The latest data on European economies performance in 2019 showed that the Eurozone economy continues to lose ground, down from 0.3% to 0.1% in the last three months. The biggest economies of the EU individually performed no better – France lost 0.1% of its GDP amid ongoing strikes, and Italy performed even worse with a 0.3% drop compared to last year. Germany, the biggest EU economy, has not yet published official data, but experts believe its growth is stuck at around 0.1%.
An now the European economies are facing two major challenges – the influence of the coronavirus outbreak in China on global trade and consequences of Brexit, which took place on 31 January.
Who Is at Loss and Who Got Upper Hand After Brexit?
Now with the UK out of the customs union, London will be negotiating new terms on trade, including with its former partner, the EU. Prime Minister Boris Johnson already made his stance clear in a statement on 4 February – the UK will not be tied to the EU regulations again, but will not be undermining European standards either. Instead he opted for a free trade approach and a new deal with the EU.
But Brussels won't necessarily play Johnson's game and instead could try to penalise the UK for daring to ditch the EU, Bill Ravotti, moderator of the V4 Report website and a political analyst, says.
"Michel Barnier from France and many other over-rated Eurocrats are bitter and vengeful and will attempt to humiliate and punish the UK in order to set an example for others", the analyst warned.
Ravotti adds that not all of the EU states will support such an approach since some of them have significant dependency on the British market and would like to keep access to it.
The trade discrepancy between the EU states and the UK reaches €77,85 billion in favour of the customs union, meaning that it can lose millions if the trade agreement is not reached and London imposes tariffs on European goods. In car industry alone UK bought 1.8 million cars from the European states in 2018, while selling only 631,000.
Steve Unwin, former professional Conservative Party Agent and North Dorset UKIP parliamentary candidate, believes that the UK is a big consumer market for EU goods and its loss can hit the automotive industry especially hard. If the two sides don't reach a proper free trade agreement, Brits might start choosing domestically produced cars over European ones slapped with tariffs, which can reach 10%, Unwin notes.
The UKIP politician also suggested that by striking an adequate free trade deal with the UK, the EU my find a way out of the economic pit it found itself in. Rodney Atkinson, one of Britain's most successful political economists and a former adviser to UK cabinet ministers, goes even further by stating that an attempt to punish London can have drastic consequences for the European economies, and can lead to a new recession that "could break up the Euro and the EU". The economist reminds that the EU economy is already riddled with problems and Brussels can't afford to add a trade dispute with the UK to that list.
"There are mass migrations of alienated youth, extreme debt, with major countries like France, Belgium, Italy and Greece having debt near or above 100% of GDP: There is an unresolved banking crisis, and the lack of social support for poor member states", Atkinson said.
Still, it's early to say that there will be any trade dispute at all between the former customs union partners. London has at least one year to settle its trade relations with foreign countries.
In this light it's unlikely that Brexit is going to affect either the British or the EU economies in the short-term, Iain Begg, professor at the European Institute of the London School of Economics and Political Science, says. He stresses though that this can easily change if the negotiations between the two go awry.
Danger Looming From East
The poorly performing European economies not only face possibility of losing unhindered access to the British market, essential for at least upholding the existing growth (or decline) tempos, but also to face another threat, which they have little control over – the coronavirus outbreak in China.
Despite the fact that the virus itself proved so far to be not as deadly as the previous coronavirus outbreak in 2012 or even the seasonal flu, it is nevertheless taking a toll on the Chinese economy, another important market for countries around the world (and the EU is no exception). Several cities were put on lockdown, Lunar New Year holidays extended, and some foreign companies shuttered their factories, offices and stores to prevent the spread of the disease.
Political economist Rodney Atkinson indicates that the slowdown of the Chinese economy as a result of the epidemic has impacted on the EU and especially the German economy, for which China is the biggest export market.
Professor Iain Begg says that the effects of the coronavirus outbreak on global economy remain "highly uncertain". He notes that if the epidemic is successfully quarantined within Chinese borders and the cure is discovered relatively quickly, it will have a minimal effect on the Asian country's economy and the rest of the world. But the risk can't be entirely out ruled, Begg adds.
"On the other hand, if it turns from a (relatively) local effect to a global crisis, then it has potentially significant downside risks for the global economy which would, obviously, include the EU economy", he said.