Will UK house prices ever fall?
Europe without Great Britain : What Brexit means for us
After a close race, it is now clear: the majority of voters have decided in favor of Brexit. The consequences - politically and economically - will be great. And not just for Great Britain, but also for Germany.
When does London apply to leave the EU?
A no result of the referendum is not enough for an exit from the EU. According to Article 50 of the EU Treaty, Great Britain must declare its withdrawal in writing. But this requires a government capable of acting and a formal decision by the cabinet. After Prime Minister David Cameron announced his resignation, it is now a game for time. Because only when there is a government capable of acting again, the application to leave should be submitted.
Brussels has been prepared: On May 23, there was a confidential meeting of high-ranking diplomats from Germany, France, Slovakia and Malta, the countries that will soon take over the EU Council Presidency. It was agreed on a language rule for the point in time when the result is available. So that there is no uncertainty, a declaration on cooperation between the secret services and border protection is to be issued. On Friday, when the result is known, Commission President Jean-Claude Juncker, Parliament President Martin Schulz and the Dutch Prime Minister Marc Rutte also want to meet in Brussels to discuss the procedure. The heads of state and government of the 27 EU member states would then discuss specific EU reactions to a Brexit at their summit on Tuesday and Wednesday. On Friday after the Brexit result became known, the German Foreign Minister Frank-Walter Steinmeier called his European colleagues to Berlin for a meeting.
How long would it take to exit?
The EU treaty stipulates that after the withdrawal declaration, the European treaties will be applicable in Great Britain for another two years. The member countries can extend this deadline by unanimous decision. If this decision is not made, the contracts will expire after 24 months. The commission will make recommendations for the exit negotiations to the member states. London is no longer allowed to take part in the deliberations of the member states for the negotiations. The member countries will appoint a negotiator. As long as the negotiations are ongoing, the UK can legally withdraw from Brexit at any time. This requires a decision by the British government. However, if it wanted to return to the EU after its exit, this would be treated as a new entry and the country would be treated like Moldova or Morocco. The negotiations will be tough. EU Commission President Jean-Claude Juncker has already announced: “The deserter will not be welcomed with open arms”. Observers assume that the status of Great Britain will not be negotiated and concluded bit by bit, but only as a whole. The formula applies that nothing will be negotiated until everything has been negotiated.
Can the UK continue to take advantage of the single market?
Only as long as the country is in the EU. The subject of the negotiations will be what status the UK is aiming for and the EU granting the country. A status like Switzerland and Norway would be conceivable. There are no tariffs to hinder trade, only so-called non-tariff trade barriers such as registration formalities and technical regulations. A status like the one in the USA would also be conceivable: Regulations of the respective authorities make trade and customs more difficult. However, there is agreement on the level of the tariffs. In the third scenario, the country would also lose all privileges that result from the EU's existing free trade agreements with other countries. Great Britain for its part could conclude free trade agreements again. With the EU and with other countries. But that would be tedious: Negotiations on trade agreements between the EU and third countries have taken between four and nine years in the past.
In an emergency this would mean: If the 27 EU member states do not unanimously decide to extend the rules after the end of the two-year transition phase, only the rules of the World Trade Organization would apply until an agreement comes into force. At the EU's external border with Great Britain, import duties would then be levied again. The cooperation between the security authorities would also have to be renegotiated. When the treaties expire, the free movement and legal status of around two million UK passport citizens living in an EU member state will also end. Transitional regulations would then have to be created for them. Likewise for the British employees in the EU institutions.
How long will the 73 members of the UK sit in the European Parliament?
It is clear that the 73 MEPs who won a seat in the European Parliament in the last European elections in the United Kingdom would not have to surrender it until their final departure. You could even vote in the European Parliament vote on the treaty governing Britain's exit. In contrast, the London government should no longer take part in votes at EU summits or Councils of Ministers that affect the exit from the application. The British EU Commissioner Jonathan Hill would probably stay in office. It is assumed, however, that he would no longer remain responsible for finances, but would be given a division that would not be so sensitive to the exit negotiations.
When will the UK contribution to the EU budget be discontinued?
Margret Thatcher negotiated a discount for her country on EU contributions for Great Britain in the 1980s with the legendary slogan "I want my money back". Even with a discount, the country is still a net contributor to the EU. In 2014, Great Britain paid just under five billion euros more than was transferred from Brussels. In 2013 this value was EUR 8.64 billion, in 2012 it was EUR 7.3 billion and in 2011 it was EUR 5.6 billion. In the event of a Brexit, these funds would no longer flow. That means: the rest of the countries would have to compensate for that. This applies provided that the EU's expenditure remains the same: According to estimates by the Bertelsmann Foundation, this would result in additional expenditure of 2.5 billion euros for Germany, France would have to adjust to an additional 1.9 billion euros per year, Italy 1.4 billion euros and Spain 0.9 billion euros.
