LONDON – Brexiteers regularly misuse a key statistic about Britain's trading volumes to the European Union in order to try and signal that the UK has the upper hand in upcoming Brexit negotiations.
Berenberg Bank, one of the oldest investment banks in the world, said in its latest note to clients said that the EU will, without a doubt, have the upper hand in Brexit talks.
"In all negotiations about the terms of Brexit, the bargaining position of the EU will be stronger than that of the UK. The oft-heard counterargument that, since the UK buys more than it sells to the EU, it has the stronger hand in the negotiations simply gets it the wrong way around," said Berenberg.
"The critical issue in negotiations is not absolute size, but relative size. The individual exposure of the four largest EU economies to the UK is relatively small compared to the UK’s exposure to the EU27."
Britain is hurtling towards a "hard Brexit," which will see the UK leaving the European Single Market in exchange for complete control over immigration. Negotiations can now officially start after Prime Minister Theresa May triggered Article 50 on Wednesday.
Britain will leave the European Union by the end of March 2019 and must agree with the EU what it will pay the EU in the divorce and what the terms of its exit are going to be.
The complex, difficult agreement will cover everything from immigration to trade.
Berenberg said (emphasis ours):
"Whereas the UK earns about 12% of its GDP through exports to the EU, the EU27 earns 3% of its GDP through its exports to the UK (see Chart 1). The EU can cope without an EU-UK trade deal much easier than the UK can since less of its GDP depends on the flows of trade between the two economies.
"The same harsh reality applies to the EU financial services passport. While EU27 member’s usage of the passport to access the UK is greater than vice versa, the relative value of it still matters more for the UK."
And here is the chart:
Over the last week, many EU officials have signalled that the UK cannot secure a trade deal until the bloc says so.
Malta's Prime Minister Joseph Muscat said that Brexit talks will be "very tough" and "unprecedented" for the EU — but added that it "will not be a war" with Britain.
Speaking in the Maltese capital Valletta, Muscat also reiterated the EU's stance that talks over a post-Brexit free trade deal between the EU and Britain cannot begin until key issues regarding Britain's divorce have been settled.
This was echoed by German Chancellor Angela Merkel and outgoing French President Francois Hollande on Thursday.
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