Hard Brexit: The termination of Britain’s EU membership

Good evening. The House of Commons authorized the government to renegotiate the agreement on the termination of the UK’s EU membership with Brussels. Prime Minister Theresa May promised not to introduce border control on the Irish–Northern Irish border after Brexit. The President of the European Council has not ruled out the possibility of revising the Brexit agreement if it is justified. The European Union and its institutions are united in sticking to the agreement that has already been adopted to determine the conditions for Brexit, said Michel Barnier, EU Chief Negotiator for Brexit, on Wednesday in Brussels. March 29th is the date for Brexit. By that time, the conditions for exiting should be settled upon. But, will they be settled? We will talk about this with my guests after the clip.

Last December the House of Commons postponed. Then, in January it rejected the proposal that would regulate the termination of Britain’s EU membership. In addition to the opposition parties, the Prime Minister’s own party members and other cabinet parties did not support the Brexit document. The biggest debate was triggered by the question of reintroduction of border control on the Northern Irish border.

The other major topic was whether to extend the date of the exit instead of leaving it at the end of March. On Tuesday, the pact was negotiated by the lower chamber of London and several points were amended. MEPs argued throughout the night. The Prime Minister urged the renegotiation of the agreement with the EU. Theresa May was empowered to do so by a minimal majority. The motion was supported by 317, but 301 voted against it.

It is clear that the amendment to the exit agreement and its related negotiations will not be easy. The government’s goal is to seek legally binding changes, bearing in mind that there is no need to reintroduce border controls at the border between the Republic of Ireland and Northern Ireland, the Prime Minister said. The suggestion of the opposition party that the Brexit deadline be postponed to the end of the year was rejected by the Members of the House. Given that the Honored House rejected the pact supported by the Prime Minister, we are ready to meet with the head of government and propose what kind of agreement the Labor Party wants to have with the European Union, said Jeremy Corbyn.

The President of the European Council stated that the Brexit document cannot be renegotiated. At the same time, Donald Tusk welcomed the fact that the UK would want to avoid an unregulated exit. The politician said that Brussels would be prepared to review the agreement if it were justified. For this, Britain is expected to remain as part of the single market or the customs union. If, however, the UK leaves the community without an agreement, that is, if a hard Brexit would happen, London could cease to enforce the EU principle of free movement in Great Britain within a short period of time. In that case, EU citizens, such as citizens of the Visegrád countries, who arrive in the UK after Brexit to visit, work, or study would only receive a three-month residence permit. If one wants to stay longer than three months, he or she must submit a separate request. It would be valid for another three years, but it would require a fee. In these cases, applicants would need to prove their identities and that they have not committed a serious crime. For a foreigner to be allowed to settle in the UK for over three years, the applicant’s qualification would be crucial. Foreign EU citizens who have been living in Britain for more than five years would not be subject to the new strict immigration policy.

In the studio I welcome Csaba Szajlai, Deputy Editor-in-Chief of Figyelő, and Dávid Németh, Chief Analyst of K & H. I wish the gentlemen a good evening.

Good evening.

What seems to be the most likely scenario now? March 29th is very close.

Maybe the latter, that is, the March 29th exit and a hard Brexit. My bet is that the European Union will not go into further bargaining. The British had time, because it has been almost a three-year long process. It would also make the decision-making mechanism of the European Union look not serious if they would set a further interval for Brexit. I am pleased that we are talking about this topic, because it is the biggest issue of the European Union, in several respects. It is a big deal from the perspective of money and the capital market, as the British play a significant role in this, as well as from the perspective of Anglo-Saxon influence, indirectly through America. It is a very important topic for the EU budget, since the British are net contributors. It is important also from the point of view of the labor market, as UK statistics show that about 1.2 million people from the V4 countries work in Britain. So, we are facing a big issue and we can’t tell what will happen, but I think we will face a lot of negative prospects in the next period.

Well, we’ll talk about that too. Do you agree that this scenario is the most likely?

I’m not so pessimistic. Indeed, the Brexit negotiations have not been very successful recently. However, the deadline is getting tighter, and it seems that events are spinning. Both sides are interested in working together in the future. Europe is interested in not having economic growth cut back, and Britain is interested in not collapsing.Of course, there is also an interest in Europe to show that it is not easy to get out of the European Union and that is why we make it hard.

This is an important part of it.

This is an absolutely important part of it, yes. But, I think that when we will be there where there are only a few weeks left until the actual date, that is when the European Union will be a little more compromising than it is now. But, it is true that a significant part of the contract will not be renegotiated because it would make no sense. If the British Parliament only needs a little fine tuning to accept the agreement that Theresa May negotiated, then I think the EU will be willing to do that, even at the price that the actual exit date would be postponed by a few months, say, to early July.

