Why couldn't the British keep Singapore?

Brexit on Friday: Great Britain takes the big leap

Where the British are going is still very uncertain, says Sam Lowe, trade expert at the British Center for European Reform. Great Britain will try to lure international investors into the country through targeted regulatory changes and tax incentives, predicts Clemens Fuest, President of the Ifo Institute. This is where the conflict with the EU lies. But both sides have a great interest in reaching an agreement. There will also be a close economic relationship between the EU and Great Britain in five years' time.

German trade associations called on the British government to extend the transition period, which runs until the end of the year. Economists and capital market experts expect that there will not be enough time. The option of an extension would therefore be an important step “in order to negotiate an agreement that is good for both sides,” said Holger Bingmann, President of the Federal Association of Wholesale, Foreign Trade and Services (BGA). The Bank of England, however, dampened the optimism of the British government and lowered its forecast for economic growth in 2020 to 0.8 percent.

In Great Britain, meanwhile, one is preparing for Friday: The day of the exit from the EU is supposed to be a bit like New Year's Eve in London. The big Brexit party will take place in Parliament Square in the British capital on Friday evening. Thousands are expected to toast at 11 p.m. local time sharp. Fireworks and the ringing of Big Ben have been banned by the authorities, but the national flag will be flown on all flagpoles around the square. Brexit spokesman Nigel Farage will conjure up Britain's glorious future.

The Conservative Prime Minister Boris Johnson stays away from the triumph ceremony. He will only address the people in a televised address that evening to call on the nation to cohesion. That seems more statesmanlike. A countdown on the facade of Number 10 Downing Street will count down the last hour.

47 years of EU membership will be over. In Brussels and Strasbourg, the British flag is lowered in front of the EU buildings at night. One of them will be in the Museum of European History. The community shrinks for the first time - from 28 to 27 members.

But what does this historic moment mean for the future of the Kingdom - and for the future of the European Union? There is a bogeyman on the continent: It's called "Singapore on the Thames" and is a code for a new rival on the world market that has been unleashed and is only 30 kilometers from its own coast. Premier Johnson sounds that Great Britain will now switch on the "turbo", conclude trade deals around the world and let all parts of the country participate in the economic boom at home. What is it about this vision.

Singapore on the River Thames

Entrepreneur James Halligan is infected by Johnson's optimism. The head of the British Hovercraft Company in Sandwich, a small town on the east coast of England, believes in the idea of ​​a thoroughly liberal economy that trades with the whole world. Together with his ten employees, the 57-year-old manufactures small hovercraft boats for recreational use.

He could be in France in one of his hovercraft in less than an hour. But his goals are further away. He recently wanted to do business with Brazil, but that failed because of high tariffs, he says. And hopes that will change soon.

Halligan sees Brexit as positive: “It offers us new opportunities.” Once Great Britain can determine its own trade policy, completely new markets can be opened up. What bothers him about the EU is that it sets too many rules. “They put the brakes on companies, especially small ones,” he says. “We are even stipulated that two people have to hold a ladder for safety reasons.” When asked which EU rule he would like to abolish, he waves it away - “We wouldn't stop there”.

The British government sounds similarly unclear. She doesn't seem to know yet what she wants to do with the new freedom after Brexit. The only thing that is clear is that it is aiming for a relatively hard Brexit. There will be a transition period until the end of 2020, during which all EU rules will continue to apply. Afterwards, Johnson has given as a rough direction to be able to deviate from the European standards. After all, that is the point of Brexit.

After protests from the economy, Finance Minister Sajid Javid was forced to make it clear at the World Economic Forum in Davos that one did not want to abolish all EU rules at random - only where it "makes sense". However, there are no concrete ideas.

Brexit election promise: Johnson lied about these statements

“That was the problem in the Brexit debate from the start,” says Sam Lowe, trade expert at the London think tank Center for European Reform. "If you ask the Brexiteers which rules they want to abolish, either something trivial comes up or nothing at all." What could the British do differently after Brexit? Changes in several areas are conceivable:

