VISEGRAD BLOG: Time for the awkward guest to leave the party

VISEGRAD BLOG: Time for the awkward guest to leave the party
By bne IntelliNews March 24, 2019

That awkward guest who announces he’s leaving a party but is still hanging around an hour later when his hosts want to go to bed? That’s how the UK is now viewed in several of the newer EU member states in Central and Southeast Europe. 

The latest joke doing the rounds in Bulgaria features a guy named Pesho who is at party and has been “brexiting” for an hour already — the verb newly added to the Bulgarian language is used to refer to saying you will do something and then not doing it. 

While there are fears over the economic impact of Brexit across the region including in Bulgaria, not least about the fate of the citizens from Central and Southeast Europe currently in the UK, overall there is a growing feeling that the UK just needs to end the uncertainty and finally leave. 

A short extension 

Late on March 21, EU leaders decided unanimously to extend the Article 50 process for at least two weeks to avoid the UK — where the parliament has refused to back the withdrawal agreement struck with the EU — from crashing out with no deal on March 29. 

If MPs approve the withdrawal agreement next week, the UK’s departure date would be delayed until May 22. However, in a sign of the growing frustration with the process — including among the eastern member states that joined when the UK was already an established member of some decades — should parliament fail to back the deal, London only has until April 12 to come up with a new plan.

Over the next few weeks "anything is possible,” said European Council President Donald Tusk after the talks.

Latvia’s Prime Minister Krišjānis Kariņš showed the small Baltic country was firmly behind the decision of his peers within the union. “Unity of EU27 as always prevailed. Thank you [EU’s Brexit negotiator] @MichelBarnier and your team for resilience and great work. #EUCO," Kariņš wrote on Twitter.

"That’s the beauty and the strength of the EU – that the institution can be improved. It’s a little bit like democracy – with all its flaws I don’t think there is anything better that anyone will ever come up with," the prime minister added.

Croatian Prime Minister Andrej Plenkovic called the decision a “reasonable answer” to Prime Minister Theresa May's letter requesting an extension, Total Croatia News reported. "That message is one of reliability, predictability and security,” Plenkovic commented. 

Bulgarian Prime Minister Boyko Borissov, meanwhile, said that the EU’s decision was in line with his expectations. “It is important to have Brexit with rules, that is why this compromise has been made – May 22 is the end date as after that the UK must participate in the [next European Parliament] election,” said Borissov as quoted by Focus news agency.

A hard Brexit would not be convenient either for the UK or the EU, said Romania’s President Klaus Iohannis said, according to Mediafax news agency. “We want to help them, but the Brits have to reach a conclusion themselves,” the Romanian president said on March 22 in Brussels. “A hard Brexit would be problematic for the Great Britain, but we don’t like it either because we want to build a good relationship,” he added.

Romanian Senate speaker Calin Popescu Tariceanu, who has not once criticised the EU’s decisions, asked the UK to delay Brexit forever. “As imperfect the #Union might be, we can work together to improve it @RomaniinUK,” Tariceanu wrote on Twitter on March 21.

Under the guillotine 

And outside the EU’s southeastern borders, where the countries of the Western Balkans are eager to make progress towards eventual accession to the bloc, pundits are also commenting on the progress of Brexit. “EU leaders put the British in front of the guillotine,” said the headline in Serbian daily Beta, with the latest on “Bregzit”. 

For the 27 states that will remain within the EU, the economic impact is expected to be negative, though the precise consequences are unclear, not least because no one knows how or when the UK will leave. Even an orderly Brexit would, as ING analysts wrote in late 2018, “have profound implications for Central European countries”. ING’s report projects that while all of the EU would be affected, “Brexit will especially resonate with Central Europe. Here European supply chains will be questioned and to a lesser extent the free movement of people and its impact on remittances from the UK.”

The UK, for example, is Poland's second-biggest export destination. Exports to the UK were worth PLN5bn (up 8.4% yy) in January (€1.2bn, up 6.2% yy in euro terms) and the UK's share in Polish export was 6.6% (up 0.2pp yy), behind Germany at 28%.

According to various reports, however, other than the concerns about Polish citizens in the UK, the Polish economy has little to lose in the aftermath of Brexit. Poland has also expressed hopes Brexit might give it an opportunity to become a hub for goods flowing to the UK post-Brexit.

