What the Rest of the EU Is Looking to Achieve After Brexit

By | August 24, 2016

The United Kingdom has actually been the centre of attention following its shocking decision to leave the European Union (EU) on June 23. But quite few have actually asked what the remaining 27 EU members are looking to achieve once the UK formally notifies Brussels of its intent to leave the bloc.

Several EU members, including Germany, Portugal and the Czech Republic, say that the UK ought to accept existing freedom of mobility rules in exchange for single-market access. According to Bloomberg, France may go even further than that and link mobility to the UK’s desire to keep so-called passport rights that allow banks to do business in the rest of the continent.[1]

Only three EU members – Denmark, Austria and Bulgaria – have actually shared the same concern along with the UK over mobility.

For its part, the UK government has actually appointed David Davis as Secretary of State for Exiting the European Union, a brand-new post that need to help the Tories navigate what’s expected to be a highly contentious negotiation process. Davis has actually stated that the UK will probably invoke Article 50 of the EU Treaty before the end of the year, which gives London and Brussels two years to formalize a brand-new trade agreement. When asked what the UK hopes to achieve along with the talks, Davis identified “continued tariff-free access” as the “ideal outcome.”[2]

Based on the recent comments of EU member states, continued free trade access to the EU is far from guaranteed without substantial concessions.

Martin Schulz, president of the European parliament, told reporters back in June that the EU wants the UK out of the bloc as soon as possible.[3] At that time, Britain’s ruling Conservative government was prepared to wait until October to appoint a brand-new prime minister and get the ball rolling on Brexit. The Tories expedited the process by appointing Theresa May to Prime Minister last month.

The Bank of England (BOE) is already preparing for a long and arduous negotiation process that is expected to strain the British economy. The Bank’s Monetary Policy Committee (MPC) in August voted to lower interest rates for the first time since 2009 and expand the size of its bond purchase program by a combined £70 billion.[4] Central bank Governor Mark Carney has actually stated that additional stimulus measures are likely to follow.

However, MPC member Ian McCafferty recently wrote in an opinion piece that the central bank’s outlook isn’t as simple as unleashing more stimulus.

The BOE “faces a set of economic circumstances that make assessing the appropriate amount of policy stimulus more difficult,” McCafferty said. “I prefer to learn as we go.”[5]

With the exception of the British pound, UK assets have actually been surprisingly resilient post-Brexit, riding the wave of global optimism made possible only through more accommodative monetary policies from Sydney to London. The UK’s FTSE 100 Index is currently trading at its highest level in around 14 months, while Germany’s DAX recently entered into bull market territory.

In the United States, the major stock indexes have actually set consecutive records in July and August. In fact, the Dow Jones, S&P 500 and Nasdaq Composite each closed at record highs on August 11. That was the first time since 1999 that all three gauges reached a record on the same day.[6]

[1] Emma Ross-Thomas (August 9, 2016). “Brexit Bulletin: What the Rest of the EU Wants.” Bloomberg.

[2] BBC.com (July 15, 2016). “David Davis: Trigger Brexit by start of 2017.”

[3] Jennifer Rankin, Jon Henley, Philip Oltermann and Helena Smith (June 24, 2016). “EU parliament leader: we want Britain out as soon as possible.” The Guardian.

[4] Goeff Cutmore (August 4, 2016). “Turning it up to 11: Why the BOE resembles Spinal Tap.” CNBC.

[5] Emma Ross-Thomas (August 9, 2016). “Brexit Bulletin: What the Rest of the EU Wants.” Bloomberg.

[6] Robert Patyk (August 11, 2016). “NASDAQ Index Joins S&P 500 & DJIA to Close at brand-new Highs for 1st Time since 1999.” Economic Calendar.

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