Wilfried Furman: "The risk of huge financial losses can become a mechanism that unites the EU"

Wilfried Furman: "The risk of huge financial losses can become a mechanism that unites the EU"

Following a series of high-profile political events of recent days and weeks, the issue of Britain's exit from the EU has somewhat faded into the background. Meanwhile, the British government has filed an official application to leave the EU. A lot is being said about consequences of Brexit, professor from Potsdam Wilfried Furman discussed the consequences of Brexit for the EU itself in an interview with Vestnik Kavkaza.

- What can the EU expect from Brexit?

- The application for Brexit has been officially filed so it will happen. The risk of possible "domino effect" is not as important for the EU as economic consequences, including the possibility of British pound sterling getting cheaper against the euro. It will further worsen the competitiveness of southern members of the EU - regardless of structural measures in these countries that have not been taken yet. And this will become additional burden for the EU, and especially for Germany, and not only financially, since the danger of crisis of the European Economic and Monetary Union and destabilization of the entire EU will increase. 

- What actions can help the EU to reduce the danger of this crisis?

- In this situation, it's necessary to urge Greece to leave the eurozone (or to formally indefinitely freeze Athens' membership in the Economic and Monetary Union). As a starting help, Greek National Bank can receive foreign reserves. It's also possible to write off about 25% of its debts that have accumulated so far, and decide to suspend payments of the remaining debts for 5 years.

The results of such actions would be positive not only for Greece and the eurozone's stability, but also for Germany. The fact is that the euro exchange rate will strengthen after this. And even though German exports will be under additional burden, it will improve trade proportions, which are currently in favor of Germany, which is often criticized in the international arena (in particular in the US). Of course, the decline of German exports will affect economic growth of the republic and thereby reduce "politically" stimulated "economic miracle" and employment rate. The way eurozone works since 2009 is like stimulation of growth and development of Germany alone, which is the main point of Donald Trump's criticism.

It's necessary to fundamentally renew EU structural funds, complete current projects if it's possible, and create new funds only after the analysis of economic efficiency. Crises in the EU countries, particularly in Greece and Spain, show that current funds hardly increase international competitiveness of these countries. 

Allocated funds often become the object of behind the scenes political bargaining or turn into "political prepayments", including to strengthen social policy in "election regions". In many cases, these funds can seriously influence the crisis, like in Spain in 2008.

- Today, the EU and the UK are engaged in a pretty difficult dialogue on payments for current EU projects, which began before Brexit...

- Negotiations on Brexit show that in the future, during the approval of any project, it should be fully financed at the very beginning, and payments should be made from the existing financial "basket". Using this method more pressure will be put to ensure effective project policy, as well as more effective use of taxpayers' money. In addition, the timing of projects can be actively managed. It's possible to make it follow opportunistic and political motives.

The probability of such reforms is low, since the EU prefers to finance inefficient projects and allow them to be implemented, rather than review them and hold relevant discussions. Chancellor Merkel and other politicians are obviously afraid that, as a result of discussions on improving efficiency, their policy of preserving national assets may be undermined. It seems that this very motive is the reason for the fact that 27 EU members joined together in the negotiations with Britain.

- What are the consequences for Germany? There is a widespread opinion that Germany can get economic and political benefits from this story.

- Germany should realistically assess the prospect of expected "bonus" from the UK's exit from the EU in the form of alleged outflow of companies (particularly in the banking sector) from the United Kingdom to Germany. But there won't be any significant migration of companies - this will not happen, the EU structures won't move to Germany. However, without a doubt, they will move to Belgium, Holland, Ireland, Luxembourg and other countries.

The more tax havens and countries with low tax rates will be accepted to the EU, the more enterprises and capital will leave German tax area. Finance Minister Wolfgang Schauble probably has the following logic: Firstly, it's better to have European tax haven than American one; Secondly, Germany can provide tax relief for these companies to preserve the level of production, research activities and development); Thirdly, it's also a stabilization aid to the EU. It helps countries to develop, Ireland, for example. It's necessary in case of Ireland, since this state wouldn't be a success story, even though it's constantly presented as such, if in addition to the EU funds it wouldn't receive money from "tax relief".

Overall, it's necessary to prepare for the storm after Bundestag elections - in 2018 at the latest. Economic growth won't be 1.8%, but rather 1%. Direct investments in the US will also become an obstacles to imports (which will result in falling exports), as well as changes in tax legislation of the US and the UK.

- European and German politicians often talk about common values and economic interests as a foundation of the European Union. But considering how hostile they react to Brexit, it doesn't give the impression of a "peaceful divorce" at all.

- It seems that Germany still thinks in "black and white" tones. Media reports, comments by politicians and experts, satirical shows everyone describe cheap scenarios of unreasonable losses of the UK and other threats it will face in connection with the decision to leave the EU - from the collapse of the country to heave damage to its industry and incomes, outflow of companies and lost billions in payments to the European Union. This is the manifestation of German self-exaltation and gloating. Negative consequences for Germans themselves become with negative with the help of such remarks. Systematic beliefs, values and goals must become mechanisms that unite Europe, or there's a risk of huge financial losses. Since they don't have such mechanisms, and politicians know that, despite all pretentious speeches, only economic pressure remains in their arsenal.