. Does this mean that the British automobile industry will profit from leaving the EU? Probably not. And what about the effects on the European automobile industry? Will they be any less dire? This study of a few different scenarios analyzes the possible consequences arising out of negotiations on the future free-trade agreement, in particular its provisions about preferential origins.
The post-Brexit future of farming and fishing in Great Britain: A homecoming?
By François-Gilles LE THEULE
Membre du Conseil général de l’alimentation, de l’agriculture et des espaces ruraux (CGAAER)
Owing to Brexit, Great Britain is accelerating the shift of its agricultural policy toward the environment and animal well-being. This might be a precursor in Europe. In contrast, fishing policy is based on quotas. Since British waters are among the best fishing grounds in Europe, Brexit is dealing out a new hand of cards and introducing a source of instability in the European fishing industry.
The financial industry
‟Equivalence” after Brexit, a capital issue for financial services
By Georges UGEUX
Columbia Law School
Among the many topics for negotiations between the European Union and United Kingdom, the question of regulatory ‟equivalences” in financial services is of major interest for relations between the two parties. British negotiators had to accept that this unilateral right to be exercised by the EU not be placed on the table during negotiations. It is a procedure to which any country that wants to trade with the EU is subject. This analysis of the issues related to ‟equivalence” brings to light the problems that will shape future relations in the financial sector. What rules would keep any eventual changes in regulations from affecting equivalence in a way that would interfere with financial stability? Making such rules calls for joint consultations, but the United Kingdom is dragging its feet.
The insurance industry faces Brexit
By Florence LUSTMAN
Présidente de la Fédération française de l’assurance
Since the United Kingdom has been a major insurance market in the European Union, its leaving will have deep consequences on this industry. Emergency measures have already been taken; and French insurance companies are ready for Brexit on 31 December 2020. European insurance companies will, however, demand fair competition with their British counterparts in the coming months and years. This is the key to their competitiveness and, too, to the place of France as the first insurance market in a post- Brexit Europe.
Financial services after Brexit
By Jean BEUNARDEAU
HSBC
The United Kingdom leaving the European Union will mark the end of freedom of commerce in financial services. Many of these services will have to be transferred from London to the EU. The initial impact has been moderate, compared with, on the London market, the volume of business not related to Europe. But will the trend thus set off change the relative positions of financial markets in London and the EU? Each of these poles has several advantages and strengths. The battle to attract business has just started…
A few consequences of Brexit on banking and finance
By Christian de BOISSIEU
Professeur émérite à l’Université de Paris I ‒ Panthéon-Sorbonne
After many a twist and turn, and a year of transition, Brexit happened on 1 January 2021. The divorce between the United Kingdom and European Union has already had, and will continue having, geopolitical, social and both micro-and macroeconomic effects. What are the implications for banking and finance? There are many interrelated aspects to this historical divorce, which has ended a marriage that was complicated since the very start. Brexit will affect economic growth and jobs on both sides of the Channel, not to mention direct investments, portfolios and the currency exchange rate between the pound and euro. This article focuses on four other effects of Brexit: the loss of the ‟European passport”, the increase in ‟delegation” in asset management, the rivalry between clearing houses, and the competition between financial markets in Europe.
Post-Brexit exchanges of data between regulatory authorities
By Nicolas VASSE
Directeur du département Ressources à l’Autorité européenne des marchés financiers (AEMF), à Paris
After describing financial regulations in Europe and data exchanges between regulatory authorities prior to the exit of the United Kingdom from the European Union, focus is shifted to the impact Brexit will have on these arrangements. Solidly based on EU regulations, systematic, automatic exchanges of data with the UK were halted on 31 December 2020. Occasional exchanges may now take place but under protocols. This has limited the means at the disposal of regulatory authorities. Financial markets in the EU and UK will remain connected in the coming years, but less so; and regulators will enjoy less visibility when examining financial markets. The level of intercorrelation of the markets prior to Brexit is discussed along with the elements leading to their separation after Brexit.