Expat Essentials

Domino Effect (updated): How a no-deal Brexit could affect all expats across Europe

(Editor’s note: This post has been updated as both sides conclude a “hard” Brexit is increasingly likely. On Monday, 10 December – two and a half years since the Brexit vote – Prime Minister Theresa May delayed the parliamentary vote on her Brexit agreement with the European Union rather than suffer a humiliating defeat. Then May survived a no-confidence vote called by her own party. If possible, the way forward for the United Kingdom is now even less certain. At the end of October, Standard & Poors warned that a no-deal Brexit will send the UK into recession. Also, see our running account of Brexit developments here. Laura Kaye in Berlin also contributed to this post.)

In June 2016, Britain voted to leave the European Union after a small group of nationalists sold British voters a simple message: Brexit will be a quick and easy return to greatness.

In July 2018, the Sunday Times, which supported leaving the EU, reported a plan to use the British Army to distribute food, medicine and fuel should the country collapse next March in the event of a no-deal Brexit.

If there’s a lesson here for all nations, it’s the power of simple populist messaging combined with the appeal of demagoguery.

In this case, former United Kingdom Independence Party leader Nigel Farage, former Foreign Secretary Boris Johnson and Michael Gove, now UK’s agriculture secretary, made promises no one could keep, from Brexit diverting 350 million pounds per week to the National Health Service instead of the EU to new and better trade agreements negotiated with individual EU countries via the World Trade Organization.

Quotes such as “easiest negotiations in human history,” “Britain holds all the cards” and “take back our country” tripped off the tongues of Eurosceptics, who described a brave new world of rainbows and unicorns.

Unfortunately, Prime Minister Theresa May’s Conservative government has proven to be incompetent at bargaining from a position of weakness, the interests of one country against those of a union of 27.

Instead of improving its relationship with the EU,  after two and a half years, multiple rounds of negotiations and finally a deal that won’t pass Parliament, May is warning a no-deal Brexit will mean catastrophe but appears powerless to stop it.

And that, as our Nina Avramovic put it all those months ago in her prescient post “Dear Brits; This is what it’s like to be a non-EU citizen,” means living in a whole new world of uncertainty, with limitations on travel, work and education.

Last October, labor and conservative leaders vowed to stop a no-deal Brexit, agreeing that leaving the EU with no relationship would be the worst-case scenario. Now, with less than 100 days – give or take a few – from B-Day, alarms are going up from May’s government itself that if the Parliament doesn’t agree to her deal, all is lost.

Philip Hammond, the UK’s Chancellor of the Exchequer, released a report that a no-deal Brexit will knock about as much as 11 percent off the country’s gross domestic product over the next 15 years. That doesn’t mean the economy will grow more slowly. It means that it will contract, which is the definition of a prolonged economic depression.

Bank of England Gov. Mark Carney, whose hair has been on fire for two years over Brexit, predicts the UK’s economy will shrink by 8 percent within a year of Brexit. Bloomberg has the best summary here.

The panic really began last year when Transport Secretary Chris Grayling noted parliament would “have no mechanism” to keep the UK in the EU for longer than 30 March 2019. That’s when Britain’s EU membership automatically expires if no deal is reached.

In late October 2018, EU officials agreed to hold a series of no-deal planning seminars covering citizens’ rights, aviation, ground transport, customs, border controls and financial services for a chaotic Brexit. If there is any agreement between EU and British officials, it’s that customs arrangements, airline flight permissions and arrangements for financial transactions will end suddenly without any new plans being put in place.

And when that happens, everything changes. The bottom line, and there’s always a bottom line: A third country cannot have the same rights and benefits as an EU member.

With a “soft” Brexit, the trade agreements, customs agreements and rules regarding the right of free movement between the UK and the EU would have remained. With a “hard” Brexit, the United Kingdom starts at zero on the same level as North Korea.

If you’re an expat – especially a British expat – what does the UK’s inability to reach an agreement with the EU mean?

Here’s how we think a no-deal Brexit will affect expats in Europe:

• Let’s start with a worst-case scenario for expats.

Last month, Nigel Farage was in heavy rotation on Fox News and other conservative news sites calling the May’s Brexit agreement “the worst deal in history.”

If Farage and the Rigid Right in May’s own Conservative Party prevail, a no-deal Brexit could mean British expats who’ve lived for years in Spain, France and other countries could be forced to return home. Unless … unless countries with significant British expat populations such as France and Spain extend retroactive long-term residence visas effective 30 March 2019. The expats in France we consulted believe their financial and civic contributions, especially in rural France, make that highly likely.

