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Wolfgang Münchau: the EU needs the UK for all its international goals

Wolfgang Münchau is the Director of Eurointelligence.

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Wolfgang Münchau: the EU needs the UK for all its international goals

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Wolfgang Münchau is the Director of Eurointelligence.com, an internet-based service for economic news and analysis of the euro area. He is a columnist for the Financial Times and Corriere della Sera.

Point of view

Both the UK and the EU know they need to cut a deal; because if they don't cut a deal it's a disaster

A German citizen, he is established in the UK with his family. Euronews reporter Valerie Gauriat, met him in London a few days before UK Prime Minister Theresa May unveiled her proposals in Brussels regarding EU nationals. In this interview, Wofgang Münchau gives original insight on the implications of Brexit for the financial institutions in the City, as well as for european firms, geopolitics, and EU citizens studying or working in the UK.

Wolfgang Münchau:
“Because of the political changes in the UK, you may well find that they will introduce a longer transitional period.That would probably be the best compromise between the hard brexiteers and the soft brexiteers.

It could take 5 years until a trade agreement is reached

That they agree on ultimately a proper hard Brexit but keep the situation going for a intermediate period. It could be longer than 2 years, it could be 5 years. It could take us long until a trade agreement is negociated. And I think it could take 5 years. That means for those 5 years there’s no necessity for the City to do anything. So we’re looking at longer term shifts. And yes some businesses will go to Europe. Clearing is one of the businesses. But we also have to recognise we have capacity constraints. Frankfurt for example has only about 5000 empty chairs in offices available. And the capacity of Paris isn’t that great either. Dublin is a small financial center but not capable of absorbing London. One has to put things into proportion. The City of London employs more people than Frankfurt has inhabitants. So we’re not going to see this moving from one place to another.There will be some people who will lose their jobs. The City of London has already outsourced people to other parts of the UK. Like the back office staff has gone to place like Bristol or Edinburgh. And you will see that continue except that they will not go to Bristol and Edinburgh, they will go to Paris and Amsterdam and Frankfurt and other European locations.

European companies told to shut up

The European companies have been told by their leaders to shut up. So they’re not really protesting. Angela Merkel has told them I don’t want to hear any complaints from you because this is more important than your profits. Certainly for her more important than the profit. But one has to realise that when it comes to the cliff edge, say, there isn’t a deal. A lot of these companies have supply chains. Manufacturing supply chains that work across borders. So would BMW, would Peugeot just say:“no, just forget it, in the name of the united Europe we’re going to say nothing, and take these billions of losses on our chin”? Or will they actually complain to their presidents and chancelors and ministers, that they should strive for a softer Brexit.? My guess is that they will start to open their mouth the closer we get to the deadline.And we should also not forget that the EU has a massive trade surplus with the UK. There are more goods flowing into the UK than out of the UK. Trade make is a bigger proportion of the UK’s GDP than it is for the EU-UK trade. So the UK would be damaged more. But there are lot of Europeans that would be damaged as well by that. It is in both the interest of the EU and the UK to make a deal.

The idea of having an intra West- European conflict is mind boggingly stupid

And they both know that they need to cut a deal. Because if they don’t cut a deal it’s a disaster. From a European perspective, it would be the loss of the only other nuclear power in Europe. Other than France. It would be the loss of a member of the G7, of the G20. These are joint policy initiatives and we’re already having our difficulties with Donald Trump. Do we want another country that is renegade, that basically…allies with Trump against the EU? I don’t think it’s in the European interest. I think it’s much more in the European interest to accept Brexit and to say we have to keep a close relationship with the UK because we need the UK for all our international goals, like climate change, the fight against tax evasion, the fight against terrorism, all the other things for which we need to stand together. The idea of having an intra-European or a intra west European conflict is mind boggingly stupid. And over a few billion euros, and over theoretical issues on whether the European court of justice has some say in UK law or not. Issues that can easily be side-stepped and resolved if one applied a degree of rationality to these debates. The article 50 debate is complex but not difficult. So an agreement should be possible. Certainly easier than any of these European treaties we keep on negociating.

What we fear is not deportation, what we fear is discrimination. For example if the UK is no longer in the EU, the UK is no longer subject to European law or this jurisdiction of the European court of justice. The UK could impose university fees. The highest grade of university fees on foreign students. Now Chinese students for example pay massive university fees, like four or five times as much as EU students. The UK could simply increase university fees. UK could say to EU citizens that they are no longer likely to receive social benefit. Even if they worked here, they might be excluded from any social benefits despite the fact that they pay taxes. This is the discrimination that’s possible. Obviously there’s the discrimination at the border control. Instead of joining the short UK passport line you join the “other passports” line. And then life becomes just a little bit harder for everybody. And there could be even more extreme measures. The UK could simply say to workers that the tax bans, while the same rates would apply, the exemptions would only apply to UK citizens. So the first 8000 or 10000 of tax free allowance, would only apply to UK citizens.

The best option for EU workers if they plan on staying, is to adopt UK citizenship. Which may not be easy

These are the sort of changes they could unilaterally make, that the EU would find hard to control. Because national tax systems, social security systems will no longer be under EU control. And they may make a contract, but the EU has no way to enforce that contract. Because this is national sovereignty and countries have sovereignty over their taxes. And even if the government does not want to impose it, parliaments are sovereign. No parliament can instruct another parliament not to change tax rates. And so this is going to be very difficult. And the best option for EU workers is if they plan on staying, is to adopt UK citizenship. Which may not be that easy, because the UK has residency rules.

The lack of identity cards makes it very difficult for people to prove they are here. I’ve been here for 5 years. I’ve been trying to prove it, it’s hard! You have to find all sorts of bills and letters and bank statements that prove your existence. There is no stamp in anyone’s passport or a document that says I arrived on that day, nothing like that. The onus of proof is on the applicant. At the moment there is an application form that amounts to close to 100 pages. And it contains a number of traps, if people make a mistake they get rejected. So it’s very hard. So there are a number of obstacles for this to have a happy end. If there is a superficial agreement saying: “yes we’re going to let the people stay”, you need to look at details. We need a detailed agreement. One would say if you haven’t got a plan to be here forever fine. If you want to stay try to secure citizenship. But if you want to come here and stay forever, that is the question whether you really want to do that, because you might get into some difficulty. It might not be possible. It may still be possible now because I don’t think the UK can impose any retrospective legislation to either the date of the referendum or even the date of the article 50 declaration. Any agreement will probably take effect from 2019 onwards, that would be my best guess. However you don’t know. There is no legal certainty. I still think they would come to a good agreement. But there is a tail risk you can’t exclude it that when political events intrude, there might be some kind of accident, who knows, and there’s a tall risk that they don’t have a deal, and crash out of the EU and suddenly everybody’s rights have disappeared and we are at the mercy of an immigration department.”

Valérie Gauriat: “Have you tried to get UK citizenship?”

Wolfgang Münchau: “I am in the process of trying to. I haven’t started the application form, because I need to sort out more paperwork. I’m not in a hurry. But yes I have, because I’m here and I intend to stay here, my family intends to stay here, so we intend to follow this route. There’s no need to hurry but you need to get everything organised. Which is a burden. The pile of papers that we need to show for documentation is very big. This is the most complicated application I’ve ever made in my life for anything! There’s nothing like this..”