If the U.K. parliament can’t clean up the Brexit mess, it might be time for Europe to start spending instead. The economic impact of a worst-case no-deal Brexit on the rest of the European Union is estimated to amount to $250 billion by 2030, according to the International Monetary Fund.
Back in 2017, Ireland suggested that was a good reason to deploy one of the bloc’s financial lifelines. Known as the “Globalization Adjustment Fund,” it was intended to support the re-training and re-employment of people who had lost their jobs due to global phenomena like cheap competition abroad, or financial crises. It might now need to do the reverse: Help victims of de-globalization and rising barriers to trade.
It looks like the Irish will get their wish. Reports say the EU’s “no-deal” help package to be announced today [Macau time] will include the fund after a broader push from member states and the European Parliament to add “Brexit” to the list of crises that justify using the money. The fund only has an annual budget of 150 million euros ($165 million). But this small pot of cash may be combined with another financial lifeline, the Solidarity Fund, which is supposed to help countries hit by natural disasters like earthquakes that cost around 0.6% of gross national income. It has paid out about 5 billion euros since 2002.
To be clear, the numbers involved here are unlikely to get anywhere close to pulling Europe out of an economic hole. Ireland faces an estimated hit of 3.4 billion euros to its economy from a hard Brexit, according to the Bertelsmann Stiftung think tank. For nearby France, it’s 7.7 billion.
Still, treating Brexit like a literal disaster has other advantages. Brussels is often accused by critics of being too distant and deaf to the concerns of ordinary people. More spending and less bureaucratic hoop-jumping – the tortuous box-checking associated with these funds is a problem – would be a welcome change from haggling over deficit limits. Member states might also be prodded into action in a slowing economy: The British-Irish Chamber of Commerce wants Ireland to use its corporate-tax coffers to finance a 1 billion-euro Brexit Response Fund.
Ideally this would just be the start for incoming European Commission boss Ursula von der Leyen, who wants to harness the European Investment Bank to unlock $1.1 trillion of green investment, and new European Central Bank head Christine Lagarde, who has called for reform of the EU’s budget rules. More spending is vital, given the prospect not just of Brexit but an escalating global trade war. The Organization for Economic Cooperation and Development (OECD) reckons euro-zone economic growth could get a lift of 1% from a three-year fiscal stimulus if big countries like Germany upped their spending by 0.5% of GDP, alongside other reforms.
Brexit might not be the starting-gun for a coordinated plan – it hasn’t happened yet, for one thing, and its impact is weighted towards specific industries and countries – but even a muddled approach would be progress. It took burning cars on the streets of Paris last year to push Emmanuel Macron into digging out 10 billion euros of French budget giveaways. Germany is torn between its commitments to a balanced budget and the chance to stave off recession through spending. Italy’s debt burden and fractious politics are limiting its room for maneuver.
The U.K. is accelerating its own spending plans with an extra 2 billion pounds due to be announced. For all the negative aspects and costs of tearing up the terms of trade between Britain and its top trading partner, Europe should do likewise and prepare its own relief funds. Spending, and solidarity, are opportunities to seize from this crisis. Lionel Laurent, Bloomberg