What does Brexit mean for the German economy?
The German economy is doing well. The company's order books are full, and unemployment is lower than it has been since reunification. But if Brexit happens, that can change quickly, says Clemens Fuest, President of the economic research institute Ifo. “Germany would probably be the biggest loser in a Brexit, apart from Great Britain itself,” he says. His institute has already calculated the effects of Great Britain leaving the EU: According to this, Brexit could cost Germany up to three percent of economic output in the long term.
This is mainly due to the close economic relationships. The United Kingdom is Germany's third most important trading partner. German companies sell goods and services worth 120 billion euros to the British every year. If it comes to Brexit, trading will be more difficult and expensive. For example, customs duties could arise again. The bureaucracy would increase. Trucks would wait longer at the border, which would make transport and thus the goods more expensive. In addition, Brexit would also severely weaken the British economy - by 2020 alone, 950,000 jobs could be lost in Great Britain, calculates the British industry association. This is another reason why Germany should be able to sell fewer products to the British after Brexit.
This would hit the German automotive industry particularly hard. “The United Kingdom is the largest export market for the automotive industry,” says Matthias Wissmann, President of the Association of the Automotive Industry. Every fifth car that German manufacturers sell abroad goes to Great Britain. If the kingdom were to leave the EU internal market, German cars, for example, would have to go through more extensive registration procedures in order to be able to be sold on the island. “That costs time and money,” warns Wissmann.
Brexit would have similar consequences for German chemical and pharmaceutical companies. They export € 12.9 billion worth of products to the UK every year - mostly specialty chemicals and pharmaceuticals. At the same time they are involved in British companies, where they have invested 1.6 billion euros. After a Brexit, German corporations are likely to “reconsider their involvement in Great Britain and, if necessary, withdraw capital”, according to the Association of the Chemical Industry.
The first cuts should already be made this year after the Brexit vote. It is true that it takes two years or more for the UK to agree on the details of the exit with the EU and for the country to actually leave the EU. But that is precisely a problem for companies: for a long time they will not know under what conditions they can do business with the British in the future - for example if the UK is striving for a status like Norway or Switzerland or wants to conclude a completely new trade agreement with the EU. This uncertainty is likely to weaken the economy in Great Britain and Germany long before the British actually leave the EU.
Who would benefit in Germany?
Even if the bottom line is that Brexit hits the German economy hard, individual sectors should definitely benefit. There is, for example, the Frankfurt financial center. Because they are suddenly outside the EU in London, many foreign banks could relocate their European headquarters to other cities after Brexit. So far, they have benefited from the EU passport in London: This means that they can do business in all other EU countries from there. However, they are likely to lose this status after Brexit. In order to be able to continue using the EU passport, they would have to relocate their branches. Frankfurt would probably be one of the big winners - after all, the European Central Bank (ECB) is already located there. Deutsche Bank could also bring around 9,000 traders who are currently working for it in London to Frankfurt after a Brexit.
Significantly more money would flow into the German real estate market from a Brexit. Foreigners who have previously bought apartments and houses in London as an investment could then prefer Berlin, for example. Behind this is the fear that the London housing bubble could burst after Brexit. The market there is already considered overheated. The UK is the only country where property prices are higher than in 2008, just before the financial crisis hit. If more investors come to Berlin, real estate prices will rise faster and faster. What is good for property owners and the construction industry would, however, weigh on the average citizen and exacerbate inequality in society.
What are the consequences of the UK's exit from the EU for workers?
2.2 million people who work in the UK come from outside the EU. So far, you have benefited from the free movement of workers in the EU. According to this, every EU citizen can work in every EU country without any problems. After Brexit, that would probably no longer be so easy. Three quarters of EU citizens working in the UK do not meet the criteria that foreigners need to get a visa in the country. This is shown by a study by the University of Oxford. EU citizens who work in British hotels, restaurants or in agriculture would be particularly affected. Even at banks and financial service providers in London, according to the study, 60 percent of employees from other EU countries do not meet the visa requirements.
It is unlikely that the UK would accept exceptions for workers from the EU after Brexit. After all, immigration is a crucial issue for Brexit opponents. Unlike most other EU states, Great Britain did not introduce any transitional rules after the EU's eastward expansion - with the result that the rush from countries such as Poland and Romania was greater than expected. As a result, in the opinion of many British people, the EU now primarily stands for uncontrolled immigration. According to a forecast by the National Institute of Economic and Social Research, Brexit could reduce immigration by two thirds. That would also affect Germans who want to work in Great Britain - but not to such a large extent. Most of them are highly qualified and therefore have a good chance of getting a visa.
What would Brexit mean for travelers?
