Britain’s quest for the right point in time

It’s all about timing. This is true for all walks of life: For work, for relationships, for international politics. As you might have discovered yourself, it matters a lot whether you find the right point in time to hand in your resignation. The right point in time to ask your partner if he or she wants to marry you. The right point in time to have kids.

The same goes for the world of business and politics. Timing can be crucial here, as the British have found out since the vote for Brexit. As there is no automatic start to the two year-long divorce proceedings, choosing the right point in time for the beginning of the negotiations might strongly influence the outcome.

This decision – when to trigger Article 50, the critical passage of the Lisbon Treaty – lies solely with the British government. Although they might want to, neither Jean-Claude Juncker, the President of the European Commission, nor the Members of the European Parliament or the 27 other Member States, can force Britain to trigger Article 50.

It’s important to realise that the decision over when to trigger Article 50 is one of the last cards the British government has left to play. It thus made sense that David Cameron, the former Prime Minister, did not trigger it straight away after the – for him – disastrous result of the referendum on the 23rd of June became known (although he had said before he would trigger it straight away). Quite the opposite, he left the decision to his successor.

Coming into office without any detailed plans on how to implement the result of the vote, Britain’s new Prime Minister, Theresa May, has spent the last two months trying to find out what the British position is for a life after the EU. Thanks to the decision in Whitehall not to engage in any prior, in-depth planning for the case of a vote for Brexit, May and her staff, as well the other members of her Cabinet, have found themselves frantically trying to close the gaps before the end of the summer break.

The same is happening on the other side. On Monday, Angela Merkel, French President Francois Hollande and Italy’s Prime Minister Matteo Renzi will meet in Ventotene in Italy. Then, the German Chancellor will head to Estonia and Poland. The goal for this “European Brexit Tour”, as the FT dubbed it, is clear: Coming up with a unified, European position towards Brexit.

Similar to the British, the Europeans don’t have much time left, as there is a big European summit looming which will be held on the 16th of September, in Bratislava. Despite the fact that some leading figures, among them Jean-Claude Juncker as well as Francois Hollande, have demanded the UK to start the divorce talks quickly, it seems that the Europeans have realised that Britain will take its time.

Initially, the autumn or the end of the year seemed like the most feasible time frame for Britain to begin negotiating its exit. Since then, the date has continuously been pushed back: From the end of 2016 to at least 2017. This scenario would give the British government some more time to find out what it wants: The Norwegian model? A Swiss-style agreement? Or maybe no agreement, resulting in a so-called “hard Brexit“? This option would also make it possible to see how the British economy digests the unexpected outcome of the referendum.

Some observers, among them EU-citizens living in the UK, have cherished the idea that Theresa May might kick the ball long into the grass. She could be waiting many more months, even years, they hope, and by that point have waited until the economy is in such a bad state that the electorate might be willing to let go of the idea to leave the EU. This is, of course, pure speculation, as are some of the other theories that are currently being tested.

Then, the Sunday Times made big headlines last weekend by running a story according to which Prime Minister May could wait until late 2017 or even longer before she triggers Article 50. This makes sense, given that both France and Germany will hold national (or federal) elections next year, with very unforeseeable outcomes. With the possibility of both Francois Hollande and Angela Merkel gone before the end of 2017, some more patience might be justified, as a change in government in important countries such as these will definitely influence the outcome of the Brexit-negotiations between London and Brussels.

However, this idea might not go down too well with the “hard“ Brexit-camp, the likes of Brexit Minister David Davis and Trade Minister Liam Fox. Both have campaigned for a quick Brexit in order to radically transform Britain’s relationship with the outside world. Thus, on Friday, there were widespread reports according to which the British government will not wait for the outcome of the French and the German elections before it triggers Article 50, letting the Pound Sterling tumble. From a market point of view, rumours like these are not welcome: The market does not like surprises, it wants ample time to prepare – in order to prevent the worst (In any case, the deployment of Article 50 will result in a heavy sell-off).

To me, it all comes down to how Theresa May squares the circle. How does she reach a common position between soft and hard Brexiteers? Will she manage to align David Davis and Liam Fox, as well as flip-floppers such as Foreign Secretary Boris Johnson? Depending on which position (The Norway model? A Swiss-type agreement? No agreement?) gains the upper hand, May will trigger Article 50 sooner or later. For observers, this will then provide some first insights into what the British government might be after.

The Bank of England’s reaction towards the vote for Brexit

The “unreliable boyfriend”: That´s the nickname that the City of London has given Mark Carney, the Canadian who has been running the Bank of England since 2013. How did he earn that honour? Several times last year – with the EU-referendum still months and months away, the British economy presented itself in rude health – Carney hinted towards a potential rate rise, only to disappoint investors and analysts by leaving rates at the level they have been since 2009, 0.5 percent. Since then, the City never really trusted the comments that came out of Threadneedle Street.

