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Britain counts the cost of Brexit as negotiations with Europe begin: Don Pittis

The disadvantages of pulling out of Europe with a 'hard Brexit' suddenly begin to take shape

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Already the pound has plunged and Bank of England governor Mark Carney, right, almost raised interest rates last week. But the economic impact of Brexit could be far worse if negotiations that begin today are unsuccessful. (Adrian Dennis/Reuters)

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British Prime Minister Theresa May has no time to dawdle. Despite confusion at home, the clock on Brexit is ticking, and as talks with Europe begin, things aren't going quite the way May expected.

With the assertive-sounding — if empty — slogan "Brexit means Brexit," the Conservative leader boldly pulled the trigger on Article 50 back in March, beginning a negotiation process with a firm two-year deadline.

May talked tough. Her surprise move to call a snap election was expected to strengthen her hand at the table. But the strategy flopped.

Now, with her minority government struggling and her own future as leader in doubt, May's negotiating team is under pressure.

The deadline can be extended, but only with the unanimous support of every member state of the European Union. At this point such an extension is far from a sure thing.

Theoretically, as hardline Brexiters have suggested, Britain could just walk away from the talks, unilaterally declaring its independence as a sovereign nation and offering this message to those slippery continentals: get stuffed.

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British Prime Minister Theresa May took a bold stance in favour of 'hard Brexit,' but following an election where her party won only a minority of seats, she is in a weaker position. (Toby Melville/Reuters)

 

But now that the deal is pressing, British businesses, interest groups and ordinary people are beginning to realize how much is at stake. Walking away would leave too much on the table.

One of the most obvious points of contention as the talks begin is cash, with the European team estimating that Britain will owe something in the order of €100 billion when the deal closes in 2019. British hardliners say au contraire, insisting Europe owes Britain cash.

"It's more like leaving a gym or a club," the London Telegraph quoted one unnamed source as saying. "You don't continue to pay for other people to use the facilities after you leave."

Skipping out?

Of course that's not true if you were part owner of the club and had run up large debts during the 40 years you were a member, then skipped out without covering your share. 

As a first stage, the Europeans aren't asking for an absolute figure. All they want to do is agree to a formula to calculate what that figure would be.

And while paying a bill of tens of billions of pounds attracts outrage in the tabloids, other costs to Britain will be much more significant.

Trade and finance are two items on the agenda that have real measurable costs. According to the British Office of National Statistics, in 2016 the U.K. exported 44 per cent of its goods and services, tariff free, to other European countries. That's £240 billion worth of exports out of a total of £550 billion.

Walking away from Europe without an accord could leave Britain in a worse trade position with the EU than Canada once the CETA free trade deal kicks in.

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If Britain were to walk away from Europe without a deal it could leave them in a worse position that Canada once the Comprehensive Economic and Trade Agreement with Europe kicks in. (Francois Lenoir/Reuters)

  

From its historic position as a global hub of finance, Britain — specifically the City of London as its financial district is called — has taken the role of Europe's business capital as well, issuing European bonds and hosting savvy traders from all the countries of the EU. The world does much of its European business there.

Already companies are reconsidering the need for their London headquarters to conduct European affairs. Without a friendly deal on taxes, regulations and residency, The City of London could see its business shrink as bankers and the professionals that serve them go elsewhere. High-paying jobs would be lost.

Savings lost

One financial cost has already hit every British citizen. The value of personal savings fell by tens of billions and spending power declined sharply after the pound fell in the wake of the Brexit vote.

Last week British retail sales also fell sharply, with analysts blaming it on an inflation rate that has climbed to 2.5 per cent. Central bank governor Mark Carney was nearly forced to raise interest rates but has delayed for now.

Other costs are far harder to measure.

Many British citizens have recreational properties or retirement homes on the continent. As members of the EU, residency rules, property ownership, taxes and health care provisions are all clearly laid out. A hostile negotiation could threaten those.

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Young, dynamic and pro-European, newly elected French President Emmanuel Macron has the majority Theresa May failed to secure. (Tony Gentile/Reuters)

For young people, the opportunities to work or study in other parts of Europe could disappear. The status of the border with Ireland and the pro-European sentiment in Scotland have yet to be resolved.

Perhaps the worst part of the separation process will be the loss of European influence on dowdy, parochial British politics. 

Continental Europe has emerged as an economic hot spot. Unemployment is falling. In Emmanuel Macron, France has a new young, dynamic, outward-looking pro-European leader and a strong majority.

Unlikely saviour

Yet against her every intention, May's stumble may have saved Britain from becoming isolated and inward-looking, the new 1960s Portugal celebrating its lost empire as the country crumbles. 

Instead of showing the strength of her hardline position, with her failure at the polls, May has succeeded in weakening Britain's intransigent, hard-Brexit negotiating position. 

With Labour nipping at her heels, with newly empowered pro-Europeans among conservative MPs and in the House of Lords, with the dynamic voice of British youth crying out to retain links with Europe, May — or her eventual replacement — could be forced to make a compromise deal that will serve Britain better.

Follow Don on Twitter @don_pittis

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