Is British tsunami coming?

Great Britain

Regardless of political sympathies, an assessment of overall functioning of the European Union, or attitude towards migration, Brexit is not in the interest of Poland.

When supporters of Brexit got majority in recent public opinion polls, Polish zloty weakened strongly. Polish currency might be the first victim of a possible exit of the UK from European Union. Investors around the world are now looking for a safe haven and therefore they are closing their positions in Polish bonds and zloty, and exchange it for safer currencies such as yen, dollar or Swiss franc. Several hundreds of thousands of Polish mortgages are denominated in franc, and the borrowers have already painfully experienced depreciation of zloty, as the exchange rate of the Swiss currency has soared above 4 zloty.

It is just a foretaste of what might happen on the markets in the event of a real split within the European Union. And we are not talking only about the first wave of impulsive reactions. Polish zloty is particularly vulnerable to weakening, when structural funds began to dry up – wrote the analysts of Citigroup. Brexit is a real threat to the billions of euro from EU funds, which Polish government spends on new roads, sewage plants, etc. London is one of the major net contributors to the EU budget, Poland is its biggest beneficiary. And probably the biggest loser when it comes to renegotiate the budget and limit allocated funds. Lack of British contribution to the EU budget means either increased payments from other EU countries or fund cuts in already planned expenditures.

Polish exporters and entrepreneurs should also be bothered by the possible Brexit. United Kingdom is the second largest consumer of our products, just after Germany. We achieved the trade surplus of 7 billion euro last year.
The report by Euler Hermes shows that depreciation of the British pound and lower GDP growth – which would be a consequence of the exit of Great Britain from the EU – will reduce British imports from across the Union. If the United Kingdom and the European Union don’t conclude a new agreement on free trade quickly, the loss of European exporters will reach the amount of 23,5 billion euro in the years 2017-2019. And even after the conclusion of such an agreement, members of the European Community will loose about 17,4 billion euro on account of a decrease in British demand for goods and services – according to the Euler Hermes report. Economists of this company estimate that the loss only in the Polish exports of food products can reach inconsiderable amount of 100 million euro per year. The potential loss of all Polish producers are estimated at 700 million euro. Difficulties may also meet people who have set up business in the UK due to the friendly tax system. Currently there are nearly 40 thousand registered companies with Polish roots.

If Brexit takes place, up to 400 thousands Poles who live in the UK may be forced to return to the country – according to the Polish Institute of International Affairs (PISM). This is a number of Polish citizens who received British tax identification number between 2012 and 2015. In the case of Brexit, only those immigrants can feel safe who have been living in the UK at least 5 years and can apply for a permanent residence. Others must reckon with social benefits being cut and some difficulties on the labor market. One need to keep in mind that calls for the split with EU gained popularity on anti-immigrant sentiment, hence the British politicians want to keep their promises, eg. in cutting social benefits.
The comeback of Poles means less money transfers from the United Kingdom. – Currently, they reach approx. 5 billion zloty per year, and in some areas of the country, the transfers from the UK significantly increase local consumption – says PISM. A large number of returnees is also the problem for the labor market. It means an increase in unemployment and the burden on the budget.
The problem for the government may also become the fate of approx. 6 000 Polish students who study at the British universities. For them, Brexit may in fact mean a sharp rise in tuition fees and an end to the dream of trainings and work in British reputable companies.

Will the above scenario happen? We will find out on June 23, when the British will have voted in the referendum. We can only keep our fingers crossed that there is a majority which will stop the upcoming tsunami.