These 5 countries are busy prepping for a post-Brexit world

Flags flutter outside the Houses of Parliament in London, on March 13, 2019.
Flags flutter outside the Houses of Parliament in London, on March 13, 2019.PHOTO: REUTERS

LONDON (WASHINGTON POST) - The British Parliament is trying to avert a no-deal Brexit on Oct 31. But these countries are bracing for the economic worst-case scenario of a no-deal departure.

1. IRELAND

To measure Ireland's profound vulnerability to a no-deal Brexit, just go to any slaughterhouse or supermarket in this nation - and ask who eats that beef, or how that bread, milk and beer reached the shelf.

Take Guinness. It's brewed in Dublin, bottled and canned in Belfast, sent back for distribution from Dublin, then often heads back north or across the Irish Sea to Britain for three border crossings before it reaches the consumer.

The same goes for milk, which is shipped back and forth for processing and sale in both jurisdictions.

Similarly fluid trade applies for cattle, pigs and sheep. Northern farmers often sell their animals for slaughter in the south, and the meat often is shipped back into Northern Ireland or elsewhere in Britain.

Then there is Ireland's dependence on Britain for critical goods and services: prescription and over-the-counter drugs, electricity and natural gas.

"I'm convinced we will be hit harder by a no-deal Brexit than Britain itself," says Dan O'Brien, senior economist at one of Ireland's main think tanks, the Institute of International and European Affairs in Dublin.

"We are much more trade-dependent. We export more beef to Britain than anywhere else. Even more importantly, a huge amount of our imports either come from the UK or via the UK Many of us produce goods bound for Britain. Everyone in Ireland is a daily consumer of British goods."

 
 
 
 

As a result, nowhere outside Britain is watching the Brexit shenanigans at Westminster more closely or nervously than in Ireland, whose own economic management is held hostage by the British government's vow to leave the European Union and its borderless trade environment without any successor agreement in place.

Economists broadly agree that Ireland's vibrant economy is close to overheating with near-full employment and rising wages amid unaffordable housing, deficits tamed thanks to record tax hauls from US multinationals based here, and growth near the top of the EU table.

The government of Prime Minister Leo Varadkar says it wants to unveil a 2020 budget next month that keeps a fiscal lid on things - but the crash-out Brexit being threatened next door would force the Irish to do the opposite, pumping money into an economy suddenly reeling from a severe shock.

"It is hard to plan when we do not yet know what the U.K. will do. But Irish business needs to plan for the worst... Waiting and hoping for the best is a gamble we cannot take. It would be a sure way to end up going to the wall when hard Brexit becomes an unwelcome reality," says Irish Business Minister Heather Humphreys.

In recent weeks she has regularly hosted events to help firms dependent on British trade secure state-backed bridging loans, pivot to new products and markets, and smarten up on accounting skills before new customs barriers and tariffs hit.

The introduction of those new trade barriers are all but certain to snarl traffic in the Republic of Ireland's ports and along its border with Northern Ireland. That invisible line represents Britain's only land border with the EU - a line that Brussels expects the Irish to enforce in event of Brexit.

InterTradeIreland, a cross-border agency established as part of the US-brokered 1998 peace accord that ended decades of bloodshed in Northern Ireland, says more than 1 million deliveries cross the 300-mile frontier each year. None is taxed or stopped for checks, thanks to joint EU membership.

A study commissioned by Northern Ireland's Department of the Economy found that many of the 11,000 businesses involved in imports and exports between the two parts of Ireland would find a post-Brexit border too expensive and bureaucratic to manage, leaving trade to wither.

One of those traders, O'Neills, is the largest sports equipment manufacturer in Ireland. It's based in Northern Ireland in the border town of Strabane - and could find its production of uniforms and equipment for thousands of Gaelic football and hurling clubs taxed as foreign exports.

"Half of our employees live in the Republic with the border barely 1½ miles away. Any delays on that border would cause us severe problems, especially if there's tariffs and duties, which would add 10 per cent to our costs and would make us uncompetitive," said O'Neills Managing Director Kieran Kennedy.

"Most businesses in the north are depending on sales to Europe," he said. "It would be an absolute disaster for Northern Ireland if there was a no-deal Brexit and a hard border. We'd lose the whole of the European market."

The Irish also need Britain's "land bridge" for transporting perishable goods between Ireland and continental Europe.

Aidan Flynn, general manager of the Freight Transport Association of Ireland, says it typically takes trucks bearing European goods around 20 hours to reach Ireland via the Chunnel tunnel or English Channel ferry and British highways - and double the time if forced to use cargo ships that bypass Britannia.

