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September 17, 2020

FBS, What is No-Deal Brexit? What happens to EU and UK?

How could No-Deal Brexit affect UK and EU?

What-is-No-Deal-Brexit-What-happens-to-EU-and-UK What-is-No-Deal-Brexit-What-happens-to-EU-and-UK

What Would a No-Deal Brexit Do for the GBP?

The Brexit drama is back after Prime Minister Boris Johnson has claimed that a no-deal scenario will be good for the UK, giving it full control over its “laws, rules and fishing waters”.

The EU told Britain to stick to the terms of the original withdrawal agreement, but Britain plans to override them.

If the “divorce” of the EU and the UK goes badly:

  1. There will be more tariffs and quotas. This will lead to higher prices of imported goods.
  2. The UK could lose trade relations with the 72 countries that have trade deals with the EU, including Canada and Turkey.
  3. Supply chains will crash, and companies will get hurt.

All of the above will lead to the depreciation of the British pound.

Brexit Drama is back to the spotlight with more problems and pressures on the United Kingdom and the European Union as if the Coronavirus crisis and its disastrous economic consequences weren’t enough.

So why is Boris Johnson insisting on leaving the EU without a deal?

What does the European Union want?

What are the economic impacts on the British economy, which is already affected by the pandemic? What awaits the pound?

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What happened to Brexit deal?

In June, Boris Johnson said there was “no reason” why the outline of the Brexit deal wouldn’t be done by the end of July.

But this deadline came, and nothing happened.

Therefore, last week, Johnson told the European Union that a free trade deal must be struck by October 15; otherwise, the UK will go ahead with the divorce but without an agreement.

The British PM tried to reduce all concerns related to no-deal Brexit, claiming that this scenario would be advantageous to the UK, giving it full control over its “laws, rules and fishing waters”.

“We will have the freedom to do trade deals with every country in the world,” Johnson said. “And we will prosper mightily as a result.”

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What did the UK say about the Brexit?

  1. The UK isn’t willing to back down on fishing rights, so-called level playing field guarantees, governance of the deal, and the role of the European Court of Justice, causing negotiations to be disrupted.
  2. The UK government says it wants a trade deal based on “friendly cooperation between sovereign equals”.
  3. The UK revealed this week its intention to override elements of the Brexit withdrawal agreement. Things got worse when Brussels sent an ultimatum to Britain, asking it to stop violating the terms of the agreement, but Johnson’s government rejected this ultimatum. With the last round of talks ending without any sign of progress, chief negotiator Michel Barnier said Brussels was “intensifying preparations” for a disruptive no-deal outcome when the transition process ends on December 31.

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What does the EU want?

  1. The EU has expressed its readiness for Britain’s leaving the bloc, either with an agreement or a no-deal. Rather, it is adapting more effectively to the “no-deal” scenario, given the current circumstances.
  2. The EU wants the UK to agree to follow the EU’s rules of fair and open competition so that British companies, which have tariff-free access to the EU market, can’t kill their European competitors.
  3. It won’t allow the UK to access a “high-quality” market unless it complies with the EU social and environmental standards.
  4. The bloc also wants the European Court of Justice to have legal powers to monitor any free trade agreement reached between the UK and the European Union.

Go to Hercules.Finance Main Page

What does a “No-Deal Brexit” mean to the EU and the UK?

1. Tariffs and quotas:

  • Britain will default to WTO terms from January 1, 2021. Every member of the organization has a list of tariffs and quotas that they apply to other countries.
  • The UK will apply tariffs to goods coming from the EU.
  • The European Union will apply its “third countries”.
  • Countries outside the bloc – to the United Kingdom.

This means the UK will face huge taxes when it tries to sell its products to the EU market.

The average WTO tariff of the EU is 11.1% for agricultural commodities, 15.7% for animal products, and 35.4% for dairy products.

Currently, trade between the UK and the EU is duty-free.

In addition, in the no-deal scenario, 90% of UK goods exports to the EU will be subjected to tariffs, according to the Confederation of British Industry.

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2. Borders:

  • The EU will start imposing border checks on UK products from January 1, 2021.
  • The UK government has admitted that it expects huge queues at the border and continuous delays of six months or more in the UK if it leaves without an agreement.

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3. The economic impact on the British economy:

Dealing according to the WTO terms would be extremely harmful to the British economy.

WHO rules would slow Britain’s recovery from the coronavirus.

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4. Exports:

Britain exports nearly half (46%) of its goods to the EU, making it the UK’s largest export market.

The UK economy is highly dependent on the service industry; British service providers represent 79% of the UK economy and account for 45% of its exports.

All of that will collapse when supply chains take the hard blow from the newly imposed tariffs.

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5. Financial Services:

London’s status as a global financial hub will be in jeopardy.

However, the EU will try to come up with “small deals” to avoid risks, as the EU relies heavily on Britain for financial services and capital.

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6. Trade:

Britain will lose ongoing trade ties with the 72 countries that have deals with the EU, including Canada and Turkey.

7. Technology:

The value of British services trade with the EU reached 89 billion pounds last year, all of which depend heavily on the transfer of data across borders.

So far, Britain has announced that it will allow data to flow freely between them, but the EU hasn’t shown its intention to reciprocate.

However, in a healthy political environment between the two parties, data will continue to flow without any problems.

Go to Hercules.Finance Main Page

8. The pound:

Some analysts believe that the sterling may be equal in value with the euro, as no-deal Brexit will lead to a severe collapse of the pound.

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