How much will the Visegrád countries be affected with whatever Brexit will be realized?

I think there will be a major transformation in the relationship between the UK and the EU and the Visegrád 4 as well, since nothing will be the same as it used to be. I think that the laws are going to change, and the conditions of working in the UK will most likely be different. It is impossible to know what exceptions the British are going to allow for the V4 countries, but, of course, this cannot be defined as just the V4, but for EU workers. There will certainly be a need for EU workers, as they are needed now.

A big question in the next period is how the British economy will survive, because money is already leaving the country. Most likely many financial centers will transfer their headquarters after Brexit, especially from the inner parts and London, say, to the developed western European cities, such as Frankfurt, Paris, and Milan. I’m certain that this will be part of it. I think that, after the exit, although it is in the common interest of the European Union and Britain to keep up the economic growth, I think we can prepare for a recession. Another question is how the British imagine the future. Apparently, the British top leadership, the British aristocracy, if I may put it that way, the British politicians are basically pro-EU. But, according to recent surveys, if a referendum were to be held again on whether or not the British should quit, British citizens would again vote for Brexit. So, I think the relationship with the EU is still complicated.

How will a large net contributor’s exit affect the economic management of the European Union?

In the European Union budget, the British have been indeed very big contributors, and since our region, the V4, has benefited from that in the recent period by receiving more money from the European Union in the form of subsidies than they had to pay to the common budget, Brexit will negatively affect the region.

The question should be divided into two parts. On the one hand, there will be less money in the EU’s budget, at least according to current knowledge. But in the meantime, the Germans and the French are trying to put together another EU budget, but we don’t know how and who will be net contributors in it. But, under the current system, there will be fewer payments in the EU common budget, which will be allocated to the member states through various structural, cohesion, or agricultural funds. Because of this, they will be sharing less money and we will probably receive less money. But, there is another effect. Britain is a rich country, and with the loss of a rich country, the GDP of the European Union will decrease. So, the level of the gross domestic product begins to decline, making our region relatively rich. And, there are rules that prevent developed regions from accessing certain development resources. As a result, there would be more regions in Hungary that would not be eligible for development funds anymore. So, overall, it is very easy to imagine that a loss of up to 20–25% may occur in the budget cycle after 2021 compared to during the 2014–2020 period.

I would add that there are not too many regions that would be so over-developed in the context of the European Union if it really came true what Adam said. Otherwise, the reasoning is really logical, because if we think about it, London and its surroundings are the richest, most developed EU regions. Returning to what is very important for us Hungarians: how things will be after the Brexit, when the EU’s regional structure changes, and when there will be less payment to the common budget. It is even more important what will happen to the Hungarian exports to Britain. Great Britain is an important trading partner, with 5–6% of our exports…

Sorry for interrupting, but we have a chart and we can show the V4 countries’ export and import proportions with the UK. I’m asking my colleagues to show the chart, and we can see together that the Hungarians, for example, are not at the top of the list compared to the Poles. Poland is a much more important partner for the UK both in terms of exports and imports. Here is the table. So, the Czech Republic takes 5%, Hungary 3.9%, Poland 7%, and Slovakia 6% in the export. For this reason, Brexit will hit Poland the hardest from the region. If we look at import data, there are no big differences: 2–3% each. But, the UK is not among our most important partners. From the point of view of Hungary, the UK is only in 14^th place, so it will probably not affect the Hungarian economy very negatively, hopefully. Is this what the charts translate to?

This chart was created by the OECD. I saw something else. I saw a British statistic that showed 5–6% for Hungary too, but it’s not worth to argue over a few percentages. The point is that we need the British market. So, it is very important for the Hungarian government to have good relations with Britain in the next period. There is an option for this, as Péter Szijjártó has negotiated with the British Minister of Economy and with the British Foreign Minister several times, and there were joint press conferences. So, you have the opportunity to stay in touch. This is important to us, since the percentages in question, whether it is 3.9% or 5–6%, are important. Just to provide some context, this is the volume of our commercial relations with Switzerland or Austria as well. So, the export of Hungarian products to Great Britain is a topic that should be addressed with priority, especially because we are able to export products, for example, red wine, that succeed only on the British market. It is a fact that only few people realize that Great Britain is one of the largest importers of Hungarian red wine. Another important area is productivity. What kind of plants are there in Hungary, and how can we adapt to the British global chains? And, it is not just about the commercial chains, but about the transmission that Britain provides to the Hungarians through the Anglo-Saxon culture. This is similar to the example when we talk about how Germany is the biggest market for Hungarian products, but in fact we indirectly also export to China and to the United States. The value of this is much higher than what can be seen from the statistics at first glance.