"It makes no economic sense to pay your drivers to sit drinking on a boat for the guts of two days," he says.

He forecasts that some popular goods and key ingredients would start to run short within two days of a hard Brexit, because Irish supply chains are premised on next-day deliveries from Britain - even for staples like bread. Almost all milled flour comes from Britain.

"We might have to live without it, or pay through the nose for the privilege," Flynn says.

Ireland's Economic and Social Research Institute estimates that a no-deal Brexit would cost each Irish household an annual average of €3,000 (S$4,580) before tax as many goods rise in price by 30 per cent or more - including such British-distributed staples as cereals, tea, coffee, sugar, ice cream and soft drinks.

But Humphreys says Ireland has spent the past three years preparing for Brexit to ensure that goods speed through Dublin Port, the key point of entry.

"I meet regularly with retail distributors who have strong exposure to British trade," she says. "They tell me they're doing everything they can to ensure a continuity of supply and bread on the shelves."

2. FRANCE

French customs officials will soon start on a dry month-long test of their Brexit preparedness, forcing companies to pretend that Britain already departed without a deal.

Companies that want to do business with Britain will have to file their plans online, make their declarations to customs officers, and potentially open up their shipments to inspectors, Gerald Darmanin, the French minister in charge of overseeing the customs agency, told RTL radio.

France does plenty of business with non-EU countries, he said. Companies should just be ready to deal with Britain as though it were "South Africa," he said.

"For a month, we are going to act as if there is Brexit for a large number of companies. We're going to put in place a sort of general rehearsal, so that we are ready at the end of October."

More than 4 million trucks go through the port every year. Right now, they face minimal controls, since there is no customs border between Britain and France. Much of the trade is done by businesses that have no prior experience with customs controls and borders.

Officials fear that if there is a disorderly withdrawal from Europe, the holdups from the trucks could snarl traffic across northern France. They are bolstering the ranks of their customs officers by 700, and the customs agency is practising all through September to prepare for a sudden British departure.

Stress is spiking. Customs workers went on strike earlier this year to demand higher pay for the anticipated stress they will face with the new demands. French fishermen who ply British waters wonder whether they will lose access to their fish stocks overnight. Winemakers have put expansion plans on hold.

France may line up with other EU countries to apply for disaster funding that officials in Brussels said Wednesday they were considering repurposing for a no-deal Brexit. The US$660 million fund usually is used for recovery from forest fires and earthquakes. This year it may be used for an economic explosion of a man-made variety, officials said.

The French government still sees a no-deal Brexit as the most likely scenario, officials have said, and they have held Brexit briefings with French businesses.

They are bracing for an economic slowdown, an unwelcome development for French President Emmanuel Macron, who has just started to move beyond months of Yellow Vest protests against his rule.

3. GERMANY

With its signature efficiency, Germany has long been preparing for the impact of Brexit. Its port authorities assure that measures are in place to avoid disruption, and its finance ministry says preparations for a no-deal Brexit are "largely-completed."

In an attempt to mitigate potential Brexit chaos in export-dependent Germany, customs authorities are hiring 900 additional employees to carry out the additional checks that will be required overnight in case of a no-deal.

As of Aug 1, some 620 of the new customs employees have been hired and are based at the main international cargo airports of Leipzig, Frankfurt, Cologne and Munich, as well as the sea port of Hamburg, according to the Central Customs Authority.

But already at risk of recession, pundits have warned that Brexit could help push export-dependent Germany over the edge. Britain is Germany's fifth-largest export market, though exports to Britain have dropped for three consecutive years since the Brexit vote, in part due to the drop in the value of the pound.

German firms say they are doing what they can to prepare themselves. Cars are the backbone of the German manufacturing industry, and its automobile giants have been some of the most vocal lobbyists against Brexit - while taking steps to shelter themselves against the fallout.

Britain is not just Germany's biggest single export market for cars, but also a key supplier of parts. Car companies have a complex supply chain, where parts often cross Europe's tariff-free borders more than once, meaning they could be particularly hard hit by a hard Brexit.

BMW has shifted some of its engine production out of Britain. In July, it said it had switched the manufacture of engines destined for South Africa from the West Midlands to Germany. Industry experts say manufactures have also shipped additional finished cars to Britain to prevent a disruption in supply.

Other sectors are also moving to get ahead of Brexit. The German pharmaceutical firm Bayer has built extra warehousing in Britain. German banks have been attempting to contact clients they believe might be impacted to help them cushion the blow.

An article in German regional newspaper Hamburger Abendblatt this week laid out for its readers the bleakest scenario: Tens of thousands of jobs are at stake, and billions for Germany's economy. Visitors to Britain will have to navigate visa applications and there could be a shortage in medical supplies. But it also pointed to a small bright side for tourists: The pound has been falling for months.

