Future is blue 14/09/19

Good morning Future is blue readers,

This week we are covering the costs of Brexit, featuring a newly launched publication by LSE Professor Iain Begg for Funcas Europe. We’ve also talked to MEP Jonás Fernández, spokesperson of the Socialist & Democrat group at the Committee on Economic and Monetary Affairs in the European Parliament, about the new budget for the eurozone. As usual, you’ll find below some other resources to start the week fully inspired.

Future is Blue has reached an editorial collaboration agreement with academic journal ‘South European Society and Politics’ by Taylor&Francis Online. Our readerswill have free access to an article of each quarterly issue of the journal. 

Enjoy the reading and the sun if you can!

The impact of Brexit on both sides of the channel

As we enter yet another crunch week for Brexit, we’re having a look at the consequences of the divorce for the UK and the EU. 

There are currently last-minute negotiations between Barnier and his British counterpart Stephen Barclay. If they reach a deal, it will need to be signed at the EU summit end of this week and approved in Westminster on Saturday. The European Parliament should also give a green light. It’s a long shot, and for now the default scenario is the departure of the UK on October 31 without a deal. 

What kind of economic shock should we expect after all?

It’s really challenging to measure the consequences. “Brexit is unprecedented. It is arguably the first instance of a large modern economy opting for economic dis-integration from an economically integrated entity”, explains Professor Iain Begg in a freshly published paper in Funcas Europe. “Reversing integration will not necessarily have equal and opposite effects [as integration]”.

On a no-deal scenario, “evidence suggests the short-term effects on the UK will be significantly higher (as a proportion of GDP) for the UK than for the EU”, explains Professor Begg. Regarding the impact on the EU and different economic sectors, “the incidence will be very uneven, geography and historic links will be influential: the UK’s closest neighbors – Ireland above all, Belgium and The Netherlands – will be most vulnerable to either a negotiated or no-deal Brexit”.       

If you wonder how close we really are to seeing a deal this week, this Twitter thread will give you some good hints.

“Although preparations have been made on both sides and provide a variety of safeguards they are likely to prove inadequate. Nor is there a clear enough understanding of the economic processes: much of the research has focused on how trade flows will be affected by Brexit and to assess what they will mean for jobs and growth. However, in an economic relationship embracing the much broader integration of the single market, including labour flows, supply-chains and other forms of supply-side linkages, analysing trade is a necessary, but far from sufficient means of assessing the economic impact”, claims Professor Begg.

For more insights on the impact of Brexit, you can access the whole paper: The awkward economics of Brexit: irresistible forces confront immovable objects.

Eurozone budget coming to life

“Only two years ago, a fiscal capacity for the euro was a purely academic endeavor. Last night, we turned it into reality. This is a new pillar in the foundations supporting the euro”. These are the rather exultant words of the Eurozone president Mário Centeno after the latest eurozone meeting on 9 October.

After two years of discussions, one of Macron’s star policy proposals for the EU is slowly coming to life, albeit with a limited capacity. The so-called Budgetary Instrument for Convergence and Competitiveness (BICC), to be funded by the general EU budget, will reach 17 billion euros for a seven-year period. Further details on BICC can be found here.

“This is more than I expected and less than what I wish for. We need more, but this is a good start”, explains Jonás Fernández to Future is blue.

The purpose of this mechanism will be to promote growth and facilitate investment. It is expected to help the economies of countries struggling in times of crisis. As it currently is conceived, it’s a humble budget for such a task. Think of the 54 billion euros German climate deal which has a national nature. In any case, the French are keen to insist, the BICC budget can always grow.

“The eurozone needs an automatic stabilizer. The investment insurance proposed by the European Commission the previous term, the unemployment insurance that Von der Leyen has promised or this proposal for a eurozone budget are different options towards the same goal. Its size and the way these mechanisms will be governed is something we need to watch closely, but the journey goes on”, says Fernández. 

If you want to learn more on this, have a look at this Bruegel post by Ines Goncalves Raposo, summarizing the opinions of top economists on BICC.

Will cities save us from climate change?

Last week we started talking about urban mobility and the need to redesign how we move around in cities so we can cope with climate change. On this same topic, yet from a different angle, you may want to listen to this German Marshall Fund podcast with two mayors from the US and Germany on the role big cities can play to combat climate change.________

Georgieva’s new agenda for the IMF

World Finance Ministers and central bankers will meet in Washington this week for the annual meetings of the IMF and the World Bank. We are reading that Kristalina Georgieva’s new agenda for her five-year time as head of the IMF will include topics such as “growing inequality, climate risks and rapid technological change”. How much of that will be compromised if the world economy enters in recession? Read more on this here

Have a nice week!

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