The implications of Brexit for the EU Economy -- How it will be more Costly than Initially Believed

The farewell of the United Kingdom to the European Union will cause the Member States significant problems in terms of the EU budget. In fact, although during 2020 Britain will continue to pay its share of 16 billion euros into the coffers of the Union, by 2021, the situation will change. Not only will a new political agreement have to be found for the 2021-2027 budget, but also to understand how the budget hole left by Britain will be managed. To seriously suggest that Brexit will have little to no effect on the EU is merely astonishing. It completely ignores elementary facts of the geopolitical and economic structure and dynamics of the EU. In fact the EU 27 post-Brexit, will have to find 10% of the EU budget amongst the members ; assuming the EU chooses not to cut spending anywhere. For 2020, the budget allocated has been 168.7 billion euros. The UK pays 16 billion (9.5%). It should be remembered that the total sum of the EU budget is spread in different percentages between the various member states. Italy for example is one of the major contributors, ranking fourth. Ahead of it, there is only Germany, France, and Great Britain. But given that one of the most important contributing states, Great Britain, will leave the European Union, how will then the 16 billion euros that Britain paid be covered. The answer lies in the remaining 27 Member States. But be careful, because the issue is not the simplest. Those who will suffer the most considerable consequences will probably be Germany, France, and Italy, namely the countries that contribute the most to the EU budget. According to the study The impact of Brexit in the Eu budget, published by the Ceps policy brief, a research center specializing in European affairs, which based its simulation on the 2014 EU budget (lower than that of 2020), to cover the budget hole left by the UK; Germany will have to increase its contribution by 2.56 billion euros (+ 9%); France by 1.47 billion euros (+7%) and Italy of 791 million euros (+ 5.22%). These sums, however, are variable and not definitive for two reasons. First of all, it is necessary to understand from the point of view of the single market at a commercial level what will be decided. And the next few months will be crucial in this. Welcome to The Atlantis Report. Britain could, in fact, decide to join some EU projects, therefore to put a budget. In this case, the budget hole would decrease. Another aspect that should not be underestimated is a further extension that the British could ask for on 31 December 2020. And finally, another unknown factor is that it is not yet known how ambitious or not the budget for 2021-2027 will be, which will be decided by the end of the year. At the moment, the Commission and Parliament are at two diametrically opposed positions. But they will have to find a political agreement to create new resources to be allocated in the EU. So from one side there is the European Parliament, which is pushing for an ambitious draft budget. The aim is therefore to obtain a budget equal to 1.3% of the gross national income of the member countries (at the moment we are 1.16%. The estimated budget would, therefore, be 1,324 billion euros. On the other side, there is the Commission , which plays down and pushes for 1.11% of the gross national income, with budget forecasts of around 1,279 billion euros. The individual Member States obviously push to further lower the figure in order to make less contributions possible to the EU. A meeting will be held on February 20 to try to reach an agreement or a first compromise between the two dominant positions, but the road is still long. These percentages, which play on decimals, are of fundamental importance for the Member States. If in fact the proposal of the European Parliament should prevail, and therefore a more ambitious budget should be created. The Member States will not only have to increase their national contributions (adequate to inflation and national economic growth); but they will also have to think about filling the budget hole of 16 billion left by Britain. On the other hand, if the Commission manages to get the upper hand. There would be a less ambitious budget (which means, for example, cuts in projects) , and fewer resources from the member states. This could also be added to the fact that the UK gap could be partially covered by the EU's own resources. VAT, a percentage levy on the gross national income of the Member States, etc. And therefore weigh less on the coffers of individual member states. The following population figures are based on Eurostat estimates of the EU’s population as of 1 January 2018 published by the European Commission, and the GDP data is based on Purchasing Power Parity (not nominal) as published by the International Monetary Fund. Of the EU’s total population of just over 500 million, 15 of the 28 existing member states (half the number of EU member states) have populations of fewer than 10 million, while four (Germany, France, UK, and Italy) have populations more than 50 million (more than half the EU population) and the fifth (Spain) with 46.5 million. The “big five” thus have a combined population of about 322 million while the 15 smallest combined are 61 million — less than the UK alone. Remove the UK from the picture, and the total population drops to 430 million, and the new “big five” will have 257 million. In terms of GDP (PPP), the UK’s annual GDP of $2.9-trillion is second only to Germany’s $3.8-trillion. Only five EU members have an annual GDP of more than One trillion (Germany, UK, France, Italy, and Spain). The total combined GDP of the EU is $20.8-trillion, which means the top five account for more than 60% of the EU’s total GDP.($13.2-trillion). Again, remove the UK from the picture and the EU’s total GDP moves down to $18.1 trillion with the top five accounting for 11 trillion which is 61%. Brexit will thus represent a major loss to the EU in terms of population and GDP. It’s equivalent to half the number of member states leaving and will certainly change the balance of economic and political forces within the EU significantly. Yet UK leaving is considered just a small inconvenience. When it comes to politics, the EU has to try and balance representation with population and membership. There are four main political institutions that govern the EU: The European Parliament (EP) (elected directly on proportional representation by the general population in all member states). The European Council (the heads of each member state elected by the electorates either directly or indirectly by each member state, and includes a President who is not a serving head of state, and the President of the European Commission). The Council of the European Union (Cabinet ministers from each member state who meet in different portfolios to discuss matters of relevance to their portfolios such as agriculture or energy). They help prepare specific policy guides for the European Commission and European Council. The European