Euro ‘stayers’ will affect UK’s Brexit deal

Natasha Levanti
18 September 2016

Twitter FacebookLinkedIn

Print

Topics 

Brexit

The attitude of those EU members who want to stay within the union will have a major impact on how the UK negotiates Brexit, writes Natasha Levanti.

Though ‘Brexit’ looming on the horizon has done little to reassure domestic or regional markets, it is not the only factor at play in the European landscape that will impact business growth. When contemplating the optimal alternative for the UK post-EU membership withdrawal, consideration of European factors is fundamental to success, for the union will advocate for the interests of those who wish to remain within it. 

With global economic shifts having kicked off in 2008, economic turmoil continues to be perpetuated by regulatory failings, with the parallel rise of nationalistic parties changing geopolitical debates, making Europe today a hotbed for economic and political uncertainty.

As one of the Eurozone’s three largest economies, Italy is the current European lynchpin. In Italy there are three challenges - banking regulations and mounting bad debt, Matteo Renzi’s declining popularity and rising nationalism, as well as geopolitical risks including Brexit and refugees. 

Ahead of a crucial constitutional referendum set to take place this November, Italian economic growth ground to a halt in Q2 at 0%. If in November the Italian referendum sees a turnover in government, or a failure to impose banking regulations, the Eurozone risks collapse.

With over 360bn euros of bad debt and not meeting growth expectations, Italian difficulties are already impacting markets across the Eurozone, in particular the two largest economies in the Eurozone – Germany and France. 

Germany, as the largest national economy in Europe, continued to have moderate growth, above expectations, though the rate of economic growth has declined in Q2 compared to Q1. With slowdowns in retail sales, industrial production and exports, Germany’s heavy reliance on trade means that the longer uncertainty exists within emerging economies, around the Eurozone and the single market, the economy will continue to slow.

Many slate this downturn as due to geopolitical positions of current politicians, giving more momentum to rising political unrest. Chancellor Angela Merkel’s party has fallen from favour in her home state of Mecklenburg-Vorpommern, coming after the Social Democrats and Alternative for Deutschland (AfD), the far right nationalist party. This exemplifies the rising populism throughout Germany, with the nationalism party AfD going from zero political hold in 2011 to being politically present in more than half of Germany’s state parliaments.

In France, the economic and political spheres are both experiencing turmoil. The French economy declined in Q2 in connection to not only bad debts in Italy but also the continual building of French debt. With a national election coming in 2017, and with Brexit estimated to significantly damage the French economy, public support has declined for mainstream politicians, with National Front politicians led by Marine Le Pen mounting support. With 38 polls having been conducted since April 2013, all identify Le Pen as a front runner for 2017. 

While other member states are also facing challenges spurred by Eurozone troubles, geopolitics and rising nationalism, what is certain is that the impacts stemming from UK post-referendum uncertainty are mixed amongst other long-term challenges, domestic agendas, as well as an assortment of strong political figures and ideas around Europe.

As European Council president Donald Tusk said recently: “We need to protect the interests of the members of the EU that want to stay together, not the one which wants to leave.”

Tusk’s words should not be forgotten going forward, as the success of the UK’s political and economic relations post-EU membership withdrawal are heavily dependent upon navigating the uncertainties at hand.

These issues and other concerns for businesses operating in Europe will be discussed by business leaders at ACE’s European CEO Conference this November in London. For more information go to: www.acenet.co.uk/EuropeanCEOConference