Brexit escalation raises alarm for ailing European economy

No-deal Brexit will multiply Europe’s businesses’ concerns: economists

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“However, suppose another (supplier), perhaps in another country, fails to prepare, your part of the value chain still grinds to a halt, and your customer still stops ordering. What do you do?” said Driffield.

He expects a no-deal Brexit to lead to 5-10 years of negotiations over trade, which is about as long as the EU took to negotiate one with Canada, another Commonwealth country whose economic and political values are very close to Europe’s.

The EU as a whole is Britain’s largest trading partner, accounting for almost half its international trade. For the rest of the EU, Britain accounts for about 20% of trade. The US accounts for 18% of UK exports and 11% of imports.

The European countries that are most exposed to disruption to trade with Britain are the smaller countries that are closest and have ports that funnel the trade to the British isles: the Netherlands, Belgium, and Ireland. France and Germany also trade heavily with Britain, but are larger economies that would, in relative terms, suffer less.

While the direct impact would be more modest outside Europe, concerns about the ramifications of such an unprecedented situation would likely roil financial markets and weigh on a weakening global economy.

Help may be on its way. The European Central Bank is expected to unveil new monetary stimulus as early as Sept. 12, but economists say that will act more as a salve than a cure. The issues derailing the economy – from Brexit to the trade wars – require action from politicians.

The ECB policymakers have also called on governments to spend more if they can afford it. Germany, which is running a surplus, is one such example. But Berlin is balking at taking on debt – even at rates below zero – to spend more. In part, that may be because economic downturns don’t tend to lead to as many job losses in Germany as they do in the US or UK, where there are fewer worker protections.

That could all change, however, if US President Donald Trump steps in to make things even worse for the European economy by putting tariffs on cars, a huge industry for the region, particularly Germany.

Kenningham believes it’s unlikely but possible, as Trump’s trade policies have become increasingly erratic.

“The combination of a no-deal Brexit and US auto tariffs (...) would push Germany into a protracted recession.” (AP)