(See a related post here.)

In a move toward a quid pro quo, May sent an email to 100,000 EU citizens in October 2017 assuring those in the UK legally that they will be allowed to stay after Brexit, according to the Guardian. UK officials then registered an estimated 4 million EU residents in the UK. Post-Brexit, they will be required to have official identification numbers that will be used by employers, landlords, banks and public services, including hospitals.

EU officials had criticized May’s negotiators for not making progress on citizens’ rights. But no deal at all could return both the EU and the UK to hardline immigration positions and – worst-case scenario – theoretically lead to one of the larger forced migrations in European history.

• BUT, in the event the current deal somehow passes, there will be a transitional period that will give UK citizens a short window to move within the EU without the additional barriers usually faced by third-country nationals. So if Brits want to make use of this “time-limited offer” to make the move to the continent, now would be the time to start researching if and where they might like to set up home in order to keep connected to the EU.

This also goes for EU nationals contemplating a move to the UK, for whom it may also be a “now or never” scenario. Any section we wrote about life in the UK post-March 2019 would essentially be guesswork. Somebody pass the tea leaves and tarot cards.

At the moment it seems that the current rights around freedom of movement would stand until the end of the transitional period. The previously agreed date for the transition period to end was 31 December 2020, but it now looks as though that could possibly be extended further; perhaps even until after the next general election in 2022.

• If there is no agreement and UK officials decide to expel EU citizens, Romania, Bulgaria, Poland and other countries in Eastern Europe and the Balkans would staunch their brain drains.

The Guardian reported last year that the number of Romanians and Bulgarians in the UK rose 80 percent between 2014 and 2016: to 413,000 last year from 230,000, according to the Office for National Statistics. Now, Bulgaria, Romania, and Poland need those people back as their own economies expand at a pace far faster than the UK.

(We see you wondering, so we’ll tell you: There are a grand total of about 6,200 British citizens living in Romania and Bulgaria.)

Bloomberg has reported an increasing labor shortage in the UK as EU workers leave and wages rise as Romania and other countries want their skilled citizens back.

• Ironically, life for anyone going anywhere is about to get a lot more complicated. Republic of Ireland Prime Minister Leo Varadkar recently warned that as of next March, planes leaving the UK could be prevented from using Irish airspace as the republic remains in the EU. The UK’s post-Brexit default trade status under the World Trade Organization does not include commercial travel rules.

Oh, and British officials suddenly figured out you also won’t be able to take the train between the UK and Europe after a no-deal Brexit because Eurostar would stop running between London and Paris, Brussels and Amsterdam. The British government advised passengers to take out travel insurance. Seriously …

• File this under, “Just when you thought it couldn’t get any worse.”

The Guardian has an in-depth look at how port authorities in Rotterdam –  Europe’s largest, busiest port – are preparing to deal with a no-deal Brexit. And “Rotterdam prepared for worst when Britain crashes out of EU” might be the scariest Brexit post we’ve read so far … and that’s saying something.

For instance, at the stroke of midnight on 29 March next year, Rotterdam port workers will have to run checks on 10,500 newly “foreign” boats, according to the post. Those would be ships coming in from the UK. For every container ship that moves between the UK and the EU, there would be a whole new layer of documents and requirements for businesses on both sides of The Channel.

To prepare, the Port of Rotterdam is hiring 928 extra customs officials and 145 veterinary inspectors. The UK depends on just-in-time shipments of fresh food from the Netherlands. That will all end ….

Paris, Frankfurt Luxembourg City and Amsterdam are threatening London’s position as Europe’s money magnet. An EY study finds the amount of foreign capital headed for France has soared, with Paris beating London out of its top spot in terms of attractiveness to investors for the first time since the report began in 2003.

• If you’re an expat in, say, Frankfurt or other financial centers, get ready for housing costs to skyrocket. Or settle for living in villages, towns, and cities within driving/train distance such as Darmstadt, Griesheim and Wiesbaden outside Frankfurt.

Multinational banks and financial houses based in London, focused as they are on objective economic forecasting, were the first to figure out Brexit isn’t going to end well. Greed, for lack of a better word, is apolitical. Unswayed by nationalism or emotion, they started planning on the first day for a worst-case scenario that would end “passporting” rights for cross-border money transfers and the arcane market transactions to happen without regulatory “friction.”

Top execs at large corporations – including those at British-based multinationals – are starting to doubt the UK can get a deal. If they decide to wait it out, a no-deal Brexit could conceivably cut their access to the world’s largest trading bloc while forcing them to scramble to find a new home at the last minute and spend millions of extra dollars/pounds/euros to do it.

