Central Europe starts to tot up Brexit fallout

Central Europe starts to tot up Brexit fallout
The Visegrad region will be hard hit by the loss of their closest ally amongst the bloc's major powers.
By bne IntelliNews March 30, 2017

Central European states expressed regret that the UK is leaving the EU as London triggered the Article 50 withdrawal clause on March 29. They also quickly moved to start totting up the direct costs.

The economic effects of Brexit on Central Europe are hard to pinpoint given the wide range of potential scenarios under which the UK will exit. However, most suggest the damage will be limited by modest direct trade ties.

In political terms, the Visegrad region will be hardest hit by the loss of their closest ally amongst the bloc's major powers, and a counterweight to the Franco-German axis pushing for deeper integration. Indeed, they already appear to be losing that fight already, with a multi-speed Europe already under discussion.

Czech Foreign Minister Lubomir Zaoralek urged Brussels and London to work together to reach the best possible deal in the upcoming Brexit talks as the official notification of the exit was delivered to European Council President Donald Tusk. Zaoralek called the UK a good partner, and pressed for efforts to salvage as much as possible in the field of economic, political and strategic ties. This is not a good day for Europe, or for the Czech Republic, the minister said.

Poland’s nationalist PiS government, perhaps the closest in approach to the stance of the UK, having echoed London’s calls for greater national sovereignty, has expressed concern about the Brexit effect on European security. Warsaw has even suggested it could leave Central Europe more exposed to what it sees as Russia’s renewed imperial ambitions. The UK is far more hawkish on Moscow than either Berlin or Paris.

However, the biggest concern for Warsaw is the fate of the huge number of Poles currently working in Britain. Freedom of movement was a major driving force for the June referendum decision to leave the EU, and the British government is now accused of using the fate of EU nationals as a bargaining chip for the forthcoming negotiations.

Slovakia also expressed its regret, but was also keen to point out that the damage for itself will be limited. As recipients of EU structural funds, the country and its regional peers will be hit to some extent, as the UK is a large net payer into the EU budget.

Brexit will either raise the contributions of Slovakia to the EU budget or trim incoming EU funds, the finance ministry admitted in a report released on March 29. The triggering of Article 50 is scheduled to lead to the UK’s exit from the bloc within two years. 

Under the most extreme scenario, in which the UK cuts all of its annual net contribution of €9bn or so to the Brussels budget immediately after exit in 2019, the damage would be significant but “not destructive” the Slovak ministry’s report reads. The remaining EU countries would need to negotiate either higher contributions, or cutbacks in spending, it notes.

In the case of the former scenario, the shortfall would mean an increase in the annual contribution of the Slovak Republic by around €60mn, the finance ministry predicts. That represents less than 0.1% of GDP, it adds.

On the other hand, should member states refuse to raise their contributions, EU spending will fall, including on policies from which “Slovakia is a major beneficiary”.

“In practice, this would mean a reduction of EU spending by more than €20bn,” the report states. Each billion in the EU budget translates to €20mn in funds to Slovakia, the ministry estimates, translating as a drop of €400mn annually.