The decision of the British population to leave the European Union will remain topical in the world for a long time. And although the ‘farewell letter to Brussels’, as noted by Chairman of European Commission Jean-Claude Juncker, will not be sent by Britain until autumn and no new government will be formed until then, economists, experts and analysts are already engaged in calculations of the possible damage that will be caused by Britain’s exit.
Belgium, Netherlands, Ireland, Cyprus, Luxembourg and Malta will likely suffer the most from Brexit, according to experts from Fitch. Goods form those countries form around 8% of Britain’s imports. In the event of London establishing import fees, financial losses will be unavoidable for continental Europe. Furthermore, Cyprus, Malta and Netherlands all serve as Britain’s internal offshores. Britain is a financial hub for all of Europe. These countries service a large number of tax optimization transactions.
It is possible that Poland, Hungary, Czech Republic, Lithuania and Latvia will suffer losses as well. This is why there are a lot of migrant workers in Britain who arrived from those countries. Half of the income those people earn in Britain they also send to their home countries. Households in those countries will likely lose their usual income. According to estimates, it could be a massive hit: nearly 10% of GDP of those countries is secured by compatriots working abroad.
According to data from the Latvian Employers’ Confederation, money transfers from Latvians living abroad have had positive impact in supporting Latvia’s economy. From 2005 to 2015 the volume of such transactions were reaching 7% of GDP. 2014 turned out a record year – Latvian migrants transferred not only the largest sum of money since the opening of borders (EUR 717.5 million), but also managed to end up on 1st place among Europeans in terms of the total volume of money transfer ratio to GDP (nearly 6%).
According to information from the Foreign Affairs Ministry, which claims there are 370,000 Latvians living abroad, it can be assumed that the average level of money transfers to Latvia per capita is nearly EUR 1,900 per year or EUR 150 per month (in 2015).
Even now Latvians working abroad are complaining about intolerance coming from local residents. And even though promises are voiced on the highest political level to prevent any forms of discrimination towards migrants, many may decide to return to their home country due to pressure from locals.
This, however, would impact Britain’s economy the most. Shortly after the referendum Fitch reduced the country’s sovereign rating from AAA to AA. Even before that S&P had reduced Britain’s rating from AA+ to AA.
On the eve of the referendum, The Society of Motor Manufacturers and Traders of Britain announced that Brexit may result in around 800,000 people losing their jobs and the economy would lose around GBP 15.5 billion.
According to the head of the European Central Bank Mario Draghi, Britain’s decision will cost Eurozone 0.3-0.5% of GDP.
Russia will continue its «diet»
Political perspectives and economic future of the EU after Brexit was discussed by European leaders this week. Brexit discussion took the entire meeting even though EU leaders had also planned to discuss the matter of extending sanctions against Russia (in force until 31 July). The decision on the latter was made on 1 July.
Meanwhile, President of Russia Vladimir Putin decided not to postpone anything and simply issued a decree to extend the standing embargo on imports of agricultural products until 31 December 2017. This means USA, EU, Canada, Australia, Norway, Albania, Montenegro, Iceland and Lichtenstein will not be able to export goods like beef, pork, poultry, fish, cheese, milk, fruits and vegetables, as well as some other categories of products to Russia.
Earlier Latvia’s Agriculture Ministry prepared reports, according to which non-compensated losses of Latvia’s dairy industry would reach EUR 132.7 million by the end of the year. If sanctions are extended for the next 3.5 years, however, losses will reach EUR 233.5 million.
«We will leave for the North»
As we all know, Latvians are not all that intimidated or surprised by anything these days: they will always find a way out. While some are looking for happiness in other countries, others manage to return home from working abroad every evening. As it became known this week, 40% of Latvian would relocate to Estonia for higher salaries and friendlier taxes. This is shown by results of a survey by cvmarket.lv.
Previously there was some information that suggested more and more Latvians go to work in Estonia. Estonians, on the other hand, more often travel to Finland with the same goal in mind.
Residents from Vidzeme, which borders with Estonia, more often look for jobs in the neighbouring country. Residents of Valka are the luckiest in this regard – Estonia is just around the corner for them. Latvians find jobs in Tallinn, Pärnu, Tartu and nearby areas. Tallinn office of Ericsson employs Latvians. This example is followed by Scarfil from Pärnu, Finmec from Maardu and others. Enics branch in Elve also organized transports of its Latvian employees from Valga.
Latvians are interested the most in wages offered by Estonia: the average wage in this country was EUR 1,045 in 2015 (EUR 829 in Latvia). Latvians are also attracted by work culture and employers’ attitude towards their workers.
Transports of labour force between Valka and Valga are similar to a pendulum: people travel from Latvia to Estonia to work and return every day. Latvians do not change their residence. This could change soon because the interest of Latvia’s for real estate in Valga increases every year.
It is possible that Estonia may take Britain’s place in regards to Latvian migrant workers’ top destination.