Wednesday 20 July 2016 3:21pm
Paul Blanchard is a professional reputation consultant, managing director of Right Angles, and presenter of the Media Focus podcast.
Reasons to be cheerful: Brexit isn't a bad news story for the UK (Source: Getty)
Europe is going down - fast
Since the result, I’ve spoken to a number of economists and City figures. A growing number believe a Eurozone break up is inevitable – it’s not if, but when. They tell me we’re wise to start the process of leaving because, rather than a catastrophe in the UK, the real Armageddon is going to happen in the EU. One highly successful asset manager said: “I’m not recommending anything in Europe – many of us are steering clear; in a year’s time I think we’re going to be very, very glad we left the EU.”
Europe’s economy is in poor shape
Europe is not the first choice for global investors right now. Europe’s financial infrastructure is incredibly weak, and their businesses are suffering. Italian banks are on the verge of collapse, with €360bn (£300bn) of bad debt – equivalent to a quarter of Italy’s GDP. And after posting record losses of €7bn last year, Deutsche Bank is set to close 188 branches. In addition, youth unemployment remains at 50 per cent in Greece, 45 per cent in Spain and 36.9 per cent in Italy. Many think the eurozone is going nowhere, fast.
They need us
The UK is by far Germany's most profitable export market; around €89bn’s worth of exports came into the UK last year. While other countries might want to freeze us out, Germany can’t afford to – and, like it or not, it calls the EU shots. And it doesn’t stop there: we have an extremely large trade deficit with the whole of the EU. We import much more than we export. They need us – badly. As Europe's Trade Commissioner Cecilia Malmstrom said just days before the referendum: “[We hope the] Brits will choose to stay. We want them, we love them, we need them.”
Businesses will not relocate to Europe
Many large UK-based businesses are threatening to up sticks to Europe, but much of this is fantasy. Let’s take banking, for example. In the Netherlands, there is a cap on bonuses at 20 per cent of annual salary. In Belgium it’s 60 per cent. The EU is currently trying to impose its flat 100 per cent bonus cap on smaller banks and financial institutions. Next stop, other sectors?
Outside banking, it’s safe to say any business trying to relocate to Europe is going to be in for a shock. The cost of employing people in the vast majority of EU countries is huge – much higher than it is in the UK. Plus they tend to have enormous amounts of restrictive local employment regulations, and archaic reporting systems that make HMRC look positively benign.
Labour costs in Europe are huge
Labour costs - the business cost of employing a single worker per hour - are calculated using wages, salaries and non-wage costs such as employers' social charges. According to the EU statistics office, in 2015 the highest labour costs were Denmark (€41.30 per hour), Belgium (€39.10), Sweden (€37.40), Luxembourg (€36.20) and France (€35.10). In the UK, labour costs are right down there at just €25.70 per hour. So unless businesses are considering relocating to Bulgaria, Lithuania or Romania, I’d suggest a rethink. The other brakes on relocation are inflexible employment laws and, of course, higher corporation tax.
Uncertainty is a good thing
The word "uncertainty" has been bandied about throughout this saga. Uncertainty is the death of business, so we’re told. But actually, I hold a very different view. Business people are quite used to uncertainty. In fact, many of them, especially entrepreneurs, positively welcome it – they’d be bored to death and lose their motivation without it. And it drives innovation and creativity. But more than this, I work with high-net-worth individuals and successful global chief executives, and I’ve never once met a client who hadn’t factored in all the uncertain outcomes from here to eternity. It’s what a chief exec is for. And it’s why high net-worths are wealthy.
Brexit is the new opportunity we need
Brexit is a challenge; one which, in my experience, UK businesses and their leaders are more than capable of rising to. Yes, sterling has dropped - but it was the world’s most overvalued currency and the fall makes British goods cheaper and more attractive on the world market.
Yes, we may well not get preferential trading rates with Europe – though that’s unlikely since they buy more of our goods than we sell to them – but the EU is broken and the future of world trade is in the emerging markets. Yes, it may be more difficult to source cheap labour from the EU, but, really, does it make sense to build a modern economy and a sustainable future on the backs of people from poor EU nations?
In my view, we’ve left at exactly the right time. I have faith in UK businesses and the people who run them. Brexit is an opportunity to think differently, find new ways of doing business, reach out to the world and build new exciting partnerships. We have a great deal to gain and very little to lose.
City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.