Poland adopted contingency plans in case of a no deal Brexit last week. They mainly concern Polish customers of UK financial institutions, which will be given 12-24 months to continue work before new arrangements come in place for them (be they Polish ones or EU ones). They also concern rules governing UK citizens' stay in Poland and the recognition of professional qualifications obtained by Poles and other EU nationals in the UK, as well as UK citizens working or planning to work in Poland.

In Romania, exporters, specifically those in the car and car parts industries, will be hit the most. Romanian companies with the largest exports to the UK come from the automotive industry. Ford and Dacia sell their cars there. Furthermore, car parts production holds a significant share in the country's exports. Most of Romania’s exports of car parts go to German manufacturers, which sell one car in eight in the UK. The government in London is expected to exempt most imports from import duties under a no deal Brexit, but not cars. Other CEE EU member states are also major producers of cars and car parts. 

But the most important negative impact will be indirect: Romania, among Central and Eastern European countries, depends to the highest degree on the EU market (due to the modest share of exports outside the EU). Romania's economy is thus more vulnerable to an economic slowdown in the EU.

Meanwhile, a no deal Brexit will cost Bulgaria €111mn a year (€67 per capita) per year, while in the case of Brexit with a deal the cost would be €61mn per year, according to a study by German Bertelsman. At the end of January, also published analysis on the possible market effects for Bulgaria in case of Brexit, claiming it could destabilise the pharmaceuticals sector. 

In general, local media say the consequences would be limited as UK is not a key market for Bulgaria (it comprises just 1% of Bulgaria’s foreign trade). However, as Bulgaria is part of the EU, it will naturally suffer from Brexit. The main problems would be in transportation and trade where delays and changes to contracts are to be expected.

On the other hand, Lithuania has seen benefits from the UK’s imminent departure from the bloc, as a string of fintech companies have applied for European banking licences from the Bank of Lithuania as Vilnius positions itself as an emerging fintech hub. Companies that have secured licences form the Lithuanian regulator include London-based Revolut, Google Payment and most recently Earthport. 

Fintech Lithuania, whose aim is develop a Baltic-Nordic fintech hub in Lithuania, commented on Twitter: "Investments for UK #FinTech are decreasing as concerns over Brexit are increasing. Does that mean an opportunity for #Lithuania as the next spot for investments?”

No asparagus without migrants 

“Without migrants there won’t be asparagus” said the headline of an article recently published by Bulgarian daily Dnevnik, which stressed that the expected outflow of migrants from Bulgaria and Romania will cause a crisis in the UK’s agricultural sector.

Overall, the plight of nationals from Central and Southeast European EU countries that are living and working in the UK is one of the biggest worries for governments in the region. 

Poland's main reservation about the potential hard Brexit is what will happen to 1mn or so Poles currently in the UK. Prime Minister Mateusz Morawiecki said in Brussels on Thursday he had met with May that morning and she assured him Polish citizens would not suffer in case of a no-deal Brexit.

"Once again we [Morawiecki and May] agreed that we would do all that we can so that Polish citizens in the UK are safe in case of a hard Brexit and also that the Polish-British trade will not suffer and that Polish entrepreneurs could continue to export their goods to the UK without any obstacles," said Morawiecki.

Romanians are the second-largest non-British population in the UK, after Poles. At the end of 2017, there were 411,000 Romanians living in the UK. There are frequent reports about Romanians in UK being subject to racism and xenophobia. Even under a "smooth" Brexit, the situation will deteriorate. 

Under a very superficial estimate, no deal Brexit will hit Romanians registered in the UK. A large part of them are expected not to return to Romania, but to move elsewhere — which would be a missed opportunity for Romania's economy that needs a bigger workforce. 

President Klaus Iohannis said that the rights of the Romanian citizens living in the UK are “very well ensured” and that the Romanian authorities have also held bilateral talks with London in order to have guarantees regardless of the scenario.

“I think there is a real chance … to obtain an organised exit of Great Britain. However, the Romanian citizens are the main concern we have. Of course, if the deal is closed, their rights are very well secured, but we have also held several bilateral talks,” Iohannis said on March 22, adding that he had talked with May so that even in the case of a no deal Brexit there would be a bilateral agreement that is "very good both for Romanian and British citizens".

Reporting from Iulian Ernst in Bucharest, Wojciech Kosc in Warsaw, Denitsa Koseva in Sofia, Clare Nuttall in London and Carmen Simion in Bucharest.