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Macron’s no-deal Brexit gamble could backfire

23 August 2019

1:23 PM

23 August 2019

1:23 PM

The ‘Non’ was not quite as frosty as it might have been. When Boris Johnson met up with France’s president Emmanuel Macron there were at least some pictures of the two men talking amicably. Even so, while Germany’s chancellor Angela Merkel and some of the EU’s other leaders have at least left the door a tiny bit open to renegotiating the UK’s departure from the EU, Macron made it clear it was almost completely shut.

In fact, Macron is making almost as big a bet as Johnson. His calculation is that a no-deal Brexit will work to France’s advantage. Yet he may well have mis-calculated – and it could easily drive his own economy into recession.

Last time around, it was France that was most reluctant to allow Britain to postpone its exit from the EU. With the next deadline fast approaching, it is Macron again who is most reluctant to allow any form of compromise that would allow a last-minute deal to be done. The view from the Élysée Palace appears to be that it is better if the British are sent packing before they cause any more trouble. Sure, there might be some disruption. But France will come out the clear winner.

It is not hard to see the logic. First, the chaos of no deal, at least if you believe the hype – which France’s elite certainly does – will teach the British a lesson. After food and medical shortage, a recession and political chaos, no one will ever think about leaving the EU again and the institution will emerge stronger than ever.

Next, and more importantly, the French are surely hoping to profit from that disruption. Remember it is the French who have put most work into using Brexit to persuade British firms to move to the other side of the Channel, sending constant delegations to visit our companies and even allowing UK firms to complete regulatory forms in English.

They hoped to make Paris a rival to the City and persuade many of our technology companies to the French capital as well. Our departure from the EU would be the lever to make that happen. So far it has fallen completely flat. Virtually no jobs have been moved and those that have gone to Dublin, Amsterdam or Warsaw rather than Paris or Lyon. But no-deal chaos could finally make that happen, at least in the calculations of the French.

The trouble is, it is going to backfire. After all, selling stuff to the UK is important to France. Almost seven per cent of French exports go to the UK and they run a big surplus with us even as their trade deficit has started to grow. One report argued that 140,000 jobs could be lost in a no-deal Brexit. It could be higher. Why? Because much of what the French sell us is relatively easy to substitute if tariffs are put in place. Some of us might still buy a BMW if there were some levies on top of the price. A Renault? Not so much.

True, no deal will hurt the UK economy as well. But we have a very flexible labour market. New jobs are created to replace those that are lost, as we can see in record employment levels even as we leave the EU. France has a rigid, inflexible economy, perilously close to recession. Macron is gambling that no deal will work to his advantage. But it may well backfire on him – and plunge his economy into recession.

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