About six weeks after the historic vote for Brexit, things have changed quite dramatically. As he proved on Thursday, Mark Carney no longer deserves his nickname. Contrary to the past, the head of the BoE met the expectations of the financial community: On Wednesday, the Monetary Policy Committee (MPC), the core decision-making organ of the Central Bank, decided to cut rates to 0.25 percent and to restart Quantitative Easing (QE). In addition to that, the MPC decided to create a new credit facility for banks and house-building societies.

With these measures in place, Governor Carney and the Chancellor of the Exchequer,  Philip Hammond, hope to moderate the negative impact of the EU-referendum on the British economy. Important indicators such as the most recent Purchasing Managers Index (PMI) point towards a drastic slowdown since the end of June. Because of this situation, the BoE has adjusted its forecast for next year: Instead of 2.3 percent as previously forecasted, the central bank only expects meagre growth of around 0.8 percent, the biggest amendment since 1983. After the expected rate cut, it remains to be seen whether the Central Bank will be able to prevent a hard landing. Ultimately, the core problem of the British economy is caused by the uncertainty about the future relationship between the UK and the EU – a problem that monetary policy cannot solve.

According to the report published on Thursday, the BoE expects an increase in inflation, more unemployment and less consumer demand after the vote for Brexit. At 4.9 percent, unemployment is currently at a historic low. However, it is supposed to rise again, to 5.4 percent in 2017 and 5.6 percent in 2018. Because of the expected slump in consumer demand, the MPC has decided to restart QE, a policy measure that hasn´t been used since 2013. Now, the BoE is allowed to buy British government bonds (gilts) of up to 60 billion pounds and, in addition to this, corporate bonds of up to 10 billion pounds. By including corporate bonds, the BoE follows the example of the European Central Bank (ECB) which started buying corporate bonds in early June as part of its QE-program.

The cut in interest rates will most likely reduce the profitability of British banks. Simon-Kucher & Partners, a strategy consultancy, expects operating profits of the 21 largest banks and house-building societies to decline by up to 1.4 billion pounds, now that rates have been reduced to their lowest level for 322 years. In order to prevent a new banking crisis, the MPC introduced a credit program for banks and house-building societies, the so called “Term Funding Scheme” which provides financial institutions with the opportunity to borrow money at rates close to the bank rate. Previous QE-programs included, the balance sheet of the BoE could swell to levels of up to 545 billion pounds thanks to the measures announced on Thursday.

Initially, analysts and markets reacted positively. However, it remains to be seen whether the measures of the BoE deliver the desired results. The underlying problem of the British economy is not access to capital and a lack of funding, but the heightened levels of uncertainty since the British voted for Brexit on the 23rd of June. As long as there is no clarity over the future relationship between the UK and the EU, monetary policy can only do so much to support confidence and investment.

It depends on the outcome of the negotiations between London and Brussels whether the British economy enters a long and severe crisis or whether it recovers relatively quickly and, maybe even more important, only with minor bruises. According to what Theresa May has said, it will take a while until the official start of the negotiations. The Prime Minister intends to wait until early 2017 before she triggers Article 50 of the Lisbon Treaty which will commence the divorce process between the UK and the EU.

Mark Carney is aware of this, as his letter to Chancellor Hammond indicates. “Many of the adjustments needed to move to that new equilibrium (the new relationship between the UK and the EU) are real in nature, and are not the gift of monetary policy makers. Nonetheless, monetary policy can still play a role in smoothing part of this adjustment by appropriately balancing the forces acting to push inflation above the target with those expected to push activity below the economy’s new path for potential output.” Analysts as well as business associations, such as the British Chambers of Commerce (BCC), remain sceptical as to whether the BoE’s actions will produce the desired results. “Lower interest rates may give a helpful boost to market confidence, but have little-long term effect on businesses when rates are already so low”, comments Adam Marshall, acting Director General of the BCC.

Independent of this, Chancellor Hammond seems to be confident regarding the future prospects for the British economy. “The UK economy is fundamentally strong – employment is at a record high, there are almost a million new businesses since 2010 and the budget deficit has been reduced by almost two-thirds as a share of GDP. This is a new chapter for Britain, but we are well-placed to deal with the volatility caused by the vote to leave the EU”, Hammond writes in a letter to the Governor of the Central Bank.

He continues by stating: “I am prepared to take any necessary steps to support the economy and promote confidence. The UK starts from a position of economic strength as we address the challenges and take advantage of the opportunities that will arise as we forge a new relationship with the EU.” Regardless of the slowdown that indicators such as the most recent version of the PMI point out, the BoE has left its growth forecast for 2016 unchanged. In the year of the EU-referendum, the British economy is supposed to grow by 2 percent, the BoE thinks.