Commission (appointed by the Commission President -- at present Mr. Jean-Claude Juncker -- who in turn is elected by the European Parliament based on nominations by the European Council . The Parliament cannot nominate anyone to be Commission President. The Commission has the sole power of introducing legislation to the European Parliament. To understand how this policy machine works and why population and GDP amounts are important, it is important to unpack it a bit. This is a bit long and pedantic, but it is important to understand the inner workings of the EU to understand the dynamics of membership, and more importantly, how Brexit will change things. The political engine of the EU is the Commission (similar to a cabinet, but not political party based). They are mainly technocrats, and most of their work is not too exciting. If, for example, a widget is invented and is to be made and sold in the EU, the Commission will consult whoever necessary to draft any health, safety, production, and retail standards that may be needed for the widget. It will then prepare these standards into legislation to be introduced to the EP. In most cases, the EP members, after yawning their way through pages of technical details of the widget, will give their approval. A “simple majority” of a quorate number of members in a session is all that is needed. In some cases, an “absolute majority” (376, which is one more than half the EP’s 750 members) is required. The interesting bit about the EP is that its election is based on proportional representation based on population ; ranging from 96 seats (12.8%) for Germany to 6 seats (0.8%) for Malta. Voters have to vote for EP parties (not national parties), and members are selected from a list provided by the parties depending on the number of votes cast for that party in a particular member state. It is thus possible for a member of a party to be elected in one member state and for another member of the same party to be elected in another member state. The biggest group in the EP is the European Peoples’ Party (EPP), and the second is the Progressive Alliance of Socialists and Democrats. In the rare case where EP members may snap awake and not be happy with the new widget rules, they may vote against them. On even rarer occasions, a simple majority of EP members may vote against the legislation tabled by the EU Commission. I’m not even sure if this has ever happened. The EP result is then sent to the European Council to be ratified and promulgated into law or amended if necessary and returned to the EP for an absolute majority (if rejected by a simple majority in the first place). The Council votes a little differently. It has to pass legislation with a “qualified majority.” This is at least 16 Council member states who between them must represent at least 65% of the total EU population. This means the “big five” need to have at least another 11 members supporting them. It also means that even if 16 members support a law, if they do not represent at least 65% of the total population, the law fails. For issues that have not come from either the Commission or High Representative of the Union for Foreign Affairs and Security Policy (essentially the vice-president of the Commission responsible for common foreign and security policy -- at present Federica Mogherini), then the threshold goes up to 72% of the population (325 million), making it almost impossible for a majority of members of the EU without the support of at least two of the “big five.” Once passed by the Council, If any state does not apply the law, the matter heads into the European Court of Justice for a ruling and, if necessary punitive measures amid much wailing, rending of sackcloth and gnashing of teeth. All good and simple, so it may seem. But while that may be fine for widget standards, it becomes a little more tricky when more emotive political issues crop up -- like immigration, national budgets, the Euro, a central EU finance minister, the move to “deeper integration” (aka federal government), a combined European Defence Force (no, not Nato -- an EU force in which all soldiers come under a single command structure, with single pay, conditions of service, weapons, uniforms, etc. -- you know, the sort of stuff that costs real big money). Then what? There is another fly in the policy machine. For some issues (such as new membership, taxation, finances, etc.), unanimity is required in the Council -- which means every member state irrespective of size has the same weight vote. This was one of the issues that fanned the Brexit vote. If the EP was like a conventional parliament, this might not have been much of an issue -- but as shown, the EP has almost no policy power at all. Unanimity is still required in the Council. Remove the UK from the machine and balance change. Remember, the voting percentages cannot be changed unless the Treaty of Lisbon is changed, but the balances certainly change with the economically struggling south (Italy and Spain), picking up considerably more power. Brexit will mean a change in the political balances of the EU’s major decision-making structures .Because without the UK, the new “big five” (Poland or the Netherlands joins Germany, France, Italy, and Spain with less voting power); will need other members, (Poland, Sweden, Austria, Denmark, and Finland all come into the picture), to hit the qualified vote thresholds. I can assure you, Italy and Spain do not share the same economic priorities as Germany and France (or the erstwhile UK). If you think the UK House of Commons has been a chaotic comedy show, wait for the main event still to come in Brussels because all this is going to be at a time when the EU is going to have to make sweeping policy changes if it is to survive .Such as a single EU finance minister to set union-wide fiscal policy and even the possible division of the Euro into two currencies with differing values. One thing is absolutely certain. Brexit will not be a “minor blip” for the EU that will be barely noticed, and does beg the question: What is the EU’s plan for Brexit since it is so fond of sending the UK to hell for the lack of one. The answer, I am afraid, is that the EU does not have a plan any more than the UK does. It can’t. Brexit is a divorce, and unless both sides agree to a settlement, both parties suffer. You can’t have a one-sided plan any more than a one-sided settlement. Of course, Brexit is not the end. The EU and UK can (and must) still have a close economic relationship after Brexit by negotiating a free trade agreement . But the political relationship will be over. To take the divorce analogy further -- you can still talk about money but not sex. I think the EU’s handling of Brexit has been nothing short of abominable and disgraceful and will cost the Union far more than it imagines. This was The Atlantis Report. Please Like. Share. And Subscribe. Thank You.










The Financial Armageddon Economic Collapse Blog tracks trends and forecasts , futurists , visionaries , free investigative journalists , researchers , Whistelblowers , truthers and many more