UK drifts further from Europe
CFOs in continental Europe attach little importance to Brexit – lessons for Switzerland
Brexit continues to dominate the UK media, and the British still think it is as important to the rest of Europe as it is to them. Not so. From an economic perspective at least, the countries of continental Europe currently perceive Brexit as only a minor risk to their business, as the findings of the latest Deloitte European CFO Survey, based on 1,652 responses, show.
The clock is ticking, and unless there is a dramatic political U-turn, the United Kingdom will be leaving the European Union in less than a year. Yet it is currently completely unclear what Brexit will look like, when the process of withdrawal will actually be complete, or how long the transition period will be and how it will be managed in practice. The Brexit debate still rages in the UK, focusing on increasingly technical aspects of its possible impact. Would the Norwegian model be a solution for the UK? If so, what might that look like? Or should the UK adopt the Swiss model? Does it still need a customs union with the EU? Would such a customs union even be possible? And if not, does the UK’s largest port, Dover, actually have capacity for customs inspections?
Against this backdrop, it is unsurprising that British CFOs perceive the potential impact of Brexit as the second largest risk to their own company. The largest risk – weak economic growth in the UK – is also, of course, linked directly to the possible impact of the chaotic Brexit process.
CFOs in continental Europe take a very different view. Out of 12 risks to their company, they rate a hard Brexit as the second smallest. Apart from the UK, only Ireland breaks the pattern here: Irish CFOs see Brexit as by far the greatest risk facing their companies over the next two years. Compared with the European average, more than twice as many Irish CFOs believe Brexit will have a major impact, with very few believing that there will be only minor impact. For European CFOs, by contrast, the greatest perceived risk to their companies is a further Eurozone crisis. The new populist government in Italy is doing little to allay those fears, and a further economic or political crisis within the Eurozone has become more likely, with substantial potential impact within the Eurozone and beyond.
The chart below illustrates how different groups of CFOs rate the impact on their own company of a hard Brexit
For the moment at least, Brexit is regarded as primarily a British and Irish problem. However, it would not be the first primarily national crisis suddenly to affect the whole of Europe: others include the debt crisis in Greece and political instability in Italy. And here we find a possible explanation for the relatively low level of concern across Europe about Brexit: other internal challenges facing the EU are a greater priority for the moment. So far, Brussels has been very successful in preventing local problems from infecting the rest of the EU, but that means less scope for addressing each individual Member State’s problems in the same detail. This is particularly true of the UK’s confused and fragmented concerns. Nor does it have much time to spare even when an apparently dominant national problem is ultimately likely to pose a problem for the whole of Europe.
Of course, the UK is not the only country that needs to redefine its relationship with the EU. Switzerland does too, but it can be even less certain that the broader European public will attach the same importance to the key issues as the Swiss public do. Does it make sense to have a framework agreement with the EU? Which bilateral agreements would such an agreement contain – and which would it omit?
These issues are part of the public debate in Switzerland, yet only a handful of experts are addressing them in Europe. If the Brexit process offers Switzerland one lesson, then perhaps it is ‘Keep it simple’. The Swiss currently need to provide clarity on a range of issues. What is their position on things like the self-determination initiative, the initiative on limiting freedom of movement, the referendum against enacting the EU’s Firearms Directive, state subsidies or flanking measures? Rather than replicating the UK’s indecision and inconsistency, Switzerland should provide clarity. It needs to define its own positions at home and then take a robust approach to negotiations with the EU.
Regardless of the gathering political storm clouds, though, companies still need specific approaches to tackle the risks posed by individual countries, formulate scenarios and put adequate protection in place. And they need to remain flexible.