We in Ireland are acutely aware of the danger of a no-deal Brexit for this country. But what of elsewhere in the EU?

Guntram Wolff, the director of the prestigious Brussels economic think-tank Bruegel, was in Berlin today, where he made a presentation on the implications of a no-deal Brexit to the Bundestag’s EU committee.

Guntran Wolff made a presentation on the implications of a no-deal Brexit

Three key takeaways:

1) A no-deal Brexit would lead to a deterioration of long-term political relationships, which would make a new trade deal and other forms of EU-UK co-operation less likely.

2) If the EU wants to protect the integrity of the single market, a no-deal Brexit will mean the imposition of customs controls on the Irish border.

3) His policy response recommendation - "the overall strategic direction the EU should take would be to increase the cost to the UK of a no-deal Brexit as much as possible".

A respected economist, Wolff rightly points out in his paper for the Bundestag that economic rationalism will not trump political gut instincts in the UK.


Just because a no-deal Brexit would be more costly for the UK than the EU doesn’t mean that British politicians will avoid no-deal at all cost: they may well believe the "cause" is worth the price.

While we in Ireland have concentrated (understandably) on the question of the border and the peace process, there are other issues at stake if the Withdrawal Agreement is voted down in Westminster.

One of these is the impact that no financial settlement will have on the EU budget. Overall €45-€50 billion is owed to the EU over a number of years.

But in the short term a no-deal Brexit would immediately open a €16.5 billion hole in the EU budget between now and 2020, when the current budget package runs out.

This shortfall will be made up by the member states pitching in more, according to Wolff, using the established share out based on Gross National Income (GNI).

In the case of Germany that means paying in €4.2 billion extra between April 2019 and December 2020. (less about €0.2bn in extra customs duty revenue on UK goods).

He writes "given that the size of the Brexit bill is small compared to the UK budget (eg in 2020 it is about 1%), but large compared to the EU budget (6.5% in 2020) the EU would justifiably consider the non-honouring of the UK’s financial commitments as a hostile act".

Wolff's advice to the Bundestag and the EU is that they refuse to make concessions to the UK on emergency measures that may be needed after 30 March unless the UK pays the money it owes.

He says the Commission has done "serious work" in reviewing all possible sectoral effects of a no-deal Brexit on the EU economy, and has proposed emergency draft regulations and other measures to attempt to mitigate the worst effects.

The commission, he says, has identified road transport, customs, sanitary requirements, personal data, EU climate policy, visas and citizens' rights and financial services as areas that might need quick action.

He thinks the most important contingency plans have already been made by the industry and official bodies to deal with any financial stability concerns arising from Brexit, and praises the co-operation between the ECB and the Bank of England to preserve stability - something that it is important to continue with.

But he says the EU’s willingness to co-operate with the UK in managing short-term frictions from a no-deal Brexit depends on whether or not the British pay the money they owe, though he notes that non-cooperation would in itself not be cost free to the EU - but the costs would be particularly high in the UK.

Under what he calls "a more reasonable scenario" - one in which there is no formal deal, but in which the British do pay money and agree to implement many parts of the agreement that has been negotiated - he expects there would be co-operation on a number of "files" including visa rights, co-operation on the Irish border and customs co-operation.

He advises member states, governments and parliaments, as well as the EU institutions, to be ready for no-deal emergency legislative packages, especially in areas where human life may be at risk such as health care and nuclear safety.

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But there is a real question mark over whether the EU can adopt all the emergency laws needed to mitigate the impact of a no-deal Brexit by 29 March.

Because of this he thinks the EU has an interest in a short delay to the Article 50 process in case Westminster (decisively) rejects the Withdrawal Agreement.

And by short he means either 18 April, the last scheduled sitting day of the European Parliament, or the end of June, the last legally possible day that the currently constituted Parliament has any right to pass legislation.

He says that the Commission's contingency planning and emergency measures could only alleviate some of the negative impact of Brexit on Ireland.

He says the Commission has suggested financial support for Ireland and a number of measures to improve transport logistics.

But he says they can only have limited effects, and the infrastructure implications on transport and energy in particular would take time to fix.

Most importantly for the peace process, he argues that a no-deal Brexit would result in the re-imposition of customs controls in Ireland that the backstop aims to prevent.

He writes "the EU and the UK might therefore be ready to go back to the negotiating table to prevent violence on the island of Ireland in case of a likely no-deal Brexit".

What could such talks be about? Wolff thinks "small modifications to the political declaration (on the future relationship between the UK and EU) and even the withdrawal agreement itself could be made "closer to the moment of a no-deal Brexit".

The likelihood of such changes also depends on an assessment of the costs of a no-deal Brexit on both sides. (On the specific case of Germany, Wolff says the data - notably the WTO tariffs that would apply - suggest "a rather modest effect on overall German exports, but the effects would be relevant in specific sectors such as the car industry". The average tariff on cars is 10%, but is zero on pharmaceuticals, 1.8% for machinery and equipment and 2.5% for electrical equipment).

His overall advice to the EU side in the event of a no-deal Brexit is to increase the cost to the UK as much as possible (while respecting ethical limits), but at the same time showing more flexibility on the political declaration and possibly the Withdrawal Agreement itself.

He writes "the departure of the UK without any deal would be a very bad signal to the world about the ability of the UK in particular and also of the EU to co-operate with strategic partners.

It would be highly damaging in terms of the UK-EU political relationship". While stressing the importance of the EU remaining united over the next six months, he stresses that the EU "must not lose sight of its long-term strategic interests" during this turbulent period.