In the aftermath of Britain’s decision to leave the EU, Malta should lobby for a free trade agreement between the two sides and, possibly, the retention of the free movement of persons, a study proposes.
The recommendation was made in the latest edition of the Misco Malta Health Check quarterly economic guide, which also calls for the strengthening of Malta’s relations with the UK to mitigate the negative impact of Brexit.
The analysis is based on information from Central Bank data, the National Statistics Office, Eurostat, the Financial Times and The Economist. It acknowledges the historic vote to leave the EU would diminish Europe’s standing while raising questions about Europe’s future.
Citing a recent report by credit rating agency Fitch, it warns that Malta is among the most exposed countries to the UK, with its imports and exports of goods and services accounting for more than eight per cent of GDP. Consequently, it forecasts that Brexit would have direct and indirect implications on the island’s economy, which might warrant a further revision of growth for this year.
“Moreover, the duration of the weakening sterling will determine the magnitude of financial losses Malta is expected to suffer as a result of a high financial asset holdings it has in the UK,” it notes.
From a political perspective, the study says Brexit will mean the loss of an ally in Malta’s fight against plans to introduce a harmonised tax. Apart from a drop in the number of British tourists in the wake of the sterling’s depreciation, there might also be other sectors that could suffer as a result of the existing uncertainty.
This might lead to a possible upward revision in students’ fees and costs for patients receiving treatment in the UK, a change in the status enjoyed by Maltese workers in Britain and negative repercussions on organisations exposed to the British market.
The study floats the possibility that the UK’s eventual reduction in its EU budget contribution, which, in 2014, amounted to €7.1 billion after rebates, might result in increased payments for the remaining member states or lower expenditure by Brussels.
The analysis throws cold water on the possibility of more EU referenda in other EU members, at least in the short term, saying there is not enough support for such move at this stage.
In the long term, however, such possibility might be more likely in the wake of the rise of populist movements across Europe, which, in turn, might urge the EU to develop further to improve economic growth and its value-added to citizens.
The report forecasts that China will be the biggest winner from Brexit, even though its economy will initially take a hit due to the uncertainty reigning in the EU, which is its second trading partner.
“Even a fully united Europe has had a tough time competing and contending with China. With the recent reality of a less-integrated Europe, the EU can potentially be less of a counterweight to China’s rise on the world stage,” the Misco study points out.