So you can look forward to an unending series of announcements about these companies heading for the Continent.

This scenario will be repeated around Europe from Amsterdam to Paris as multinationals leave the UK to protect access to 500 million customers in the EU as opposed to 60 million in the UK.

So far, Bank of America, Barclays, Morgan Stanley, Citigroup, Standard Chartered and Nomura banks/financial groups have announced they’re moving their EU headquarters – along with thousands of well-paid executives and employees – to Frankfurt from London. Global investment giant BlackRock is moving to Paris.

Goldman Sachs Group Inc. and UBS Group AG will likely follow suit. JP Morgan Chase and HSBC Holdings are headed for Paris.

So, Brexit pushing so many well-paid people into Frankfurt, Paris, Berlin, Amsterdam and Luxembourg will put pressure on housing markets in innovation centers, many of which already are seeing residential rents and sales skyrocket, not to mention the cost of office space.

• So other than Frankfurt and Amsterdam, who are the Brexit winners? It could be one of the speculators who got crazy rich off the 2008 collapse of the subprime mortgage market in the U.S., which begat the Great Recession. Fund manager Steve Eisman, who figured prominently in Michael Lewis’ book “The Big Short,” is now shorting British bank stocks because Eisman is worried Brexit will lead to Jeremy Corbyn, who he calls “a Trotskyite,” becoming prime minister. At a November conference in Dubai, Eisman said he expects the UK to secure an exit deal with the EU … a deal the UK parliament will reject, ensuring a no-deal Brexit.

• Conversely, finding a job in Europe could become much easier for non-EU talent from the United States, India, Mexico and other countries.

Britain has been, compared to Sweden, Germany and the Netherlands, a walled garden even though it has the No. 1 tech and startup scene in Europe.

With banks, car manufacturers such as Ford and advanced manufacturing leaving the UK, expect an increase in opportunities in the EU, where highly skilled internationals are welcome. The downside is, this will put even more pressure on countries such as Sweden and Finland, where labor shortages are becoming critical.

• The British expats returning to the UK could look forward to empty shelves in stores.

Why? Because the UK imports twice as much food as it exports.

The irony, of course, is that you can almost swim from the coast of England to the Netherlands, which is the No. 2 food exporter in the world. How badly does the Netherlands need the UK? Try, not at all if that means tariffs. There are still 27 countries in the EU. And Britain still has to import food from somewhere.

• Brits are about to become poorer. Honda and other companies have long warned that if there’s a hard Brexit, they’re out of here. Several auto industry insiders warned the industry could go “extinct” after Brexit. Last April, British manufacturing had its worst month in five years while that most English of all car companies, Land Rover, announced plans to move some production to Slovakia. Worst of all, it appears EU rules dictate that when assembling vehicles, at least 55 percent of parts must come from inside the EU, which could mean suppliers in the UK would be cut out.

• To be fair, the United Kingdom has (had) the world’s fifth-largest economy, just behind Germany and one place ahead of France. The International Monetary Fund says that when the UK leaves the EU, there will be no winnersIMF analysts said that the EU could lose as much as 1.5 percent of gross domestic product from a “hard” Brexit while the UK would suffer an even bigger hit – a 4-percent loss of national income.

Do we think all of this will happen? It depends.

Brexit is a divorce and divorces are always bitter. And despite what the Brexiteers claimed, the UK has very little leverage when it comes to competitive advantage. Other than finance and Rolls Royce jet engines, Britain doesn’t do anything – build cars like Germany, create ultra-high-tech like the Netherlands or excel in aircraft manufacturing like France – better than any other country.

If a new government came in, that might change the tenor of the talks with EU officials. Or it could even lead – best-case scenario – to the UK rethinking the wisdom of continuing down a road that leads straight over the White Cliffs of Dover.

But you have to wonder if the relationship between the UK and the EU can ever be repaired under any circumstances.

Also see:

Brexit: Britain’s atavistic revolution (Salon)

The IMF is right: hard Brexit is an international threat (Guardian)

Brexit: What would ‘no deal” look like (BBC)

Goldman Sachs chief Lloyd Blankfein hints at Frankfurt move (BBC)

Goldman Sachs and JPMorgan say they’re assuming a hard Brexit (Bloomberg)

What the grim reality of a ‘bad-tempered’ Brexit means (Guardian)

London is right to prepare for no deal on Brexit (Financial Times)

‘Bitter, table for one’ : What will it be like to be British after Brexit? (Dispatches Europe)

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