Brexit ‘no-deal’ preparations are in full swing

Essentially, leaving without a deal on March 29, 2019 leads to the infamous “cliff-edge” scenario in which EU law abruptly ceases to apply in the U.K. and it’s expected that British businesses will face severe disruptions.

The leader of the U.K. House of Commons (the lower house of Parliament) Andrea Leadsom said Thursday that a Brexit “no-deal” would not be a good outcome for the U.K. in the short term, Reuters reported, but it would not be good for the EU either.

In a bid to minimize that foreseen disruption, the European Commission set out its contingency plans for a range of sectors on Wednesday in the event of the U.K. leaving the bloc next March without a withdrawal agreement and transition period.

The measures cover areas including financial services, air transport, customs, and climate policy, among others.
However, the Commission warned that “these measures will not – and cannot – mitigate the overall impact of a ‘no-deal’ scenario, nor do they in any way compensate for the lack of stakeholder preparedness or replicate the full benefits of EU membership or the terms of any transition period, as provided for in the Withdrawal Agreement.”

It also warned that most banking, insurance and other financial firms in Britain would be cut off from the EU if there is no divorce deal.

Commission President Jean-Claude Juncker said on Wednesday that the “risks of a disorderly exit are clear. It would be an absolute catastrophe; therefore the Commission is trying to prevent this disorderly exit from the EU from happening but you need two to perform a decent tango,” he said during a press conference.

Meanwhile in the U.K., the government has allocated an extra £2 billion ($) to government ministries in the event of a “no-deal” Brexit and order 3500 troops to be on standby and reportedly reserving space on ferries for emergency food supplies.

It also published reforms to its immigration policy on Wednesday in which it ended the special treatment given to EU nationals and placed more emphasis on skilled workers.

“Uncertainty is certainly very high and is likely to remain so,” Marie Owens Thomsen, global chief economist at Indosuez Wealth Management, told CNBC Thursday. “There’s very low probability of increased clarity until mid-January, then the clouds might clear (when the U.K. parliament votes) but until then we’ll have our heads in the clouds.”

In the case of a “no-deal” Brexit, it’s expected that the U.K. would have to fall back on World Trade Organization (WTO) rules and that import duties would be placed on EU imports, and vice versa. The challenges these tariffs would pose, along with the added bureaucracy associated with restrictions on the movement of goods, was underestimated, according to Owens Thomsen.

“The real issue might be the red tape and documentation, and filings and border checks that will have to be put into place if things don’t go as smoothly as one can hope that and that’s something that most people seem to underestimate, or forget what it was like before goods could flow freely throughout the EU,” she told CNBC’s Capital Connection.

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