After their decision on Wednesday, the members of the MPC will only reconvene in early November. By then, the impact of the vote for Brexit on the state of the economy should be more obvious than it is today. Should there be a further deterioration of sentiment, the MPC might reduce rates further, but not to zero. According to the statement put out by the BoE, the bank rate is supposed to remain a little above zero, potentially avoiding some of the problems that the European counterpart of the BoE, the ECB, finds itself in after the introduction of negative interest rates.

Not only the BoE, but also the Chancellor could be taking further measures soon. He will deliver his first Autumn Statement in November and is expected to announce fiscal stimulus for the ailing economy.

But will Hammond be able to take away some of the uncertainty British firms suffer from? We’ll see.

 

 

 

Some thoughts on Boris Johnson

It was a shock. German politicians, their French counterparts, EU-representatives – they all shook their heads in disbelief when it was announced that the former mayor of London, Boris Johnson, would become the UK’s new foreign secretary. German TV commentators reportedly could not stop laughing about the appointment. Others, such as the French foreign minister, Jean-Marc Ayrault, described the Prime Minister’s choice as a sign of the political crisis in the UK. According to Ayrault, Johnson lied a lot during the referendum campaign and is now, what an irony, being rewarded with the post of foreign secretary.

Others tuned in, commenting on Johnson’s rather undiplomatic comments about for example President Obama’s African ancestry, and the fact that he, Johnson, lent his voice to a campaign that was made up of a lot of half-truths, to put it mildly (most of which have already been deleted from the internet). Frank-Walter Steinmeier, the German foreign minister, stated: “To be honest, I find this outrageous. It’s not just bitter for Great Britain. It’s also bitter for the EU.”

Angela Merkel, the German chancellor, however, did not comment on Prime Minister May’s choice. She instead called 10 Downing Street and invited her to Berlin. “I think it is our duty to work quite closely with governments of allied countries“, Merkel said. “The world has enough problems so we need to make progress in foreign policy collaboration, the way we have done it in the past with Great Britain.“

Again, Merkel behaved differently than her – mostly male – colleagues. Instead of exclaiming what an ill-fated choice the selection of Boris Johnson, a prominent Brexit-supporter, was, Merkel waits and sees, a tactic that she mastered very early on in her political career.

From a German point of view, Boris Johnson’s appointment is an interesting choice. Yes, admittedly, he is a populist. He is someone who seems to lack strong political beliefs and who jumped at the chance to join the Brexit-camp just because it fit his long term ambitions. Seldom has this been so obvious as in the case of Boris Johnson, a man who seemed to have little in common with hardcore Brexit supporters such as David Davis, Theresa May’s new Brexit-minister, or Nigel Farage, the former head of UKIP who decided to withdraw from the public eye quickly after the referendum in order to make sure that he will not be associated with the mess that is likely to follow.

However, with the appointment of a Brexit-minister and the creation of an international trade ministry, May has made sure that Johnson’s remit will be quite limited. The real driver in Britain`s Brexit-negotiations will not be the Foreign Office, but 10 and 11 Downing Street as well as the Brexit ministry and the ministry for international trade. Consequently, foreign secretary Johnson will not be involved too much in negotiating Britain´s future relationship with Europe. At the same time, May has made sure that Johnson is inside the government, not outside where he could have easily attacked her decision-making without having to carry any responsibility himself.

He will be fairly busy in the months to come, travelling the world, trying to get the message across that although the UK has voted to leave the EU, it is not turning its back against the world. In addition to that, he will have to make sure that he does not make too many gaffes, something that he is quite known for.

It remains to be seen whether Johnson will be able to curb his tongue. If he does not, he might be the first minister of this new government to be sacked. At least, that´s what the bookies think.

 

 

 

 

Some thoughts on Boris Johnson

It was a shock. German politicians, their French counterparts, EU-representatives – they all shook their heads in disbelief when it was announced that the former mayor of London, Boris Johnson, would become the UK’s new foreign secretary. German TV commentators reportedly could not stop laughing about the appointment. Others, such as the French foreign minister, Jean-Marc Ayrault, described the Prime Minister’s choice as a sign of the political crisis in the UK. According to Ayrault, Johnson lied a lot during the referendum campaign and is now, what an irony, being rewarded with the post of foreign secretary.

Others tuned in, commenting on Johnson’s rather undiplomatic comments about for example President Obama’s African ancestry, and the fact that he, Johnson, lent his voice to a campaign that was made up of a lot of half-truths, to put it mildly (most of which have already been deleted from the internet). Frank-Walter Steinmeier, the German foreign minister, stated: “To be honest, I find this outrageous. It’s not just bitter for Great Britain. It’s also bitter for the EU.”

