EU And Ireland Are Sceptical Of Withdrawal After PM Johnson Extended Final Brexit Offer To The EU

  • Oct 04, 2019 BST
  • Team Kalkine
EU And Ireland Are Sceptical Of Withdrawal After PM Johnson Extended Final Brexit Offer To The EU

With only 27-days left for Brexit, political disputes are heightening, and this will not lead to any material solution to this Brexit saga. As on October 03, the EU and Ireland commented that PM Johnson’s “final withdrawal offer” is far-fetched to yield a divorce arrangement. Meanwhile, Dublin clearly gave warnings that the UK is heading to crash out of the bloc without any formal agreement unless it offers more concessions.

After comments came out from Ireland, the EU extended its full support to the Dublin. The EU said that it was open for negotiations, but still not sure whether the British Prime Minister's withdrawal plan offered by UK officials as the final withdrawal offer will be enough to avoid a disorderly Brexit scheduled at the end of the October 2019.

Simon Coveney, Irish Foreign Minister, said that, If the British Prime Minister's proposals were final then a no-deal Brexit lay ahead. He also added that “but what I assume PM Johnson also want to get a Brexit done with a formal deal, but if that is the final of deal that he has presented already to the EU, then there will be a no-deal Brexit for sure”.

Donald Tusk, the European Council President, commented that European Union bloc is completely supporting Ireland. He also added that they are open for discussions but totally unconvinced with PM Johnson's offer. Also, Jean-Claude, European Commission President said that final Brexit offer presented by the British Prime Minister had a number of problematic areas.

How does a disorderly exit of the UK could become a problem for the global economy?

If the UK crashes out of the EU bloc without a deal on the scheduled date of October 31, 2019, at 23:00 GMT, its aftermath effects could drag further the already fragile world economy. The June 2016 Brexit referendum came as a shock to the world economy but chances of a worst-case exit without any Withdrawal deal from the EU is evident to land a severe blow to the British economy.

However, the crucial question is how much pain could be transferred elsewhere at a time when the world’s two largest economies, US and China, are already battling it out in a fiercely fought trade deal and has led to a manufacturing slump globally.

The next most affected economy would be Euro-zone, with the European Central Bank forecasting that the zone would be hit by equivalent of 10-30% of what the British economy suffers. That is potentially a difference between facing a slowdown or a complete recession.

The consequences of a disorderly exit would be intense for the British economy, and also for each of European Union member countries as well.

The United States runs a marginal trade surplus in goods with Britain, a little less than US$3 billion for the first seven months of 2019. Relatively, the United States ran a global trade deficit in goods of approximately US$500 billion in 2019 through July.

A no-deal exit of the UK would be likely to stretch that, even though the United States and the United Kingdom may negotiate a bilateral trade agreement.

In the wake of a no-deal kind of Brexit, US dollars, the safe-haven currency, could gain further ground against the British Pound, which would be a crucial challenge for domestic entities and could disrupt the ordinary course of lives of people over there.

Chief Eurozone economist at Pantheon Macroeconomics, Claus Vistesen, at, estimated that a disorderly exit would cost the Eurozone by 0.1% to 0.2% in quarterly gross domestic product (GDP) “ based on the initial hit to the real economy for the seizure in real trade flows, and hit to sentiment,” he added.

Jacob Kirkegaard, a senior fellow at the Peterson Institute for International Economics said that: If Britain crashes out of the bloc without any formal arrangement with EU bloc, the British pound is going to be a nosedive in value against the greenback and against the basket of major currencies. He also added that “If you’re an American producer selling goods to London you all of a sudden witness a trade barrier,” he said, and this will make U.S. goods more expensive over there. The prospect of business disruptions is another threat that could hit American corporations hard. “If you get disorderly Brexit, you’re going to have a severe disruption of supply chains, which means every U.S. company that has operations in Britain is going to be very significantly and adversely affected”.

The Bank of England's latest assessment of the "worst-case no-deal, no-transition scenario" is for a drop in the gross domestic product of 5.5% from peak to trough. That illustrates the severity of the damage that could result. Our estimates suggest that for every 1% less U.K. GDP, euro-area GDP will be down by 0.2% to 0.25%," Klaus Baader, chief global economist at Société General, said in a Bloomberg interview on Tuesday, 1 October 2019. “A really deep recession in the U.K. could very much push the euro area into recession.” ECB policymaker Olli Rehn said last month that the impact on Europe would be "unevenly spread: Ireland would suffer the most, and then countries that export a lot to the U.K.”

Part of the problem for Europe is that the ECB has already used up much of its policy ammunition in fighting the latest slowdown in the Euro area, leaving it with little firepower if Brexit sparks more serious turmoil. Outgoing President Mario Draghi noted last month that the number of dangers faced by the 19-nation region, including a no-deal Brexit, have gone up.

Germany, a key trading partner of China and the U.S., could have a bigger spillover for the rest of the world, which is already suffering from the trade war between the two biggest economies.

Uncertainty is a problem for everybody. It's in part seen as a bit of a sideshow -- which it isn't." If a no-deal Brexit causes a euro-area recession ", then that really becomes a global issue.

Recently a survey conducted by the Big 4 audit firm KPMG reported that House prices in Britain would decline significantly by as much as by 1/5th  if PM Johnson exercise a no-deal disorderly Brexit. It also revealed that the sharpest decline in the House prices could be experienced in the capital city of the UK - London and Northern Ireland.

However, since withdrawal referendum took place three years ago, House prices growth has slumped, and prices lowered across South England in August 2019 for the first time since the financial crisis occurred in 2008-09.

Therefore, it is true that a no-deal exit of the UK from the European Union bloc going to cost everyone dealing with the UK at this time, but no one exactly knows the quantum of loss or pain that would be there in the post-Brexit era.

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