  • Trade: At the end of the year, Great Britain is leaving the European Customs Union and the internal market in order to be able to conclude its own trade deals in the future. The government hopes that it will be able to act more quickly and flexibly if it no longer has to coordinate its position with 27 partners. An agreement with the EU has the highest priority. Talks with the USA are also ongoing. London also plans to sign agreements with Japan, Australia and New Zealand by the end of the year. The schedule is considered illusory, and trade talks usually last several years. It is also questionable whether Great Britain can achieve more on its own than in conjunction with the EU. What does the new freedom bring when big partners like the USA, the EU and China dictate the terms of trade deals? 2020 will therefore be the reality test for the British.
  • Financial market: The Europeans fear that the British will deregulate their financial sector again. Alongside New York, London is the world's leading financial center and dominates, among other things, trading in euro derivatives. Before the 2007 financial crisis, British regulators were notorious for their “light touch” regulation. The Bank of England and the Financial Conduct Authority (FCA) assert that they do not want to go back to the old days. However, they insist on the right to set the rules of the key industry themselves. A financial center like London cannot submit to financial market regulation from Brussels, said the outgoing central bank chief Mark Carney recently.
    This is primarily a question of national pride, explains Alan Winters, professor at the University of Sussex. The British overseers thought they were the best in Europe and were reluctant to be dictated to in their field. Winters does not expect a wave of deregulation, however. The current supervisors are all "burned by the financial crisis". One only has to worry about the next generation in 15 years. The British government is currently concerned with not being bound by future EU directives - such as a financial transaction tax.
    At most, minor changes are conceivable for existing rules. The EU upper limit for banker bonuses was a thorn in the side of the British government from the start. The regulation is considered counterproductive in London because it ultimately led to higher fixed salaries in the industry. However, Prime Minister Johnson will consider abolishing it carefully because it would not be popular with his working-class voters.
  • Taxes: Another EU concern is a race to undercut corporate taxes. With Ireland (tax rate 12.5 percent), the EU already has the biggest sinner in its own ranks. Now, however, a much larger third country is not supposed to suck in foreign direct investments next door. The danger is not acute, however: the UK government has only just withdrawn a corporate tax cut announced years ago because it needs the revenue. The corporate tax rate remains at 19 percent. Irish conditions are not threatened for the time being. Brexit will not change the status of the tax havens on the Channel Islands and overseas territories. They are already not covered by EU law.
  • State aid: Johnson had promised during the election campaign that he would give preference to British companies when it came to public contracts and help troubled companies more quickly. He has just provided a first example with Flybe. Because the regional airline had financial difficulties, the government deferred tax payments. Flybe has also reportedly applied for a £ 100 million government loan. Competitors British Airways, Easyjet and Ryanair complained.
    The Flybe case represents a political turnaround: the government denied the travel operator Thomas Cook a loan last year, and the company went bankrupt. In 2018, the government was also adamant towards the steel processing company British Steel and referred to EU rules as a justification.
    In a European comparison, Great Britain has so far been sued by the EU for illegal state aid significantly less than Germany and France, for example. In many cases, the government has not exhausted the EU framework for state aid, say experts. David Bailey of the University of Birmingham doesn't think Britain is going to embark on a new path now. On the one hand, because it would make negotiations with the EU on a free trade agreement more difficult, and on the other, because Northern Ireland would then have to apply different conditions due to the agreements in the Withdrawal Agreement.
  • Employee rights: The UK labor market has been one of the most liberal in Europe since Margaret Thatcher ousted the unions in the 1980s. However, as a result, the EU has enforced working time restrictions, part-time workers' rights, vacation entitlements and workplace equality - sometimes against the grumbling of the UK government. There are now fears in Brussels that London could turn back some of the gains. "Boris Johnson has deleted the obligation to comply with EU labor rights in his Brexit law without replacement," warns MEP Katarina Barley (SPD). Again, however, it seems questionable whether Johnson would really risk the wrath of British voters.
  • Environmental Protection: When it comes to environmental policy and animal welfare, Premier Johnson likes to see himself as a pioneer. In the election manifesto he had promised "the most ambitious environmental program of all countries in the world". He proudly refers to the COP26 climate conference, which will take place in December in Glasgow, Scotland. But his rhetoric does not convince everyone. Brexit is a "leap into the unknown," says Greenpeace expert Doug Parr. In the trade talks with the US, the British government will come under enormous pressure to undermine the previous standards for food and animal welfare. Products such as chlorine-cleaned chicken and meat from hormone-treated cattle could then find their way into British supermarkets.

Great Britain is likely to remain a welfare state with a European character, at least in the coming years. "Boris Johnson has announced big changes but has not taken any real steps to address them," says David Henig of the UK Trade Policy Project think tank. "It is not realistic for Britain to become a kind of Singapore on the Thames - there are no signs of that so far."

However, the EU will not take the word from the UK government. She wants written guarantees that the UK will continue to comply with EU competition rules. Otherwise there would be no or correspondingly less access to the internal market, says Commission President Ursula von der Leyen. The trade agreement desired by Johnson with zero tariffs and zero quotas only exists if there is “zero dumping”.