Dusseldorf The head of the Ifo Institute, Clemens Fuest, is optimistic that the EU and Great Britain will agree on a deep and far-reaching trade agreement. “The free trade agreement is not a sure-fire success,” Fuest told the Handelsblatt. “But both sides have a strong interest in agreeing. I think they will eventually pull together. ”The economist, who has taught at Oxford University for five years, believes it is important that, in addition to trade, political cooperation in security policy, research cooperation and climate policy be close remains.
Fuest does not believe that Britain will become a general tax haven. However, tax competition through special regulations, targeted incentives to attract multinational companies, and targeted restructuring of financial market regulation to bring activity into the country would be attractive options for the UK. “There is a risk of conflict with the EU, which is pressing for a level playing field.” If there is no free trade agreement, the German auto industry will be one of the big losers.
The head of the Ifo Institute does not expect a quick free trade agreement between the British and the United States. “The US administration is more protectionist. And unlike the EU, the UK and the US have no common regulation and zero tariffs. ”
Read the entire interview here.
The economist was a professor at Oxford University from 2008 to 2013 and continues to work for the local center for corporate taxation. After the historic break in Brexit, he hopes that the British will have as deep and far-reaching ties with the EU as possible.
Professor Fuest, how has Great Britain changed in the past Brexit years?
The years 2008 to 2013, when I was in Oxford, were marked by the financial crisis and its consequences. Today the Brexit issue dominates the conflicts. There is a deep lack of understanding between Brexit opponents and supporters. At the same time, there has been a lot of fatigue lately regarding the subject. The British from both camps want it off the table so that the country can look ahead again. Boris Johnson cleverly used this fatigue.
You once described Oxford as an incredibly globalized place, “like a society of the future”. Is it still three and a half years after the Brexit referendum?
In its great internationality, Oxford is a kind of special zone in Great Britain, full of EU supporters. The atmosphere in the rest of the country has changed significantly. There is already a mood against foreigners among many Brexit supporters. I have never heard of xenophobia in the years I have lived there. Now. That is the result of this polarization.
How will Britain and the EU stand in five years?
I think it is likely that Brexit will then take a back seat and things will change less than many believe. I think Britain will have very close relations with the EU, including economic ones.
At the moment, however, the new British government is emphasizing above all how important it is to have the right to deviate from EU rules in the future.
Before the negotiations, everyone tries to mark their position. The EU stresses that Britain should not gain benefits through deregulation or special tax regulations. But Britain has just left the EU because they wanted to be more independent. That is why the Brexit supporters are now emphasizing independence again. The free trade agreement is not a sure-fire success. But both sides have a strong interest in reaching an agreement. I think they’ll pull themselves together in the end.
What could this new relationship look like? How about Switzerland? How about Canada?
There is no clear model. Relations will be deeper than with Canada. Because the British want to set their own tariffs, there will be no customs union, only a free trade agreement. Hopefully, however, economic issues will be linked to political cooperation, such as research cooperation. It will also not be an agreement like that with Switzerland. Great Britain is almost a fifth of the EU economically, the financial sector is very important. There will be a tailor-made agreement for this special relationship.
Is Britain Going For A Future As A Less Regulated Low Tax Country?
Great Britain is already a low-tax country for companies, and you can do that as an EU member. I don’t think the country will become a general tax haven. It’s more about tax competition through special regulations that would be interesting for Great Britain. The country could introduce targeted incentives to attract multinational companies, for example. Financial regulation could also be redesigned to bring activity into the country. There is a risk of conflict with the EU, which is pressing for a level playing field and is already attacking special tax regulations in Ireland in the Apple process.
What do you advise Brussels and Berlin for the coming months?
Berlin and Brussels should build on the political declaration of intent signed with the withdrawal: it provides for a deep agreement – with zero, if not a, customs union, as well as close cooperation in areas such as security or climate policy. For example, it would be important for the UK to participate in the EU’s CO2 pricing system. The key is now to bring the negotiations from a political, confrontational debate to a technical level. Angela Merkel is very good at that. Here I see another important role for them.
Do you believe in a year-end degree?
You should take advantage of the fact that we already have harmonized regulations and no tariffs. This is different than with Canada, for example. We have a lot in common, and we should build on that. In sales taxation, you can continue as before, which would also make border controls unnecessary. However, I hope that the British government will extend the deadline if it should take longer than the end of the year.
So far, fewer jobs have left the UK than initially forecast. Have we already seen the climax here?
I never found it plausible to predict that a large number of jobs would move out of the City of London. A little bit of activity has migrated. All major banks and insurance companies have expanded their offices in the EU, especially in Dublin. Many contractual relationships with EU customers had to be restructured, often at high costs. How the relocation continues will depend heavily on future regulation in the EU for the financial sector. The banks prefer to have an office in the EU, but leave the substantial activities in London, where the best specialists with the necessary expertise are located. London will remain the dominant financial center in Europe. But London’s growth course has not continued. London is falling behind in global competition with places like New York or Hong Kong because it is no longer the clear entry door to the EU.
After all, Brexit Britain is said to cost 20 billion euros every year …
But people don’t notice that. They do not feel somewhat lower growth rates. That would have been different if, for example, unemployment had increased.
Who benefits economically from Brexit?
I can’t find anyone. Economically, there are mainly losers. Whether it will be big losers depends on the further negotiations. If there is no free trade agreement, the German auto industry will be one of the big losers.
Do you believe in a quick free trade agreement with the United States?
I don’t expect that. The US administration is more protectionist. And unlike the EU, Britain and the US have no common regulation and zero tariffs.
What do you want your old home to look like in five years?
I would like Britain to remain as much as possible part of the European treaties and cooperation. It is very valuable that there was no withdrawal without an exit contract. I would also like Britain to come back together as a country and to leave Brexit and the associated division behind.
If our children look back on 2020, how historic will this year be?
It is a turning point after more than 60 years of ever deeper integration in Europe. The fact that a large country is leaving for the first time is a historic turning point. Perhaps it is the point from which we will later say that it has finally become clear that the EU is not a monolithic entity, but that European integration is a complex work of many treaties and many forms of cooperation.
More: Why Switzerland is not a role model for the British.