Has Brexit given us Europhobia or is it time for some Eurovision?


Whilst the headlines about Brexit seem pretty grim, Australian exporters do see some blue sky on the horizon. According to the new DHL Export Barometer, close to 50 per cent of Australian exporters seek to forge plans to enter new markets with Europe top of the list.

Europe tops the list as the most desirable new territory for 17 per cent of exporters but with the UK also in the running at 11 per cent just behind South East Asia on 15 per cent even with Indonesia and Japan also on 11 per cent. As Australia has a Comprehensive Economic Partnership (like a Free Trade Agreement) with Japan and is about to sign one with Indonesia, there’s a strong case now to complete one with the European Union and the UK as well as both are major economic partners of Australia. This would especially be desirable for new businesses (those who have been around for less than 5 years) as 63 per cent of them indicate they plan to expand internationally over the next 12 months.

This is in stark contrast to past discussions of Brexit where many European trade officials felt Australian exporters – particularly small and medium-sized enterprises (SMEs) – exhibited “channel fever” whereby they’d set up in London and rarely base themselves on the European continent. In the popular literature, this was known as “The Kylie effect” named after Australian pop star Kylie Minogue whereby Australian pop stars and groups, would flock to London first before expanding across the English Channel to the European continent (and sometimes even the Atlantic). Think Bee Gees, Easybeats, ACDC INXS as well.

The Australian Bureau of Statistics (ABS) data reflect this phenomenon. According to the ABS nearly 6,000 Australian exporters sell goods to the UK (5,975 companies to be precise in 2016-17), which is nearly twice those who sell to Germany on 3040, and well ahead of the next place the Netherlands, 1764, France 1581 and Italy on 552 exporters. The UK has always been in the Top 20 exporter destinations that is dominated by Asia.

This is not surprising, given the strong historical ties between Australia and the UK in terms of language, legal ties and institutions and the fact that the UK was our number one trading partner until it was taken over by Japan in 1966 (Ironically in the same year the celebrated historian Geoffrey Blainey published The Tyranny of Distance).

And also, some of the historical animosity between Australia and the EU on contentious trade issues like agricultural subsidies hasn’t helped. It was once said that for the cost of the European Union’s Common Agricultural Policy (CAP) you could send all the French cows around the world business class twice. In fact, one reason for the establishment of the European Union Australia Leadership Forum (that I recently attended in Brussels) is to get the conversation on Europe and Australia away from those past issues that have narrowed the focus when there are some many other promising examples of collaboration.

And what happens when you impose Brexit on this scenario?

Well, as Pascal Lamy the former WTO Director General was fond of saying, Brexit is a bit like separating the yolk from the white after making an omelette. But as the European Union itself has stated publicly, the democratic will of British people must be respected, even if few of them realise how high the divorce bill will be.

Indeed, recent evidence from the UK Treasury and the Bank of England has stoked fears that leaving the European Union without a divorce deal could plunge Britain into its deepest recession in nearly a century. There is a chance, as the Bank of England has warned, that the economy could shrink 8 per cent, while unemployment and inflation could soar.

The beleaguered but dogged British Prime Minister Theresa May has negotiated a deal with the EU that she believes is, in her words: “the best deal available.” But if Parliament rejects her deal, Britain could be headed for an economically disruptive “no deal” Brexit on March 29th, 2019, or there could be another EU referendum.

In some ways, Brussels is in a dilemma. The European Union wants to make Brexit hard for the UK so there is less of an incentive for others to follow. But at same time it doesn’t want to weaken the UK economy as it could have adverse effects for Europe itself not to mention the global economy.

And then there is the Opposition. Jeremy Corbyn’s Opposition Labour party has also said it will attempt to topple Mrs May and force a general election if MPs reject her deal. That would really worry business. Companies like stability, but now everyone is staring down the barrel of a no deal Brexit and going into either a knife edge referendum or an uncertain election looks like an economically brave decision. Some might even call it courageous.

And of course, Brexit is not the only issue for the EU to worry about. They have budget difficulties with the populist government in Italy, challenges in Hungary and Austria and even Poland. And then there’s Russia. And the world knows that the EU is still an important institution to keep stability in geo politics given the rise of China, India, Russia, and now Trump style economic nationalism and protectionism.

Of course, the European project originally had good intentions. It was set up to prevent France and Germany going to war again to create peace and economic stability in Europe. This has been achieved. But then it as the project evolved it became a question of how far you take a customs union to take expand to a common currency, central bank and foreign policy (and how many members you have). And there’s also the questions of ‘hearts and minds”. As was pointed out recently at the FIFA World Cup, “you can’t barrack for Europe in the footy”. Or as Australian journalist Mark Kenny once said, “The only difference between Europe and Australia is that Australia can enter the Eurovision song contest, but Europe can’t.”

But for Australia, exporters would like a trade agreement with the EU as it would with the UK. Especially as Australia may have been “let off the hook” in Asia as UK has focussed on Brussels and that’s about to change. And from my interview with Australian exporters during the filming of The Airport Economist UK special episode, it was clear there that Australian companies are happy to remain in the UK as an economy in its own right. But as the DHL Export Barometer shows, not all Australian exporters are suffering from Europhobia and, as desired by Brussels, some may be having some Eurovision.

The Airport Economist special UK episode on Brexit will air on Your Money Free to Air channel 95 and on Foxtel Channel 601 at 8.30pm on Saturday December 15th and repeated on Sunday December 16th at 1pm.