Angela Merkel, the German chancellor, however, did not comment on Prime Minister May’s choice. She instead called 10 Downing Street and invited her to Berlin. “I think it is our duty to work quite closely with governments of allied countries“, Merkel said. “The world has enough problems so we need to make progress in foreign policy collaboration, the way we have done it in the past with Great Britain.“

Again, Merkel behaved differently than her – mostly male – colleagues. Instead of exclaiming what an ill-fated choice the selection of Boris Johnson, a prominent Brexit-supporter, was, Merkel waits and sees, a tactic that she mastered very early on in her political career.

From a German point of view, Boris Johnson’s appointment is an interesting choice. Yes, admittedly, he is a populist. He is someone who seems to lack strong political beliefs and who jumped at the chance to join the Brexit-camp just because it fit his long term ambitions. Seldom has this been so obvious as in the case of Boris Johnson, a man who seemed to have little in common with hardcore Brexit supporters such as David Davis, Theresa May’s new Brexit-minister, or Nigel Farage, the former head of UKIP who decided to withdraw from the public eye quickly after the referendum in order to make sure that he will not be associated with the mess that is likely to follow.

However, with the appointment of a Brexit-minister and the creation of an international trade ministry, May has made sure that Johnson’s remit will be quite limited. The real driver in Britain`s Brexit-negotiations will not be the Foreign Office, but 10 and 11 Downing Street as well as the Brexit ministry and the ministry for international trade. Consequently, foreign secretary Johnson will not be involved too much in negotiating Britain´s future relationship with Europe. At the same time, May has made sure that Johnson is inside the government, not outside where he could have easily attacked her decision-making without having to carry any responsibility himself.

He will be fairly busy in the months to come, travelling the world, trying to get the message across that although the UK has voted to leave the EU, it is not turning its back against the world. In addition to that, he will have to make sure that he does not make too many gaffes, something that he is quite known for.

It remains to be seen whether Johnson will be able to curb his tongue. If he does not, he might be the first minister of this new government to be sacked. At least, that´s what the bookies think.

The saviour of the British economy?

A safe pair of hands. Over and over again, British media outlets have used these words to describe Theresa May, the new Prime Minister. She is said to be stable and reliable, and yes, a bit boring. But maybe that’s exactly what the country needs now, after all the excitement that her predecessor David Cameron provided the UK with.

Similar things are being said about Theresa May’s new chancellor, Philip Hammond. The 60-year old has already held several ministerial posts – he was Foreign and Defence Secretary, among others – and has, contrary to many of his colleagues in the House of Commons, had a “real” job before becoming a Member of Parliament 19 years ago. After his studies at Oxford University, Hammond worked for a company that sells medical appliances, spent some time in South America as a consultant for the World Bank and became a partner at a consultancy firm.

Prior to the British EU-referendum on the 23rd of June, Hammond was part of the Remain-camp. It is expected that he will try to negotiate a deal under which the City of London can maintain its passporting rights into Europe, a crucial factor for London to keep its status as Europe’s leading financial center. At the same time, the Conservative will have to stabilise the British economy and regain trust from international investors. Thanks to its high budget and current account deficit, Britain will continue to rely on foreign funding – even more so, should there be a sharp recession looming.

Philip Hammond has had an eye out for the prestigious role for a while. Already in 2010, when the Conservatives formed a government with the Liberal Democrats, the man with the grey mane uttered his interest for the role as a Chief Secretary in Her Majesty’s Treasury, the second most important job after that of the Minister. However, at that point in time, a Liberal got the chance.

Thus, Hammond started in the Department of Transport before becoming Defence Secretary in 2011 and Foreign Secretary in 2014. A Member of Parliament, Hammond has represented Runnymede and Weybridge since 1997 – a constituency that voted Leave although their MEP supported Britain to remain in the EU.

Philip Hammond will now have to make use of his vast experience in order to reassure international investors that the UK is still a good destination for their money. “We don`t turn our back against the world”, he said after his appointment. Hammond pledged to take “whatever measures” needed to help stabilise the economy and retain Britain as an attractive destination for firms to invest.

It remains to be seen what this means for his tax policies. On Thursday, Hammond declined to comment on the announcements made by his predecessor George Osborne to slash corporation tax to 15 percent. Hammond is known for his support for low taxes. Nevertheless, it is still too early to tell whether Hammond will engage in, as some critics such as Pascal Lamy, the former head of the WTO, have claimed, extensive tax dumping in order to keep companies from leaving the UK after the divorce from the EU.

There is more to watch out for. There are two areas where Hammond could clash with his new boss fairly soon. First, there is fiscal politics. Hammond has a reputation of being a “fiscal hawk”. Nevertheless, he cannot just continue what George Osborne started in 2010 when he embarked on a massive austerity program that still is not finished. Prime Minister May has been very clear in the past days that the government’s first goal should not be – as planned before – to generate a budget surplus by 2020 but to make sure that more people benefit from economic growth and prosperity (assuming, of course, there is still something left to share after Brexit).

