Current affairs

John Wetherell, a lecturer on the International MBA, Executive MBA and Master of International Business at EAE Business School

Friday, 1 de June, 2018

There is growing concern about the lack of preparation of European and Spanish companies with respect to the upcoming departure of the United Kingdom from the European Union. If the establishment of the Customs Union, the Common Market and the Schengen Area has contributed towards increasing trade between the member countries, the departure of the Union’s second largest economy, financial hub, and second biggest contributor to the budget is sure to have the opposite effect.

Most importantly, companies with direct relations with the United Kingdom, whether in terms of trade, market investment, will be the most badly affected. However, according to the latest surveys, it is the issue that least concerns them.

There are several reasons for this. First of all, planning for the unknown may be considered a waste of time and possibly resources. As time goes by, the United Kingdom is increasingly interested in maintaining some kind of relationship with the EU, the most likely of which will be some type of Customs Union. In fact, the higher chamber of the British Parliament, the House of Lords, voted in favour of this option last week. The UK could very possibly guarantee that it keeps the same regulatory framework as the EU in the hope that the EU agrees not to put up a trade barrier between them.

The EU also faces a dilemma. It may be in the Union’s best interests to go along with this proposal but there is a fear that an excessively favourable agreement for the UK could lead to other countries seeking partial withdrawals from the EU. The largest of these, Italy, is the fourth largest economy in the Union and a founding member of the EU, unlike the UK. There is a widespread perception that belonging to the Eurozone has damaged the country’s growth and it is the Member State with the highest anti-European vote.

Other countries interested in having a different relationship than they currently have with the EU are the Scandinavian countries and certain states in Eastern Europe. If these countries saw that the UK has been able to negotiate a painless departure, they may be encouraged to seek their own agreements and dismember the common project that the creation of the EU represents. This logic may lead us to conclude that the EU would reject any British proposal to remain a key part of a Customs Union, but we know from experience that the EU has always allowed the UK to have special treatment, with a last-minute agreement always being reached when the eleventh hour is drawing to a close, so there may be no reason to think that it will be different in this case.

Therefore, as well as companies not knowing which future forecasts for they should base their risk prevention plans on, there is another deep-rooted reason why companies are not taking precautions against the UK’s departure from the EU. Companies are formed of people and, as such, they share a growing distrust of the authorities that ask them to think of potential difficulties. If we have learned anything from Brexit, it is that even the experts representing the most important institutions in the United Kingdom, Europe and the world (IMF) can always get it wrong. The government of the United Kingdom got it wrong when it was sure it would win the referendum. The EU got it wrong when it thought that no country would be foolish enough to leave the Union. They all got it wrong when they predicted a negative impact on the British economy in response to the vote to leave.

Now, these experts are telling us that economic disaster awaits us as the effective withdrawal approaches, when companies move their activities out of the UK triggering a recession, a drop in Spanish exports to Great Britain, a reduction in British tourism to the Mediterranean coast and a breakdown in the financial flows with unpredictable consequences. While they may be right, based on their track record, people do not believe them. As a result, companies are also holding back from preparing for the worst. Deep down, they believe that some solution or other will be found and everything will carry on more or less as it is now.

The third reason that companies are taking a calm approach to Brexit is the certainty that the world is changing, as their sales figures show. Nowadays, it is possible to sell in almost any country in the world. The growing exports of Spanish companies outside the EU confirm this.

Exporting to Morocco, Nigeria, Kenya or India is increasingly more viable and profitable. This reality is based on the concept of the global city - Casablanca, Lagos, Nairobi and Mumbai. In these cities, there are millions of consumers with cosmopolitan tastes that are becoming ever-more similar. If a Spanish product sells well in Bangkok, it is very likely that it will also sell well in Valparaiso or Sydney. Two of these global cities stand out from the rest: New York and London. Whatever Brexit deal is reached, this global order is unlikely to change and London will remain a key point of reference for companies, and Spanish companies will want to ensure their continued presence there.