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Nearly Imminent Hard Brexit Threatening Global Order In Days
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Last Updated on: 31st August 2021, 12:36 am
It is now less than two weeks time until the long-dreaded Hard Brexit scenario becomes a reality with all of its threatened international economic dislocation and corporate pain. This past week the news emerged from London that the British are deploying four patrol ships backed up by satellite technology to be ready to seize and impound any European country fishing boats caught in their reclaimed England Exclusive Economic Zone. Besides a return to the dangerous days of the Cod Wars (with Iceland) against primarily France this time, Hard Brexit threatens to upend already fragile economies from across the European Union to Britain and beyond. While in America a looming unemployment benefits cliff threatens to steal the holidays, in the EU and Britain the problems stem from neither side being able or willing to back down.
High Potential Geopolitical Impact of Hard Brexit Increasing
In the event of a seemingly unavoidable no-deal Brexit, the British navy will be deploying four Royal Navy patrol ships as of January 1st to assist in safeguarding the country's reclaimed fishing waters. This has dredged up unpleasant memories of the 1970's era cod wars with Iceland.
The British exclusive economic zone that stretches as far as 200 miles off the United Kingdom shoreline will be patrolled by these 80 yards (meters) armed vessels that have the right to halt, check, and seize any European Union fishing boat in these territorial waters. In fact the Conservative led government has unobtrusively doubled the country's patrol ships fleet in the English Channel to eight to be ready for the needs of the looming no-deal scenario.
Observers have been given assurances that the Royal Navy will not be firing their automatic weapons on European Union fishing boats. Instead the navy will board any boats they feel are breaking the international rules to inspect their holdings. Extreme scenarios will see these boats impounded and escorted to the closest British port. In an attempt to diffuse the tense and worsening situation, a navy source announced that:
“Nobody is going to be firing warning shots against French fishermen; firearms are only used when there is danger to life.”
Fears of Return to the “Cod Wars” of the 1970s Very Real
This has awakened images of the almost-forgotten Cod Wars that took place between British and Icelandic fishing trawlers in the early years of the 1970s. At this time, fishing boats on the two sides were routinely rammed while fishing nets got cut. The situation devolved to warning shots being fired in several of the incidents.
While fishing is an enormous point of contention between the Europeans and the British, other troubling economic and geopolitical issues are in play. The EU fishing fleets will be outlawed from fishing the British Exclusive Economic Zone if a deal is not struck in the next under 14 days. This graphic below shows the extent of the various territorial waters claims as EEZ's by European nations and the United Kingdom:
The crisis is so severe that the European Union has all but abandoned hopes of resolving it over the days between now and New Year's Eve. Instead, EU negotiators offered a year long extension to the fishing arrangements of the transitional period so that a deal could be arranged. EU Commission President Ursula von der Leyen explained that:
“We understand that the UK aspires to control its waters. The U.K must on the other hand understand the legitimate expectations of EU fishing fleets built on decades and sometimes centuries of access.”
British Standoff with EU Emboldening Russian Aggression
Though the Royal Navy is only deploying four of the navy's patrol ships from the river class, the Prime Minister Boris Johnson could call up other warships as necessary. Former Rear Admiral Chris Parry counseled ministers to take assertive action with:
“I would seek to make an example and take a [EU fishing] boat or two into Harwich or Hastings. Once you had impounded them, the others would not be so keen to transgress without insurance.”
A serious concern is that the navy may over commit itself to the territorial waters issue with the EU even as the aggressive Russian submarines have been operating in the theater around the United Kingdom. Chair Tobias Ellwood of the Defense Select Committee warned that:
“Our adversaries will be smiling as the biggest European militaries spar against each other over fish.”
Economic Issues At Stake If Brexit Talks Do Not Successfully Conclude In Next 12 Days
There is much more at stake in the nearly imminent Hard Brexit than only troubling geopolitical tensions between long time allies like Great Britain and France (who only several years ago celebrated the 100 year anniversary of the Cordial Entente alliance). The economics of the Hard Brexit will impact sectors of international production, trade, and finance well beyond mere fishing rights disputes.
When Britain crashes out of the EU customs union and single market come December 31st there will be a sudden end to the decades of free movement in capital, people, goods, and services. Without a last minute trade agreement being inked, there will be a significant financial and economic blow struck against both businesses and consumers on the British and European sides alike. Firms will have little choice but to wrestle with quotas, tariffs, and even possible border chaos as they ship goods from Britain to the continent.
The new covid task force threatening to constrict U.S. financial markets could hardly do more damage than that which may be visited upon the City of London though. Financial firms from the city of London will struggle to gain and maintain European Union approval to continue serving their millions of customers throughout the single economic bloc. Atop rising food and goods prices throughout the United Kingdom, consumers will lose their long cherished rights to stay and live in the other 27 nations of the EU.
Absent such a trade deal being inked in under two weeks around Christmas and New Year's holidays, the United Kingdom has been forecast to suffer near-term economic shocks ranging from 1.5 percent of GDP per Bloomberg Economics to two percent per the British spending watchdog the Office for Budget Responsibility. Meanwhile the pain cuts two ways in this messy and non-cordial divorce from the single market. The International Monetary Fund has forecast that the coming no-deal Brexit will cut the long-term forecast output of the EU by nearly .5 percent even as it slashes the British long term potential output by nearly three percent.
Tariffs to Hit Pan European Trade and Economies Hard Under No Deal Brexit
British companies will be losing frictionless trade access to their market of over 400 million potential customers when the firms begin operating under the WTO rules agreed on in 1995. This will amount to a de facto tax on all goods. While the average tariff rate in the European Union is a mere three percent, some important goods will face higher tariffs as in the auto making industry (10 percent tariffs levied on car exports to EU markets) and the dairy farming sector (34.5 percent tariffs assessed).
These tariffs will also mean that higher prices are likely coming to both firms and customers in Britain. About 85 percent of the food imported into the U.K. from the EU would receive tariffs of at least five percent. These examples are all the more meaningful because roughly 43 percent of total British exports (amounting to roughly £300 billion) are destined for the European Union every year while around 51 percent of total U.K. imports arrive from the single market.
Customs Issues to Snarl Movement of Key Goods Between Britain and Europe
Whether there is a trade deal or not there will be slowdowns resulting from the requirement that any British business that exports to the EU has to file declarations with customs. Trucks will require government permits that show their paperwork is in order so that the French officials will not delay them at the border crossing point from Dover to Calais.
This is all the more critical for the manufacturing companies that depend on just-in-time parts such as aerospace and auto making firms that could find their operations suddenly in chaos. Meanwhile fresh produce foods may simply rot in trucks waiting in line. Animal products too are impacted as they require that a veterinarian has issued an export health certificate.
London Financial Services Taking A Regulatory Hit
Perhaps most devastating for single sector industries is the impact that may be felt by the critical London Financial Services industry. Financial firms are all imminent to lose their passport rights to provide their crucial financial and economic services to the European Union countries regardless of if a trade deal is signed or is not. Many of them took the necessary measures of moving staff and some operations within another country of the bloc like Germany, Ireland, or France.
Otherwise, continued access to their clients is dependent on the European Union assessing the British rules to be “equivalent” in 40 different areas to their own. Not concluding a trade agreement in the next less than two weeks will harm this process. Even should the European Union grant the permission though, they can pull it at whim without providing much notice. Gold makes sense in an IRA more than ever given the rapidly dwindling time remaining before the world's fifth largest economy (and one of the two greatest financial hubs in the world) crashes out of the world's largest single market economic block. There are many different gold IRA allocation strategies to read about.