We might get a first glance of his fiscal plans when he presents the Autumn Statement in November. Different to what then chancellor George Osborne announced before the referendum, there won’t be an emergency budget. Experts like Kallum Pickering, the UK economist at Berenberg Bank, thus expect some more fiscal loosening in the short run whilst more cuts are being postponed towards the end of the Parliament.

Besides fiscal policy, there is a second topic that holds vast potential for conflict, the so called passport for the City of London. This framework allows banks headquartered in London to sell their products on the continent. Should the City of London lose these rights, several thousand jobs could be moved to Frankfurt, Paris or Dublin. London would subsequently lose some of its attractiveness for international banks. Hammond seems to be all too aware of this. On Tuesday, he stated at the British Bankers Association that the financial industry will be possibly hit the hardest by Brexit. “I know and understand the importance of passporting”, Hammond said.

Theresa May though not only needs to satisfy the banks, but also those 17 million Brexit-voters of which many requested the European Freedom of Labour Movement to be scrapped or at least reduced. Leading EU-politicians such as Jean-Claude Juncker, the President of the European Commission, or Angela Merkel, the German chancellor, have already made clear that there is not too much room for negotiation here. Access to the Single Market and passporting can only be sustained if the four freedoms remain in place. So where will that leave the two safe pairs of hands?

 

 

 

 

May and Merkel – will they get along?

The parallels are all too obvious. They are both females, in their late fifties or early sixties. They are both pastors’ daughters. They both studied untypical subjects (geography and physics). They are both known for being practical, having a strong endurance and, paying attention to details. In addition to all of this, they have fought their way to the top by beating the competition (mostly men) and by making sure that there is actually not too much competition left to challenge them in the future (Merkel has killed off all critics in her party while May was the last Tory-woman standing after a bruising Referendum campaign).

Both are known to be hard workers. Both have the reputation of wanting to get things done and, of just getting on with it, as people say here in Britain. Both Merkel, the German chancellor, as well as May, Britain’s new Prime Minister, have been around for a while (Merkel since 2005, May since 2010). Both are said to be a “safe pair of hands”, a safe bet. Neither of the two has the reputation of being too emotional, chatty, charming, or anything but business.

So, the question goes, will they get along, the German chancellor and her British counterpart? For sure, the relationship between Merkel and May will be crucial when negotiating Britain’s exit from the EU. Both will be studying each others previous negotiating quite closely, and they will be trying to predict the future by investigating the other’s past behaviour in negotiations where a lot was at stake.

From a German point of view, out of the two choices at hand – Theresa May and Andrea Leadsom – May is definitely the preferred option. This is not so much because she was a soft Remainer, but rather because she is expected to behave fairly rationally, pragmatically and reasonably. That’s not to say that Merkel and others should not expect some tough negotiating. Theresa May will, and I am sure that people in Berlin and Brussels will be aware of this, fight as hard as she can to get “the best deal for Britain”.

A lot will depend on the careful calibration of this relationship. Merkel might help May where other European partners don’t want to. But, as the leading representative of one of the most important trading partners of the UK, she can also play a huge role in massaging May into the desired direction.

As to the end result, I am not sure whether it makes a huge difference whether the two get along well, given the gigantic task that lies ahead of them. There is a fundamental issue here that needs to be resolved but that at the same time seems totally unresolveable. How do you keep full access to the Single Market if you plan to reduce the European Freedom of (Labour) Movement? Any negotiator will have to be very witty to achieve anything that comes close to this.

Depending on how the coming months unfold, Merkel could become May’s interconnector into Brussels and other European capitals. However, it could also be the contrary. Merkel might well become a strong adversary to May, should the British Prime Minister try to use the Europeans currently living in the UK as bargaining chips for the negotiations in Brussels.

However, we should not overplay the importance of the relationship between the two. Germany and the UK no longer have closely aligned interests (at least not as aligned as before June 23rd) and so each side will fight with might for what they want to get out of this situation.

Soulsearching

It was an easy question, at least from the perspective of the radio presenter who asked it. “So would you apply for a British passport if this would allow you to stay in the country?” The scene took place Monday early afternoon, at Western House in Central London, right next to Oxford Circus. I had been invited to share some of my experiences as a European in a post-referendum Britain, on the Jeremy Vine Show on BBC Radio 2, and there we were. Right at the heart of the question.