Now, a transition period is coming. The new EU financial period will begin in 2020. Does this new scenario include the British-free scenario?

What the British are now negotiating with the EU is just about the conditions under which they leave. That is why there is another period until 2020, when they will agree on how they will probably work together in the future. And, therefore, provided that the Brexit agreement is finally accepted by the British Parliament, until the end of 2020 the British will meet their obligations to pay their contribution to the EU budget. And, until then, the member states may call the full amount originally issued for them, of course, if they meet the requirements for such applications. So, by 2020, it can be said that, if this agreement is in place, that is if the British Parliament accepts it, we will not experience anything different in the EU budget or its functioning. After 2020, a new era will start in every respect. If there will be an agreement on how the European Union will cooperate with Britain in the future, we will also see better what kind of trade relations we will have with the UK in the long term. How much Hungary gets from the EU budget, that we will probably see earlier, maybe even in 2020. Theoretically, new tenders could be launched beginning in 2021. But, now it seems that this will not be realistic, because the European political forces will not be able to reach an agreement. So, it could be postponed even until 2022–2023 when our region and other European countries will actually be able to access EU funds and can start investing with them.

Let’s move onto some political questions. In what cases did the United Kingdom stand behind the V4 and in what cases did it stand against them?

Basically, the United Kingdom has always been a supporter of the V4 countries when political issues have surfaced. Our relationship was basically good and our relationship is still good now, for Poles, Hungarians, Slovaks, and Czechs. I think this is the starting point, and it should be nurtured and strengthened during the next period as well. But, perhaps there is a more important part to the politics of the next period. After all, with the withdrawal of the British, a so-called separate policy leaves behind the decision-making of the European Union, which means that the hegemony of the German–French axis will be clearly dominant.

Is that what we have to prepare for?

Yes, most probably.

Because what characterized decision-making up to 2019 was a bit more diverse. The influence on the decisions of the Italians, Spaniards, and other Member States was more significant. Now, the German–French axis seems to be developing. The British have always had a great influence on the decision-making of the European Union, given that we are talking about a country of 60–70 million, and British MEPs also had a significant voting power in the European Parliament. This kind of special policy is now lost. We Hungarians must be interested in working with the V4 countries. We are not enough just by ourselves neither in the European Union nor in the European Parliament. However, if we work together with the V4 countries, Poles, Czechs, and Slovaks, and I would add our Croatian brothers as well, I think that we have a greater chance of being able to stand up for issues together. In this respect also, the withdrawal of the British is regrettable. As I said earlier, the Hungarian–British, Czech–British, Slovak–British, or Polish–British connections worked very well. In fact, if we speak in terms of our professions, economics, then, for example, the British influence, or more specifically the British Anglo-Saxon intellectual influence on the Polish economy, is very strong, much stronger than in other Central European countries. In Poland, the kind of money and capital market culture that is typical of the British has evolved or is evolving. I am thinking here first of all about the operation of the stock market.

We have about two minutes left. I think we still have time for one of the most important questions. What happens to the employees? There are different estimates, but the number of V4 citizens working in the UK is between 1 and 1.5 million. What will happen to them?

According to current information, those who are already employees can remain in the country. The big question will be what kind of agreement will the European Union have with the UK in the long term and to what extent will a free labor flow be allowed between Britain and the countries of the European Union. We have seen different agreements, for example, with Switzerland or Norway, where movement within the EU is more tolerant, but there are also different conditions for staying there. So, there can be many scenarios here which could lead to temporary employee permission, no employee permission, or even a strict definition of the professionals that will be allowed people to enter the country. The British are clearly of the opinion that they want to choose who is valuable to them and what the economy needs, and on that basis they want to decide how many people can settle and work in the country. However, if they want to remain to a large extent in the European single market, then the European Union is expecting the UK to be more liberal about allowing EU citizens to work in the UK and to pay more into the EU budget. So, there are still a lot of conflicts of interest here, and they will be settled as the result of the 1.5-year negotiation series, if they can agree on what the exit conditions will be for the UK.

We, together with many, are curiously looking forward to seeing the developments. Thank you for being here and sharing your valuable thoughts with us.

Thank you.

Dear viewers, you have been watching the V4 Future of Europe program. Next week we will back with fresh information. Thank you for your attention and goodbye.