The Brexit Column: Mellower mood music? | KPMG | UK

The Brexit Column: Mellower mood music?

The Brexit Column: Mellower mood music?

We may yet see an amicable divorce from the EU, but British business should be prepared for anything.

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Director, Public Policy

KPMG in the UK

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Is the tone from Europe softening? After a trip to Brussels this week, I came away with a sense that the UK-EU divorce may yet be more amicable than we had begun to fear. Publicly little has changed, but drop into one of the bars near the Berlaymont, and between sips of Chimay or Duvel the conversations about Britain sound a little more conciliatory.

That’s not to say that 2017 won’t continue to be a stormy year as we’ve predicted here previously. If anything, this newly forgiving mood rather proves the point. The EU is deeply preoccupied with existential questions about its own future, ranging from the fragility of the euro to even the survival of the union itself.

Witness the current soul-searching in the European Parliament on future reforms post-Brexit. Guy Verhofstadt, the parliament’s chief Brexit negotiator, said this week “the union is in crisis”. Even the migrant situation – such a game-changer in 2015 – has started to slip down the EU’s agenda. It’s not just Brexit giving EU leaders sleepless nights.

So, as the needle on the EU’s barometer edges towards ‘stormy’, might the forecast for the UK be looking a little more fair?

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Given the challenges it faces, there’s every incentive for the EU to negotiate a quicker and possibly softer deal. There are signs this pragmatism may now be outweighing emotion. Senior politicians in countries including Germany, Spain, Italy, Poland and Romania have made notably gentler comments in recent weeks, avoiding talk of “punishment” and warnings that Britain cannot cherry pick.

A change of mood may have something to do with several analytical exercises different governments are now running as to what Brexit might mean for them.

 

Protecting their interests

European business is also making stronger representations - acutely aware of the damage that borders and tariffs could have on a trading relationship worth over £500 billion a year. Widespread lobbying is therefore underway to push for a Brexit outcome that doesn’t end up damaging EU firms’ own bottom-line. A group of Belgian trade associations, for example, has just published a report totting up how much they would pay if WTO tariffs were applied today.

Inevitably, my optimism about a positive result comes with a caveat. The path to a comprehensive deal is intricate. It will need to thread its way through parliaments and institutions with a deadline that affords little time to deal with obstacles. This means certainty is a commodity in very short supply and the prudent course for business is to carry on planning for worst-case scenarios and to keep all options open.

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British firms need to ensure they put the necessary safeguards in place to deal with cliff-edge hard Brexit and – where possible – back-end investment commitments and monitor the political situation in the meantime.

 

Ready for anything

More generally, you could go further and say the nature of the threat to business has shifted from the fate of one member state to the joint fate of the remaining 27. Slowdown and stagnation in the EU would hit many UK multinationals hard just as it would their Continental peers. If the European economy is hit, their financial exposure could be measured in billions of euros, not the tens or hundreds of millions a hard Brexit might imply.

So, with the risk of disruption not ruled out, but also the possibility of slower growth on the Continent, companies should keep exploring further east and west; redoubling efforts in countries such as Indonesia, China, India, Brazil, South Korea and in Africa. After all, the IMF expects emerging market and developing economies to grow more than twice as fast as advanced economies grew last year.

If my reading of the Brussels chatter is correct, we can look forward to a civilised exit from the EU, rather than a bitter fight to the death. Heartily welcome though that would be, the UK and its businesses should also be training their sights further afield as new relationships beckon.

This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK. You can register for the email subscription list of this column and expert views from our Brexit leaders.

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