Another Ruinous Brexit Delay
(Bloomberg Opinion) -- After another week of thoroughly inconclusive Brexit talks, U.K. Prime Minister Theresa May has decided — surprise, surprise — for yet more delay. A cynic might say that’s been her plan all along.
Since the deal May negotiated with the European Union was rejected by Parliament last month, she’s done essentially nothing. By all indications, she’s biding her time in the hopes that the looming threat of a chaotic exit can induce a majority to come around to her plan. Maybe it will. But this calculation couldn’t possibly justify the harm the government is inflicting in the meantime. Brexit has already imposed immense costs on businesses; each added day of histrionic uncertainty is making matters worse.
With just over 30 days to go, the more than 100,000 British companies that export goods to the EU still have no idea what duties their products will face. Without a deal, tariffs on sheep exports could rise from zero to as high as 50 percent, for instance, making them entirely uncompetitive. Terms of trade with the rest of the world are likewise unknowable: Of the 69 countries the U.K. now trades with under EU agreements, only seven have so far agreed to post-Brexit deals.
That’s just the beginning. Companies are still largely in the dark about such matters as future rules of origin and safety standards, registration and customs requirements, visa and administrative demands, dispute-resolution procedures, data-protection rules, border-control policies, and on and on. Often they don’t even know who their regulators will be. It’s a lottery jackpot for lawyers and a nightmare for everyone else.
One predictable result is that companies have been forced to enact costly contingency plans. Banks have shifted staff, equipment and assets out of the U.K. Manufacturers are stockpiling inputs. Companies are delaying investments, relocating workers, or threatening to leave the country altogether.
In aggregate, these measures are worsening an already grim picture. Britain’s output grew by just 0.2 percent in the fourth quarter, and shrank by 0.4 percent in December. Its economy grew by a meager 1.4 percent in 2018. Ominously, business investment fell by 3.7 percent in the last quarter over the previous year — the fourth straight quarter of decline.
Brexit’s specter has undoubtedly contributed. By one recent estimate, the decision to leave has already reduced GDP by about 2 percent; other research has come to similar conclusions. A survey of big U.K. companies recently found that 56 percent consider Brexit a principal risk; a grand total of 0 percent thought it would be good for business.
Then there’s the public cost. Officially, the government has set aside some $5.4 billion for Brexit preparations. But this doesn’t count the added staffing, resources and attention diverted from other public business. Uncertainty, once again, is worsening matters: Many of the preparations now underway — such as securing ferries to ship critical supplies and building new IT systems for border controls — could be entirely for naught if a deal materializes. But the spending goes on all the same.
All this waste and risk, finally, could hardly have come at a worse time. Across Europe, economies are slowing. Germany, the continent’s powerhouse, has all but stalled. Earlier this month, the European Commission slashed its growth forecast for the EU to 1.3 percent for 2019, down from 1.9 percent. Meanwhile, the union’s second-biggest economy is shooting itself in the foot — over and over again.
There’s some evidence that the British political system has finally had enough. Both main parties are cracking. Parliament has threatened to take control of the Brexit process, and this week it may well succeed. In the meantime, May’s dithering is making a terrible mistake all the more costly.
Editorials are written by the Bloomberg Opinion editorial board.
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