Opinion: BREXIT & Beyond
What effect will Britain’s historic vote to leave the EU have on the printing machinery market and the dealers who work in it?
In 2008, as the world economy lay in ruins, Queen Elizabeth opened a new building at the London School of Economics. There she embarrassed some of the world’s greatest economists by the simple question: “But why did no one see this coming?”
Brexit seems to have caught everyone equally unawares: despite over a year of anticipation and months of campaigning, no one, from government to business leaders, from banks to even the Brexiteers themselves, actually believed it would happen and had drawn up no plans, as the last few weeks of headless-chicken scurrying around and complete lack of readiness confirms. Two and a half months on and we are no clearer as to what deal the Government wants, let alone what it might achieve.
Whether or not to stay in the EU raises strong emotions, far more than normal party politics. I should come clean: the OUT vote feels like a bereavement to me; a few weeks later and I still can’t really believe we will leave Europe, and I keep trying to rewind the tape of the last few months. I have been a passionate European for over fifty years, believing not just in its economic advantages for the UK, Europe and the world but celebrating the historic miracle of a Europe, for so many centuries divided by wars and antagonisms, coming together and moving forward in peace and mutual security. Was I/am I naïve? I remember the famous initial negotiations in the 1960s when Britain’s first two attempts to join were quashed by the French veto and General De Gaul’s emphatic “Non”. I seethed with anger to hear him say that Britain would never be a truly European nation, looking more to the US and Canada than over the Channel, but was he correct? And was Leave the right decision for Britain? I have spoken to a few machinery dealers and found them surprisingly split – surprising in my eyes because they are traders to whom, I had assumed, open borders and free trade within the Single Market would be essential.
A day or two after the referendum I only halfjokingly suggested in an email to one English dealer that the Heavens would fall in. His reply was “it’s the best thing we could have ever done, before the EEC goes bust with all those struggling bankrupt countries. [No more] non-accountable non-audited secretive spending by that lot in Brussels - spending our money without having to tell anyone what they are spending it on!!! Happy days ahead trading with a world market - bring it on!!!!” When I suggested to another dealer that it was an act of self-harm he responded that it was a “self-inflicted benefit with great opportunities. Given I have exported 10’s of millions of pounds worth of equipment and employed hundreds of staff, I have some experience at the coalface from which to form that view!”
Jerry Curtin: IN
Jerry Curtin of Jerry Curtin Ltd voted proudly to remain. His business involves sourcing equipment globally, not just the UK and Europe, and selling outside the EU, primarily in the Far East. He is personally disappointed with the result, whilst acknowledging there are a number of issues wrong within the EU; he cites the highly disproportionate number of EU officials (10,000 plus) who are paid more than the UK’s Prime minister. But “I still feel the EU puts Britain in a better place than if we were outside it.” “I have spoken to a few machinery dealers and found them surprisingly split – surprising in my eyes because they are traders to whom, I had assumed, open borders and free trade within the Single Market would be essential.” Jerry isn’t one of those people who thinks a second referendum or a Fairy Godmother will stop Brexit happening. He says we must now respect the vote of the people and be confident of the UK’s ability to do a good deal, though “We must try our absolute hardest to remain the strongest of allies with the EU.”
There is a short-term gain, he says: the initial 10% or so fall in the value of the pound should provide a profit boost to UK dealers who are holding stock or sourcing their equipment in this market, but increased inflation will negate this over time, and the price of equipment will rise in the UK to the European average before too long, meaning it will cost more to buy stock in the future.
Will Brexit lead to a slowdown or recession in the UK printing industry? “That’s crystal ball gazing,” says Jerry. “At the very least we will have to wait until the exit strategy is unfolded and Article 50 invoked; until then we can’t guess at the impact.” Jerry Curtin Ltd won’t change its current export led strategies. Article 50 starts the formal exit procedure which is meant to take no longer than two years. “We purchase globally. There will be some obvious difficulties if tariffs are put on trade between the UK and the EU as a consequence of leaving. Let’s hope for a smooth, friendly and predictable departure from the EU.”
Impress: IN. The view from Scotland
Things are a little more complicated for Alan Creber of Impress Graphic Equipment, situated just outside Glasgow. Alan has voted Remain twice in the last couple of years – for Scotland to remain in the United Kingdom in September 2014, and in the EU on the 23rd June – along with 66% of the Scottish electorate. Many Scots who voted to remain in the UK might not have done so if they had known they would, in consequence, be bundled out of the UK, and the Scottish Nationalists, vociferously in power North of the Border, are calling either for another Independence referendum or a special deal to allow them to remain in the EU.
