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Brexit

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  • <strong>Hessen and Brexit</strong>
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The Opportunities and Challenges of Brexit

The market conditions in Europe are experiencing a time of change, and companies are having to reorient themselves on the European market. This is chiefly attributable to developments related to the British referendum of June 23, 2016, when the UK voted to withdraw from the European Union (EU), the Brexit. As a result, British, European and international companies will be presented with new challenges and opportunities.

Consequences for the financial services and insurance industries

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).

 

Consequences for industry

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.

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What will change?

  • EU passport laws
  • Euro clearing
  • Additional capital requirements
  • Regulatory environment between the EU and the United Kingdom
  • Free movement of goods, services and people
  • Customs duties and other tariffs
  • Non-tariff trade barriers
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Which business segments will be affected?

  • Corporate and investment banking
  • Listings, trade and bank lending
  • Proceeds and disbursements (inflows and outflows)
  • Regulation and risk management
  • Delivery conditions
  • Maneuvering room of financial and industrial corporations
  • Marketing and sales
  • Production, research & development

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Stefan Augustin

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