At the moment, the only certainty in the forthcoming Brexit negotiations is ... uncertainty. The British prime minister has announced her intention to formally notify the intention to leave the Union at the latest in March 2017, but the likely content of the British opening position will remain unknown for several months to come. We also don’t know when the negotiations will start, since after receiving notification the European Council will have to agree on a mandate to its negotiators. Therefore, all we can do at this stage is set out our hypotheses on the likely shape of the British negotiating position and discuss, in this context, what the Italian interests and reactions might be.
A cursory look at the trade statistics indicates that the static impact of Brexit cannot be very large (Table 1). The UK is a net importer of goods from the EU (with which it has a large deficit of about 4.8% of GDP) and a net exporter of services to the EU (with a surplus of around 1% of GDP). At least initially, restrictions on access to the Single Market might worsen both, but the exchange rate depreciation might offset this to some extent. However, as noted by Gros (2016), for a number of years now the UK’s trade flows have increasingly been diverted to the rest of the world. This is especially the case for services, where the country has developed a very large surplus.
This policy brief is also published as a chapter in What To Do With the UK? EU Perspectives on Brexit, an ebook edited by Charles Wyplosz and published by Vox (CEPR’s Policy Portal).