How will it affect Alan’s business? Perhaps not as much as it would have done a few years ago. It has already seen structural changes over the last couple of years: while export used to account for 90% of their turn-over – 20% in the EU (Ireland is a good market for them) and 70% in the rest of the world – this has changed to more than 70% of revenue coming from the UK as a result of their strategy of offering full turn-key solutions to customer requirements – everything from sourcing to overhauling to installing, training and guaranteeing the kit. Having built up a good reputation and excellent contacts over 28 years also helps! As far as the Scottish printing industry is concerned, Alan thinks the lower pound might provide a fillip by bringing work from the Irish Republic.
Unsure: Printing and Graphic Machinery: 50-50
Guy Churchill of Printing and Graphic Machinery has the impression that the company’s employees were evenly split on whether to leave the EU and he himself was ambivalent, but they were all surprised when the result actually came in.
Guy does not welcome the extra red-tape which any customs duties between the UK and the 27 will bring but he doesn’t seriously expect deals to be lost in consequence of them.
He cannot say that any sales have yet been done as a result of the lower pound, but negotiations are happening where the new lower prices may well prove to be decisive. He is concerned though that the uncertainty of long exit negotiations could lead to an economic slowdown.
Col-Tec: emphatically OUT
A much more bullish message comes from Paul Bailey of Col-Tec Solutions, who voted OUT. Col-Tec’s business is collating machines: they manufacture their own range and successfully sell it world-wide while also actively rebuilding and trading in used collating and finishing machines.
Paul worries that Brexit will be watered down in some way and would like to see Article 50 triggered before the end of 2016. Will it lead to a recession? “There are two types of recession, one that is announced “on paper” by economists and the other is “for real” felt by most people. My instinct says we might get a paper recession but in reality that will not affect us anything like the banking crisis in 2008. I believe that generally speaking, the UK print industry will still trade reasonably well. As for my business, Brexit will most certainly open up more new markets than those potentially lost, although I expect to lose none that we are actively trading in.”
Col-Tec can already see a boost in export sales thanks to a lower sterling and is enjoying the advantage it is giving over European competitors. And the future? “Until we get real Brexit and those new trade deals outside of the EU start coming into effect, the direction of our sales focus will remain broadly the same. In the longer term Brexit will most definitely help our business and within the next 5 years.”
Drupama: Sad to say goodbye
For a view from the European mainland I spoke to André Presch. He runs Drupama, a medium sized dealer operating from Hamburg and Berlin. They too offer a turn-key service, exporting globally and with multi-lingual staff. André was surprised at the result and believes that complex decisions like the economic advantages of being part of Europe should be left to elected politicians and not left to a plebiscite where many of those voting do so on their emotions rather than rationally, and that the results can be swung by protest votes. He questions whether Brexit is really what the people of Britain want.
André thinks Britain’s withdrawal and the uncertainty caused while negotiations take place will lead to some stresses and strains on those remaining in the EU, but he doesn’t think other countries will follow, particularly when their populations see the disruption and political turmoil in the UK. “The EU is strong enough to survive it, I guess, but the UK will suffer more from it. The EU was conceived to make trading easy and to open up markets, and this has led to prosperity. Introducing borders again will add to complexity and make things more difficult, but I don’t see it leading to a European economic downturn.” André is a fan of the European Project: “it guarantee more freedom to all member citizens in doing things, in travelling and trading. I am sure that especially most of the younger generation in UK would prefer to be part of the free Europe and I won’t be surprised if they come back in the future.”
Aribas: fears Britain will suffer
Ralph Schmitz was also stunned and bemused Emphatically Out: Paul Bailey of Col-Tec Solutions by Britain’s vote to leave the EU. He still has lingering hopes that it will not happen – that a re-alignment in British politics might make a second vote possible. Ralph is Sales Director and Partner in Aribas Printing Machinery, one of Germany’s biggest graphic arts machinery dealers with an annual turn-over of around €20 million. He expected anti-government sentiment might lead to a substantial OUT vote, but didn’t believe it would result in Brexit. He sees long-term damage to London as a world financial centre and, knowing how important the City is to the UK economy, he expects that this will impact seriously on the whole economy.
Ralph realises that the UK is now a cheap place to buy equipment but has not so far ventured in. He also mentioned that UK dealers who had bought equipment in Euros to sell in their home market face substantial losses if they have not fixed the currency rate (something Bill Jones at Exel always does). Ralph does not expect sterling to strengthen, and might indeed weaken further as we get closer to withdrawal. He doesn’t anticipate a soft exit: Europe making things too easy would encourage voters in France, Sweden and other Euro-sceptic countries to vote for the right wing parties calling for exit.
Ralph regrets that it appears to be the older generation of UK voters with less of a stake in the future who voted out against the wishes of generally pro-European younger people, and he thinks they will suffer if they have no access to the Single Market and an open financial environment, but he doesn’t expect the Aribas business to be affected much either way. He fears, though, that it will contribute to the increasing volatility of stock markets and currencies.
DPM: IN. Worries for the UK’s future.
