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The broad victory of the conservatives in the legislative elections will allow Boris Johnson to implement the Brexit. But the economic implications of leaving the UK from the European Union remain unclear. Three questions to Vincent Vicard from CEPII.
The victory of Boris Johnson gives a large majority to the conservatives to realize the Brexit by the end of January. Driven by the result of the vote, the pound sterling has soared against the dollar and the euro. Investors are delighted, but the time of uncertainty is not over yet, says Vincent Vicard, economist at the Center for Prospective Studies and International Information, CEPII.
RFI: The outgoing Prime Minister's bet was to have a large majority to get his agreement with the EU on Brexit. An agreement he negotiated, himself, last October. This bet seems to have been successful ...
Vincent Vicard: We have a fairly clear vote with an absolute majority for the Tories (conservative party). This vote allows Boris Johnson to pass what is called an exit agreement. This agreement will allow the United Kingdom to leave the European Union from 31 January 2020. But this is only a first step of Brexit. It will open a period during which nothing will change, but where the new free trade treaty with the EU will begin. A treaty that will define the relationship of the country with its main trading partner. And it's a different story. Negotiations are likely to take much longer than Boris Johnson has planned. He talked about the end of 2020. It sounds more than ambitious. The agreement between the EU and South Korea took four years to finalize. The CETA signed by the EU with Canada took about eight years. Very long times that can be reduced, but there is an incompressible time and it seems very difficult to envisage a finalization by the end of 2020.
Were there other issues for the British in these elections?
There was no doubt a weariness with regard to the Brexit process, and surely a desire to finish it one way or another. We have seen that even British parliamentarians could not agree on the form they wanted to give when they left the EU. Now we are moving towards a free trade agreement of the type that the European Union has signed with Canada. But without being too alarmist, numerous studies show that there will be an impact of Brexit on the British economy. Whatever the scenario, there will be a reduction in the standard of living of the British in the long run. CEPII made estimates that take into account the cost of new tariff barriers between the UK and the EU. As a result, Brexit could reduce British Gross Domestic Product per capita by 3%, or £ 2,000 per household per year. Finally, everything will depend on the type of agreement negotiated with Brussels.
Do you foresee other effects of Brexit on the British economy?
Its impact on the specialization of the British economy must be anticipated. I am thinking in particular of the automobile industry, which is very dependent on value chains and the import of components from the European area. There will also be an impact on the service sector, including financial services. The end of the European passport will mean that a number of financial services will no longer be available from UK-based institutions for their customers in European countries. These establishments will have to open their European subsidiaries. On the other hand, Brexit should please British farmers. Once customs barriers are reinstated, European agri-food products imported by the United Kingdom will become more expensive. As a result, British products should be much more competitive.