Imagining that the European Freedom of Movement could be restricted or even revoked after a British EU-exit, would I still want to live in this country and, secondly, would I apply for British citizenship in order for me to be able to stay? It´s an interesting thing to think about, especially for me. So far, I have merely seen the outcome of the referendum as an unexpected turn in British history. I have watched the pound crash, Cameron resign, EU-Commissioner Hill step down. Within days, Boris Johnson was knifed, George Osborne dumped his austerity goal and Nigel Farage quit.

As a journalist, I watched it with fascination – seldomly, we get the chance to witness decades happening in a couple of days – but I haven`t really contemplated on what all this means for me personally. I have been in the UK for three years now (four if you count the year that I did at the London School of Economics in 2011) and I always liked it here.

I find it disappointing that a country with so much potential is now slowly dismantling its reputation in the world, its relevance as Europe’s leading financial center, its relationship to Europe. Of course, from a journalist point of view, this is as exciting as it gets. But from a personal perspective, do I still want to be here?

The huge amount of racist incidents since the referendum has clearly not helped. These days, you watch videos in which Brits are telling Europeans to leave their country. You read about insulting behaviour on trains and trams, in streets and restaurants.

The more worrying to me though is the debate about Europeans living in the UK and the question of whether they will be allowed to stay, should the UK really trigger Article 50 and sever its ties with the EU. For a long time, we were told (and happily believed) that nothing would change for those who are already in the country, that there would possibly be grandfathering of those arriving between now and the formal exit.

However, over the course of the past days, the debate has changed a little. Theresa May, currently Interior Minister and one of the favorites for the job of Prime Minister Cameron, alluded that she might be using the Europeans currently living in the UK as a bargaining chip in the negotiations in Brussels.

On the Peston Show, May stated: “What’s important is there will be a negotiation here as to how we deal with that issue of people who are already here and who have established a life here and Brits who’ve established a life in other countries within the European Union. (…) There’s no change at the moment, but of course we have to factor that into the negotiations.” Foreign Secretary Philip Hammond made similar comments on Monday.

Although May and Hammond were criticised heavily for what they said – not only by Remain-supporters but also by Leave-campaigners – I guess these comments give us a bit of a foretaste how the negotiations between the UK and the EU turn out once the UK officially starts the divorce proceedings. May and Hammond have made clear that they might want to use the approximately three million Europeans currently living in the UK as bargaining counters. (According to the FT, May’s team rowed back on Tuesday, stating that “Her position is that we will guarantee the legal status of EU nationals in Britain as long as British nationals living in EU countries have their status guaranteed too.”)

Given that the negotiations will not start for a while, I find this development deeply worrying. With comments like these, and the amount of racist incidents that have been reported since the Brexit vote, the UK has already changed dramatically. To me, it seems to be a less friendly, less open place to live in. I know that it all depends on the outcome of the negotiations so I think there is no need for premature panic. But – many of my European friends share my worries and some of us fear that the climate will become more heated once the divorce talks are under way.

A long answer to a short question. Would I apply for a British passport, in some years from now, and give away my German passport that allows me to travel to a record 177 countries, visa-free, according to most recent edition of the Visa Restrictions Index? I don`t know. Maybe not. Hopefully, there will be an alternative solution to this.

Should we stay or should we go?

It has only been a week since we learned the results of the British EU-Referendum. Voters, politicians and business people are slowly coming to terms with the decision to leave the European Union. Although we can’t foresee all of the implications yet, it is quite obvious that the amount of change will be tremendous.

That’s especially true for firms that rely on accessing the European Single Market (e.g. Vodafone, the telecommunications company, or EasyJet, the low budget airline). Both Vodafone and Easyjet are headquartered in the UK, for now. Given that the UK might lose its access to the single market, these firms have, among others, announced that they could be forced to relocate their headquarters, should it be necessary for their businesses.

This news also got my editors interested. Ideally, they want me to find a company that will not wait whether and when Article 50 – the official start of the British divorce from Europe – is triggered, but that will be moving to Continental Europe any time soon. So far, I haven’t managed to find such a company.

According to what a German lawyer told me on Thursday, the reason for this is simple. Relocating your headquarters is a complex, time consuming and expensive business, not something you would do just in case, as a precautionary measure. “The starting shot will only be fired once we have clarity over the progress of the negotiations”, Marcel Hagemann, a partner at CMS Legal, told me.

Assuming that Article 50 will be triggered towards the end of the year, the UK has two years, until the end of 2018, to come to an agreement with the EU. His expectation is that by the end of 2017, we should see companies starting to relocate to the EU.

“You need some notice for this”, Hagemann said. From the legal side of things, it takes about a year to move a company from the UK to Europe, depending on what kind of legal process you want to undergo. According to the lawyer, there are two core solutions to this issue.