"Travelling to the island and shopping in London will be cheaper," it said.

4. SPAIN

Spain is home to more than 300,000 Britons, according to registrations with the Spanish government, a larger share than the other 27 EU states.

Anticipating a possible no-deal Brexit, Spain passed a contingency plan in March promising British residents certain rights and a fast-track to permanent residency.

But the decree explicitly demanded reciprocity for the more than 150,000 Spaniards living in Britain.

But little else suggests Spain has been gearing up for a no-deal Brexit - and the country has much at stake.

In March, the Bank of Spain estimated a chaotic Brexit would cause a .8 per cent drop in the Spanish GDP over the next five years, amounting to some €10 billion.

Britain is the top European country investor in Spain, committing some €80 billion in 2017. Britons are also key to the housing market, making up 23 per cent of transactions of used houses in 2018.

And there are signs that British investors are already growing skittish. Britons made up only 13.8 per cent of real estate sales to foreigners in the first quarter of this year, down from 15 percent in 2018, according to the Association of Property Registrars.

"Spain has not put in place any incentives for real estate investment for Britons. We have a golden visa schedule that allows non-EU residents to gain an EU visa by buying property above a certain threshold and with some extra requirements, but this obviously does not apply to Britons yet," explained David del Val with financial analysis and market research company Afi.

Spanish Prime Minister Pedro Sánchez has said he intends to safeguard the rights of Spaniards living in Britain, as well as to maintain administrative and legal cooperation on criminal matters.

"My main goal was to guarantee that the UK's decision (to leave the EU) would have the smallest possible impact on citizens and businesses," he said earlier this year.

In addition to providing permanent residency for Britons living in Spain, the post-Brexit plan puts in place other key measures recognising working and voting rights, and providing driving permits, social security, unemployment, education and health care for these Brits.

But the bigger challenge may not be the Brits living in Spain, but retaining the tourists the country hopes to attract. Every year, Spain's coasts and islands flood with tourists roasting on the beaches and enjoying their summer homes on the Mediterranean coast - and until now a sizable share of those tourists have been British.

But Spain recorded a 1.4 per cent drop in British tourists in the first half of 2019, according to the National Institute of Statistics.

Spain also faces a challenge managing the border with the British overseas territory of Gibraltar, which sits on Spain's southern tip and has long been a sore spot between the two EU countries.

Gibraltar depends on an estimated 15,000 frontier workers - some 9,000 of whom are Spaniards. A chaotic Brexit would force Spain to reopen border control stations and could cause long delays. For now, the gates remain open.

5. POLAND

Unlike other EU member states, Poland isn't particularly stressed about the possibility of a no-deal Brexit.

"Honestly speaking, I would not say we have far-reaching countrywide preparations for Brexit," said Jakub Borowski, Chief Economist at the Crédit Agricole bank in Warsaw. Borowski pointed to a widespread belief in Poland that a deal with Britain would eventually be struck and a no-deal scenario avoided. The country's overall economic dependency on Britain was also relatively low, despite the strong Polish-British ties, he said.

"In the long run, a hard Brexit can even be positive for Poland because we may benefit from migration and investment," added Borowski.

About 900,000 Polish nationals are estimated to live in Britain, the highest number of any EU nation Facing unemployment and low wages at home, younger Poles especially began moving to Britain when it opened up its labor markets in 2004. The mass emigration of Poles soon began to worry lawmakers in Warsaw, however, who feared the "brain drain" could hamper economic growth.

Britain crashing out of the EU could be an opportunity to "reverse migration trends and attract back" some of the Poles working in Britain, wrote Mariusz-Jan Radlo of the Warsaw School of Economics in an analysis last year. That could have a positive impact on Poland's "long-term economic growth," according to Radlo, as the Polish economy suffers from a shortage in skilled labour.

Polish economists hoped a no-deal Brexit would lead to the transfer of more production facilities to Poland.

"Poland looks attractive in terms of location, quality of the labor force and wages," which remain lower than in many other parts of Europe, said Borowski.

Still, he acknowledged that the impact "in the short run can be painful," especially for companies that would face higher-than-average tariffs on exports to Britain. Some of those companies have begun to look for ways to diversify their export markets.

Remittances from Britain could also decline significantly if there is a hard Brexit, with the British Pound expected to lose more of its value and fewer Poles expected to move to Britain.

Personal remittances from Polish migrants to their home country made up about 1.2 per cent of Poland's GDP last year, according to World Bank estimates. But analysts said lost remittances could be balanced out by Polish nationals moving their families - and potentially their companies - to Poland.