So far it remains unclear how relations between the EU and the United Kingdom (UK) will develop in the future. Nevertheless, it is clear that trade relations with the British will change, and banks and companies from the financial services industry will be the first to feel the effects. European institutions will be obliged to leave London. Meanwhile, the German federal government will submit its bid for Frankfurt as part of an EU-wide tendering process to find a new location for the European Banking Authority (EBA).
Due to potential tariff and non-tariff trade barriers that restrict the import or export of goods and services, companies from other industries should also consider a possible change of location. Value chains in the aerospace, automotive, chemical and pharmaceutical industries, to name just a few, are particularly dependent on a number of EU member states. These industries not only import a lot of intermediate products from the EU but also export a large portion of their products to the EU.
Apart from the value chains that are threatened by potential customs duties, non-tariff trade barriers could also lead to increasing coordination costs. Moreover, the free movement of workers, which could be restricted, has until now also been a factor for generating growth in the British economy – not only for highly skilled workers but also for less qualified workers. In the competition for skilled workers, the restricted freedom of movement between Great Britain and the rest of the EU could also lead to rising wages that companies would have to pay. In turn, this would result in increasing costs and negatively impact the ability to compete with international markets.
Many international companies have traditionally used the British market as the gateway to the EU single market – due in part to the English language but also due to the economic framework in Great Britain. However, these companies must now relocate their business operations, at least partly, in order to be able to benefit from the advantages of the single market. According to a survey by KPMG in September 2016, the majority of CEOs and other decision-makers are considering relocating their headquarters or specific business units to locations outside the United Kingdom.
Hessian Minister of Economics Tarek Al-Wazir answers questions about Brexit
Minister, FrankfurtRhineMain has taken on a new role as a result of the Brexit vote. How is the region positioning itself?
We had hoped that the outcome of the referendum would be different, Brexit is anything but good news for Europe. But now we have to make the best of the situation. And that is a situation in which for any number of companies in Great Britain, in particular in the financial and insurance sectors, access to the EU market is going to be more difficult. What we are telling them is that Frankfurt can be a bridgehead into the EU. Frankfurt is the Eurozone’s leading financial centre; hundreds of foreign banks have representations here, the ECB and Deutsche Börse Group are based here.
These are hard facts. Frankfurt is probably one of the few cities in Europe that...
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