Though time is quickly running out for a trade pact between the United Kingdom and the European Union in the critical final hours of Brexit divorce talks, both sides will continue to be linked together regardless of what happens, according to a panel of European business executives hosted by Northeastern University.
The U.K. left the EU in January but continued to apply the bloc’s rules through the end of 2020 as it attempted to hammer out new border agreements. But talks—which have a deadline of Oct. 15—have hit a snag around several key trading issues and it remains to be seen what happens next.
With or without a deal, “the EU is the most important export destination, the most important trading partner for the U.K.,” said Sara Hewin, chief economist at investment banking giant Standard Chartered, speaking on a live teleconference from London.
“The U.K. is an important trading partner for the EU, so no matter what happens with the Brexit talks, the two sides are closely linked together,” she said.
Joseph E. Aoun, president of Northeastern, kicked off the panel by noting that the COVID-19 pandemic had forced the international community to grapple with a range of issues that were unforeseen at the start of the year.
“We are living in a new situation for all of us, whether we are in Asia, in Europe, in Africa, in the Middle East, in Australia, or in the United States, or in the Americas. Obviously, everybody is looking at the impact of COVID-19 on on our everyday lives, but also on how we interact with other people, on our businesses, our communications, and our travels,” he said.
Oct. 15, which also coincides with an EU summit in Brussels, was supposed to be the line in the sand for striking a deal. An arrangement by that date would still have left enough time in the rest of 2020 for the legal and bureaucratic details to be worked out and for the treaty to be drawn up, Hewin said.
Negotiations between U.K. Prime Minister Boris Johnson and European Commission President Ursula von der Leyen, slated for the evening of Oct. 14, may smooth out some of the remaining hurdles, which include state aid, trade with Northern Ireland, and sovereignty over fishing waters, panelists said.
More precisely, the EU is keen on the U.K. not turning into an aggressive competitor, Hewin explained. There are state aid rules in the European Union that prevent governments from giving an unfair advantage to certain businesses through financial support. Meanwhile, the pressing issue with fisheries is that while they are a small part of the U.K.’s economy, they are a significant sector politically.
The U.K. wants to gain sovereignty over fishing waters, but the EU wants to have certainty that fishermen from France, Belgium, and the Netherlands will have access to U.K. waters, and they don’t want this to be negotiated on an annual basis, said Hewin.
Solidarity will be key to moving the broader, post-pandemic European economy forward, added Doris Honold, who worked in corporate banking in Europe and Asia before taking a fellowship with Harvard University’s Advanced Leadership Initiative.
She and other panelists also discussed the effect of the coronavirus on other aspects of the European economy.
“I think the economic outlook for Europe, like for most of the rest of the world other than China, is grim,” Honold said from Germany. Forecasts call for a K-shaped recovery in which certain sectors of the economy recover more quickly and have an upward trajectory while other sectors lag behind, causing a downward slide, she said.
The clear shift from consuming services to consuming goods means that goods-producing sectors are thriving while service-oriented industries like restaurants and travel industries are hurting. The situation will not change until the global pandemic ends, and Honold said forecasts don’t predict a recovery until 2022.
“Any success over the pandemic is only temporary unless it’s beaten everywhere, which requires more global collaboration across Europe and also across the world,” Honold said. “I think Germany always showed solidarity with its neighbors and will do so in the future.”
Over in France, where Philippe d’Ornano runs the high-end cosmetics firm Sisley, the coronavirus financially impacted the family business. The initial hits to the business came from China before moving to other Asian countries, Europe, the United States and the Middle East, d’Ornano said. Still, the company’s digital business helped offset some losses.
The pandemic had a “severe” impact in March and April before Sisley started to recover in May, d’Ornano said.
Being a mid-sized company was an advantage, d’Ornano said, in that it allowed the business to keep factories open despite some employees working from home, while bigger companies shut everything down.
Prime Minister Jean Castex has warned that France could face further restrictions, including a lockdown, as the nation faces a strong second wave of new infections.
Several large cities, including Paris and Marseille, were recently placed under maximum virus alert. While local governments have objected, bars and other public establishments will be closed in high-infection areas. The prime minister has called on French residents to limit private gatherings in their homes to limit the virus’s spread.
“I think the real question will be whether we can go forward or whether we’re going to be confined again,” d’Ornano said. The uncertainty surrounding the pandemic has caused people and companies to hold the line on spending, crimping the economy, he added.
The virtual panel discussion was sponsored by Northeastern’s Young Global Leaders program and hosted by graduates Emilio Botin and Alia Malik. Prior discussions have focused on climate change, Africa, and Latin America.
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