Firstly, there is the merger between the UK entity and a Continental European entity. For this, you can either establish a new company in Europe or buy an existing one. The only important thing is to merge this one with your British entity, making sure that the headquarter of the new entity is based outside of Britain. This is, Hagemann said, a relatively simple process, assuming that your company is not listed in Britain. If it is, it will lose its listing here in the UK (as it is not longer headquartered here).

The second solution to the problem is the creation of a European public company, a Societas Europaea (abbreviated SE). So far, the UK only has 34 of these whereas Germany has 350 SE-style companies. According to the lawyer, an SE is functioning similarly to a PLC. Whereas the founding of an SE is a bit complicated, moving the headquarters from the UK to Continental Europe should be relatively straight forward – as long as you finish the process before the UK officially leaves the EU.

When asked how expensive the whole process might be, Hagemann shrugged. Obviously, he did not want to be nailed down to a specific number. “It varies a lot, depending on the size of the company and the amount of people that will have to move”, he stated. Whereas he does not think that anyone will officially move their headquarters before the end of 2017, many firms have started searching for alternative locations.

Duesseldorf, where Hagemann is based, has already rolled out the red carpet to British telecommunication firms such as Vodafone. “They already have their German office there, so maybe this would be a good choice for the group headquarters as well”, Hagemann said.

Although the outcome of the referendum did surprise him, the German is still hopeful. “In the past, the British have been very good at negotiating in their favour”, he said. Plus: “Don’t forget that Germany has an interest in keeping them in the Single Market. We do have a strong voice here.”

Firms however will have to prepare for the worst. If they only learned one thing since the British referendum, it is that politicians don’t tend to stick to what they said before. Thus, they’d better be prepared if Britain’s EU negotiations break down in late 2018, leaving them with the prospect of a hard Brexit.

Some firms have already reacted. Siemens for example, the German industrials company, will not make further investments here in the UK before they have clarity over where the country might be heading. Two days ago, Virgin cancelled a deal that would have seen them take over 3000 staff. UOB, the Singaporean bank, stopped providing financing for British real estate projects.

According to Hagemann, we will see much more of this – but only once it is clear whether Britain remains part of the Single Market or not. “German companies will not start closing their factories straight away”, the lawyer said.

What a great relief. So watch out for 2017.

So what does Angela Merkel think?

In our post-Brexit world, there are some key figures that will strongly influence the outcome of the negotiations. One of them is Jean-Claude Juncker, the head of the EU Commission, a seasoned EU-politician who made us laugh earlier this week when he asked Ukip-leader Nigel Farage why he attended a session of the European Parliament, given that he was one of the driving forces behind the Leave-campaign.

Juncker did not speak English during that session and made sure that none of his staff or that of other EU-bodies enters any preliminary talks with the British before Article 50 of the Lisbon treaty has officially been triggered. According to Juncker, there “can be no preliminary discussions”. Since the referendum vote last Thursday, Juncker has played hard-ball. As the leading EU-representative, he is obviously not just angry about the British vote to leave but also afraid that it could lead to contagion among other dissatisfied EU-member states. The last thing that Juncker wants to see happening is more countries following the British example.

Then there is Francois Hollande, the French President who will face a general election next year and who has promised to not seek reelection should the unemployment rate stay at where it is. For Hollande, Britain’s vote for Brexit is a dangerous affair. After all, Mr. Hollande has a Ukip-like party in his home country as well, called Front National, a party that has been around since the early 70ties and that has gained some support by voters during the last years.

With France’s economy continuing to suffer and the population resisting reforms, their leader Marine Le Pen offers even more drastic solutions to the country’s problems than Nigel Farage in the UK. It is precisely this why France is relatively harsh towards the UK – to send a message to voters at home that populism does not lead to great results. Thus, the head of the French Central Bank declared over the weekend that UK banks will lose their passporting rights that currently allow them to trade in Europe should the UK leave the EU.

This week, President Hollande delivered a second blow by stating that the City of London would be losing its right to conduct Euro-clearing should the country separate from the EU. According to the FT, he said: “It can serve as an example for those who seek the end of Europe . . . It can serve as a lesson.” Thus, we can assume that France will – for domestic reasons – take a ruthless stance in the divorce talks.

Besides Juncker and Hollande, there is – of course – Angela Merkel, the German chancellor. Also in this crisis, Merkel has followed her previous success recipe. In Germany, we have gotten to know her for only taking sides and positioning herself once all or at least most of the other parties have voiced their opinion. It’s a strategy called “merkeln” that Merkel mastered during her early years in the Christian Democratic Union (CDU), at the time a hugely male-dominated club of guys that ran the show. By waiting them out, Merkel was over time able to gain control over the party.

Even when she became Chancellor, Merkel stuck to her strategy. On numerous occasions, we have seen it played out, both on the domestic but also the international front. No surprise then that it also came into play when Merkel started talking about the consequences of the British Brexit-vote. On Friday, just hours after the announcement of the result, Merkel warned against drawing “easy and hasty conclusions”. On Sunday, she said she would not “push for an immediate withdrawal”.