Michael O’Leary is worried. The head of the Irish airline Ryanair has railed vehemently against the Brexit supporters in the past few days. He fears not only the impact on the UK economy, but above all on his own business. His airline is headquartered in Ireland, but the UK is the most important market. And after a Brexit, the number of passengers on flights to and from the UK could fall. On the one hand, an economic downturn after Brexit quickly affects travel behavior: vacation is the first thing people save on when money is running out. At the same time, tourists from the EU should avoid the island for the time being. According to a survey by the travel portal Zootravel, a third of Germans say that they would be less interested in a vacation in the United Kingdom after a Brexit. However, traveling is unlikely to be any more difficult: It is unlikely that EU citizens will need a visa for holidays in Great Britain in the future.
However, it is unclear how prices will develop. Because the pound is likely to depreciate significantly after Brexit, holidays in Great Britain would be cheaper for EU citizens - at the same time, however, flight prices could rise. Because if the British leave the EU, they have to renegotiate the rules for air traffic. As an EU member, you are automatically in the European Common Aviation Area: Every European airline can therefore fly to any EU country. After Brexit, Great Britain would probably leave this club for the time being. Ryanair boss O’Leary has therefore already offered particularly cheap flights to London for this week: He wants to encourage British people who live in other EU countries to fly home to vote against Brexit. The Brexit proponents do not find O’Leary's action funny at all - and demand that Scotland Yard investigate the matter against Ryanair.
What are the consequences of Brexit for students?
Nobody can say exactly at the moment. A good 18,000 Germans are currently studying in Great Britain; conversely, around 3,500 Brits are enrolled at German universities. Nothing will change for them immediately - but in the medium term, Brexit could have significant consequences.
The modalities for the participation of British universities in the popular Erasmus exchange program must also be renegotiated in the course of the exit negotiations. So far, Erasmus students have been able to enjoy a smooth and free exchange for one or two semesters. It is difficult to predict whether something really decisive would change with new contracts for students. After all, a country's participation is not tied to EU membership per se; Iceland, Turkey and Norway are also among the 33 Erasmus countries. The example of Switzerland in 2014 showed that the EU pays close attention to how the framework conditions develop among its non-EU partners. After the Swiss agreed to a popular initiative against “mass immigration” and Switzerland was unable to sign a protocol to expand the free movement of persons with the EU, the European Commission excluded the country from Erasmus practically overnight. Switzerland then had to use its own resources to set up an exchange program analogous to Erasmus. Experts consider it unlikely that the UK would continue a similar program with national funding. And even if Erasmus is continued, new residence regulations could make exchanges for German students more bureaucratic.
For German students who complete their entire degree in Great Britain and are aiming for a degree there, the question of tuition fees should be of central importance. So far, they pay the same tuition fees as the British: Usually 9,000 pounds (11,500 euros) a year. As an EU citizen, you are at least entitled to a fee credit.Non-EU citizens do not have this right, and studying is even more expensive for them: in the humanities by 25 percent, in the natural sciences by 50 percent, in medicine by 80 percent. If German students were treated like non-EU citizens in the future, they would also have to pay significantly higher fees.
What are the expected consequences on the financial market?
It will be turbulent on the stock exchanges on Friday. Experts assume a crash on the stock market. Chris-Oliver Schickentanz, chief investment strategist at Commerzbank, predicts a price slide in European stocks of five to ten percent in this case. "Many non-European investors would then initially avoid Europe until the consequences of leaving the EU can be better assessed," he says. The shares of major European banks are likely to collapse particularly sharply - due to their representative offices in London, they will be the first to be affected by Brexit. On the other hand, all forms of investment that are considered to be “safe havens” would benefit. Brexit is likely to cause the price of gold to rise. Bunds would also be in greater demand than ever. The German state could then borrow more cheaply than it already is. The average yield on ten-year government bonds is already negative: This means that investors will no longer get the money they invested back at the end of their term.
In the longer term, Brexit could also push interest rates further down. Because if the economy in the euro zone shrinks, the European Central Bank (ECB) will be forced to intervene even more in the market. Most likely, it will increase the penalty interest banks pay when trying to park money with the ECB. This, in turn, could induce the institutes to charge private customers a penalty interest for their savings.
What would the worst case be?
In the worst case, Brexit could trigger a kind of chain reaction in Europe. Then suddenly it is no longer just about the relationship between Europeans and the British - but about the entire international community. "Italians and French could then also think about whether they want to stay in the EU," says Jürgen Michels, chief economist at Bayern LB. In both countries, more than 50 percent of citizens are already in favor of a referendum in polls. These considerations alone could, if the British vote in favor of Brexit, lead investors to start speculating again on a breakup of the euro zone. So they would again demand significantly higher risk premiums for government bonds - which would put countries in southern Europe into trouble again. The euro crisis would then be back and more severe than ever. That is why Michels says: "Brexit would be an ordeal for Europe."
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