Statement

Brexit Deal Won't End Uncertainty

25.12.2020

Gabriel Felbermayr, President of the Kiel Institute, comments on the Brexit deal:

Kiel Institute Statements - Gabriel Felbermayr

"I am very relieved about this last-minute agreement. The fact that there will now be no tariffs or quantitative restrictions on trade between the UK and the EU is clearly better than if there had been trade under the general rules of the World Trade Organization (WTO) without a deal. But how good the solution really is depends on the details, the analysis of which is just beginning.

The agreement is a great success, but the discussions and negotiations will not be over with today. Domestically, the Northern Ireland settlement will cause debate in the United Kingdom; with Brussels, disputes over interpretation and implementation of the text are bound to arise. Within the EU, the different costs of the deal for members will cause debate. These may become a hurdle, since all EU countries must agree and, if mixed competences are touched, the national parliaments as well.

For the German economy, the worst has been averted with this deal. The burden on some key German products - such as mutual tariffs of 10 percent on cars - would have been high. Nevertheless, there will be problems in the supply chains: After all, duty-free does not mean there are no customs formalities. Only goods that comply with the so-called rules of origin may be traded duty-free. In addition to new bureaucratic burdens, some German companies will be forced to restructure their supply chains. Only a customs union would have eliminated this problem, which Boris Johnson has unfortunately ruled out.

The United Kingdom will also have to bear economic losses through a free trade agreement compared to full membership. On balance, however, it is also clear that both sides benefit compared to a hard Brexit.

The European single market shrinks by 16 percent as a result of Brexit. In negotiations with China and the U.S., the EU can ultimately only score points with access to this single market. Its negotiating power and global shaping options are therefore shrinking. That is why it will be extremely important for the EU to develop partnership agreements with all the countries on its periphery, including not only the United Kingdom but also Switzerland, Turkey and Ukraine, which integrate these countries as much as possible into the single market. This will not be easy, but it is strategically indispensable. The agreement with London is certainly not the last word here."

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