But before the European Summit on Tuesday, Merkel changed her tone. According to the FT, she said: “We will ensure that the negotiations will not be run on the principle of cherry-picking,” the Chancellor said. “We must and will make a palpable difference over whether a country wants to be a member of the family of the European Union or not. Whoever wants to get out of this family cannot expect that all the obligations fall away but the privileges continue to remain in place.”

To me, this was a clear sign that Merkel has synchronized her attitude towards the British question not only with fellow Christian Democrats such as Finance Minister Wolfgang Schäuble (“In is in. Out is out”), but also with her European allies. Even if we hear conflicting messages out of Brussels, the Leave-side should not take this too serious. Yes, there are different positions on how the EU should deal with the British exit but leading figures such as Merkel, Hollande or Juncker will make sure that there is a unified position in the end.

Instead of reading the tea leaves in Brussels, the British side should focus more on making up their mind and defining what kind of relationship they want with the EU. Unless they have reached that stage, there is no point in bowing and scraping in various European cities. Until Article 50 is triggered, the UK will not be able to strike any agreements with the EU, even if Merkel continues stating that there is no need to be particularly nasty towards the Brits.

Whoever succeeds David Cameron should not rely solely on comments made by German industrials like Markus Kerber, the head of the BDI, the equivalent to the CBI. Just because Kerber warned against trade curbs between the UK and Britain, this does not mean that this position is widely shared by decision makers. For Merkel and other Europeans, there is more at stake here than trade.

Leaving the UK

It did not take long. Several days into the new, post-Brexit reality, more than a handful of foreign friends have already declared their intention to leave the UK. It’s not just Europeans but also Americans, Canadians, and even Chinese. They all have different reasons for leaving.

Take Jovana, a change consultant who has lived and worked in London for four years. Jovana is German but thought she would stay in the UK. However, after Thursday’s Brexit-vote, things have changed quite dramatically. Although nothing has really changed, from a legal perspective, Jovana wants to leave the UK, as soon as possible, but no later than the end of the year. “If this is the message – that we are no longer welcome here – I don’t want to continue living in the UK”, she explained when I interviewed her on Tuesday.

Jovana is a true believer in the European project and thus the rejection of it by British voters has affected her deeply. “I am perceived as one of the better migrants”, she stated, highlighting the differenciation that is being made between “good immigration” from countries such as France and Germany, and “bad immigration” from Eastern European countries. Jovana is currently searching for jobs in Berlin, one of the cities that might actually benefit from Britain’s vote to Leave.

Another friend of mine, Natalie, hasn’t gotten quite that far. She has lived and studied in the UK as well, founded her company here. Natalie is American and has waited since March for the arrival of her new investor visa. “Since then, I haven’t even been able to go to Paris”, she complained, “I had to submit my passport for this.”

If for any reason, her visa is not prolonged, Natalie already has a Plan B. She plans to move to Amsterdam, to the Netherlands, a city that is, according to her, much more open to young businesses than London with its sky-high rents and lots of economic uncertainty, thanks to the vote for Brexit. In her circle of friends, Natalie is not the only one thinking of leaving the UK: “There are several others who have are mulling over this idea as well”, she said.

There are a couple more examples I could mention. All these friends are relatively young, cosmopolitan, well-educated and can’t identify themselves with the strange turn that the country has taken since it voted for Brexit on Thursday. Interestingly though, none of them mentioned a potential change in the existing Freedom of Labour framework that has so far allowed non-British EU-citizens to work and live in the UK. According to recent labour market statistics, there are 2.1 million of these people currently working in the UK.

What might happen to them after a British divorce from the EU is difficult to tell. Both camps have declared before the referendum that Europeans who are already in Britain would be allowed to stay and those who are arriving between now and the exit date could be grandfathered, thus allowed to stay. That, it seems, is also what a majority of Europeans working in the UK would want. According to a survey by Totaljobs, 76 percent of Europeans working in the UK want to stay even in case of a Brexit.

Another interesting fact is that the Leave-side has already backtracked on some of its core arguments regarding immigration. As Tory MP and Leave-supporter Daniel Hannan explained, people who thought that European immigration would be reduced to zero after a British exit from the EU would most likely be disappointed.

Thus, Madeleine Sumption, the Director of the Migration Observatory at the University of Oxford, assumes that there will be some form of continued European immigration into the UK. “Immigration will continue to be the most controversial issue in unpicking the relationship between the UK and the EU”, she stated on Monday when I interviewed her for DIE WELT.

For those that want to stay in the UK, this question is one that will keep us awake at night. Others, like Jovana, have already relocated from the UK, at least in their minds.