DPM, based just outside London, is one of Europe’s largest dealers. Managing Director Mark Sheldrick is disappointed at the decision as far as the country is concerned, but thinks that his own company will weather the storms quite well. Local turbulence will have a limited effect as most of their purchases and sales are outside the UK. An increase in paperwork for deals within the EU or even tariffs will be an annoyance but all will be factored in to both purchase and sales prices. They may need to work even harder with their foreign exchange hedging to take account of the short term volatility but they have a strong global business and loyal customers which, Mark is confident, will see the company continuing to grow. Ralph Schmitz, Aribas Printing Machinery Opinion: BREXIT and Beyond.
Mark does fear for the consequences of a recession on the UK economy and in general and print industry in particular. “The impact on the UK market of a crisis of confidence and falling growth could be devastating, but a weak pound makes for cheaper print and could in fact have a positive short term effect. Sterling will probably continue to weaken due to the uncertainty. Markets thrive on stability and certainty, and years of negotiations and arguments with the rest of the EU can only be harmful. This is like the phoney war at the start of World War II: battle lines are being drawn and positions taken but no one can get a glimpse of the outcome until the talks actually start – we don’t even know when we’ll invoke Article 50 to trigger exit, although the pressure is on both from OUT MPs now back from their holidays and European leaders keen to get the process started and ended before it infects other wobbly members of the Union.”
In the short term, with a large stock paid for in a now cheap sterling, DPM should do well as it sells to its global markets at world prices set by the dollar and the Euro; after a while, though, this will settle down as UK prices fall in line with world averages, and the advantage of the cheap pound will disappear when DPM’s existing stock is sold. Will Brexit lead to a different DPM in five years’ time? “No, we’ll continue to operate on a global platform. Lower costs at home might lead us to do even more refurbishing and installation if our customers demand it. It won’t harm our business - it may actually push us doing more direct business with overseas printers rather than through local dealers. This has been growing in the last 18 months along with our resources to install presses and support customers wherever they are located. Who knows, in 5 years you might be asking me about a reverse vote to re-join the EU! I’d be up for that. Leaving the EU is a very serious decision and I hope that in a democratic country we will have another chance to vote to remain before all our bridges are burned.”
So Britain sails off in a new direction, leaving the certainties of the last forty years behind, and with only the vaguest idea where it is heading. Will it be a glorious future, free from EU shackles and standing tall and independent, or will it be years of uncertainty, failing business confidence and a diminution in our standing in the world as a financial centre and moral force? With Boris Johnson and Liam Fox at the Brexit helm, who can doubt the outcome?
Feedback from a German machinery dealer who doesn’t agree with my rosy view of the EU:
Be Happy with the Brexit! And be more happy that you did not make the biggest mistake in giving up the Pound for the Euro!
Do not misunderstand my statement: I am a real democrat with all my heart and don’t know a better political system than ours in the western world, but something has gone very wrong since 2002:
- 17 countries (I do not count the 2 that are not important) have the Euro since 2002, but only 4 countries have a strong economy.
- 4 countries pay for mis-management and corruption in the other 13 countries.
This creates problems: before the Euro the Germans were loved in Greece and now they hate us!
Before the creation of the Euro-zone German exports to the EU were 45% but now are only 40%: Statements by politicians that Germany made the biggest profits under the Euro are pure nonsense!
There is no “plan B“: the exit of Greece could cause a run on the Greece Banks, followed by Portugal, Spain, and probably also France.
In former times a currency could devalue when inflation was too high. Today this is not possible, austerity and wage cuts are the only solution.
Austerity in Greece (imposed against all economic theories!) has led to more than 20% unemployment. Austerity and wage cuts in France and Italy will create the same in half of Europe.
There is only one way out: raise salaries (but who likes to do this?)
The ESM (European stabilisation mechanism) will most probably get €800 billion from the European taxpayers, and the ESM alone can decide to whom they will give this money: officially it is for baling-out weak countries, but in fact they pay it to the banks!
The ESM is answerable to no one: they have full immunity! No one can police them, or even demand to look at one single piece of paper! The ESM can do what it wants with the money of the tax-payers!
The ESM gives money only under certain conditions (austerity plans) and as a consequence it ruins the economies of the countries it “helps” by the rigor and inflexibility of its terms.
The ESM also tells countries which of their state-owned industries have to be privatised and I’m afraid that they will sell the best pieces of the countries out for ridiculous small money to the guys they like!
National governments cannot prevent this and also cannot protest: If the ESM orders money, all Euro-countries must bring it within 7 days only to the ESM
Governments will become downgraded to offices of the ESM only! In the words of Jean-Claude Juncker, President of the European Commission: “We decide something and then we wait to see what happens; if no-one protests too much (because most of the people do not understand what we are doing), we go ahead until there is no way back!“
It seems clear that it was known from the beginning that the Euro cannot succeed, but despite this, States are forced now to obey the rules of the finance-oligarchy.”