Politics

The economic impact of UK's exit on Australia

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The ripples of the UK's break from the EU will be felt around the world (Image via Pixabay, edited by Dan Jensen)

Media editor Dr Lee Duffield explores the economic ramifications of the looming Brexit on the EU and the possible effect it will have on Australia.

WEAKENING OF ACCORD between Europe and the United States comes at a moment when Australian-EU relations are intensifying, raising thoughts about some future test of loyalty among friends.

British secession from the European Union, set to become formal on 19 March 2019, should complicate things even more.

EU-AUSTRALIA — AMBITIONS

Last month, the EU Ambassador in Australia, Michael Pulch, described a current campaign for expanded co-operation as “ambitious”, specifically negotiations on a broad scale trade agreement about to begin in Brussels.

He said a recent vote by the European Council (22 May 2018) to move towards the Free Trade Agreement would create a new edition of existing arrangements within the so-called Co-operation Framework.

“It will build on the present trade in goods and services between Australia and the EU now valued at AU$100 billion a year — or AU$280 million each day.”

With increasing business between the two and their “shared outlook”, the partners had chosen the “right moment”.

UPDATING AND EXPANDING AGREEMENTS

Relations have been intensified since the first moves by former Prime Minister Kevin Rudd in 2008 to get the Framework Participation Agreement.

That has been extended step-by-step with a formal signing by the Foreign Minister, Julie Bishop, last year, (7 August 2017, during the Asian Foreign Ministers’ meeting in Manila, attended also by Federica Mogherini, the EU head of Foreign Affairs).

It sets up co-operation on foreign and security policy, trade, counter-terrorism, Pacific issues and development, migration, the environment, fisheries and customs and human rights. There are detailed plans such as scientific and technical co-operation, certificates and markings of goods, security of information and crisis management around the globe.

The Free Trade Agreement now coming up was proposed late in 2015 by Prime Minister, Malcolm Turnbull, who made final representations last April in Brussels, a month before the EU gave it the go-ahead.

Other key contacts include security talks that started in Brussels last month.

USA — A MORE TROUBLESOME PARTNER

European officials might have drawn straws to get to deal with the agreeable Australians instead of the United States — or some of their own truculent member countries bent on breaking ranks over immigration.

In the last week, the presence of Donald Trump at the NATO summit in Brussels, then in the United Kingdom on his way to see Russia’s President Vladimir Putin (in Helsinki) highlighted radical differences.

Demands on the European allies by the American President for more defence spending, to levels exceeding current U.S. commitments across the globe, were not unexpected but added to disagreements over international commerce (U.S. retreat from multi-lateral co-operation towards tariff wars), climate change (U.S. withdrawal from the global consensus Paris Accord) and containment of nuclearisation in Iran (U.S. withdrawal from the international agreement, demanding extension of its terms to other fields, such as Iran’s armed intervention in Syria).

POOR OLD ENGLAND?

It might have been galling to some Brits that they got bumped into fourth place in the Football World Cup by a team from Brussels on the French Bastille Day.

On the obverse, Ambasssdor Pulch sees the breach with Britain “energising the European Union”, stimulating action like its new series of Round Table discussions among member governments on contentious issues, most recently immigration and security.

In a slow process, the British side has formed a proposal to put to the Europeans to keep up an open trade in goods – a continuing single market – which still leaves services, especially the troubled area of financial services, in limbo.

DUMPING THE “CITY”?

Recent analysis in Le Monde said something that left an astonishing admission by default — that the British government would be ‘dumping the City of London’.

The article provides a round-up of companies that are bit-by-bit moving staff out of London, to such locations as Dublin, Frankfurt or Paris; including UniCredit, Bank of America, Merrill Lynch, Barclays and Royal Bank of Scotland, with others augmenting staff in “EU” cities or obtaining licences to operate there.

It concedes that a headcount of 5,000 employees “packing their bags” is still only 1.5 per cent of the British finance industry, with its vast resources, including a continuing network of invaluable consultants and financiers — very difficult to replace.

Conclusion: Though most difficult to imagine a collapse of the powerful British financial industry, the preparations for possible adverse change have “scratched the surface” but could develop into a major bleed.

The “why” of the issue would be the withdrawal of the European financial “passport” available to members of the EU for their enterprises to trade across the continent, free of imposing regulatory blocks, approvals or costs.

The British Government’s response to the challenge so far has been to let discussions with the European partners on finance services be delayed, conducting a “dialogue of the deaf”, in effect an admission of weakness.

A process has begun to develop in which individual firms in the sector are being encouraged to talk directly with the European regulators about getting in.

Keeping the United Kingdom within the system will ease pressure on agriculture and manufacturing businesses, like cars, through signing-on to EU rules and levying and passing on external EU import duties.

It will be laced with irony, the realisation of one of the worst complaints of the legion of “Little Englanders” – nostalgists or racists who wanted secession – getting told what to do by Brussels and having to pay EU dues, now without even a place at the table when the decisions are being made.

This has fed into the war within the governing Conservative Party, where a second vision has always been maintained: “Great Britain” would go it entirely alone as a free market economy, freelancing after trade deals, keeping out migrants (except where needed to meet labour shortages and hold down wages), permitting unregulated business activity up to expanded limits and tolerating gross inequality of wealth (wrapped in talk about it “trickling down” through the servants).

It is a revival of the “neoliberal” or “neo-conservative” vision of the 1970s and 1980s, at an ideological level a roughly cut-down version of 19th Century utilitarianism; the same reliance on a market mechanism but without the same concern for social justice and moral outcomes.

As the slogan would go, in abuse of the philosopher Jeremy Bentham:

“The greatest wealth for the smallest number.”

BACK TO HOW IT WAS WITH AUSTRALIA?

Whichever faction prevails will be interested in making deals with Trump – if available – and push on with a proposed bi-lateral Free Trade Agreement with Australia.

The parties meeting Down Under might have a lot to offer one another, given, in Australia’s case, that much of the impressive EU engagement with the Australian economy in trade and investment is British.

Also to be considered, however, is the heavy predominance of Europe in British trade balances, especially under the “soft” separation currently being set up, competition from that quarter would hamper any Australian revival at the bottom line.

Could it really get back to the days of the Empire, with cheap food and fibre going to England, services in return, even a common currency and a free pass for citizens walking on and off the boat at both ends?

Disruption of the world trade and financial system built up since the 1940s, in any event, brings high risk of a down-turn — being hitched to the UK may not be the best place to be.

Yet there is a place for nostalgia.

Boris Johnson, for one – the hardline British free-marketeer and proponent of a “hard” settlement, who resigned over it as Foreign Secretary last week – has spoken keenly of Australian links.

Like many English backpackers – although in his case, a teacher at the high-cost Timbertop school in Victoria – he spent some time in the country during his youth and carried away fond impressions.

Media editor Dr Lee Duffield is a former ABC foreign correspondent, political journalist and academic.

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