The dark clouds

Influence: The UK’s departure will deal a blow to Malta’s leverage on major political decisions being taken in Brussels, former EU Commissioner Tonio Borg and Malta’s former Permanent Representative to the EU Richard Cachia Caruana believe. Malta will no longer be able to rely on Britain’s support on issues such as taxation, social security changes and working time restrictions, thus weakening our voice in these areas.

Tourism: If sterling devalues against the euro, the major impact on Malta is likely to be a decline in UK tourists, says economist Lino Briguglio, echoing the views of many. A devaluation would make a holiday in Malta more expensive for Britons. However, former prime minister and MEP Alfred Sant believes this particular crisis should ease once the uncertainties subside. He also points out that tourism has been performing strongly due to the crisis faced by Malta’s competitors, and for the time being it does look like this situation will change.

Exports: If the British economy goes through a recession or slow-down, it would push down UK consumption, which in turn could hit Maltese exports (goods and services) to the UK, Prof. Briguglio cautions.

Students: Those wanting to further their studies in the UK will have to fork out higher fees, as they would no longer be considered on par with British students, which is the case now thanks to EU membership.

Pensions: Maltese nationals who receive a UK pension in sterling may lose a significant chunk of their allowance if the pound fails to recover against the euro.

The silver lining

Potential investment: Major companies which had set up base in the UK as a gateway to reach the EU’s 508 million consumers might decide to relocate to other Member States. Malta’s attractive tax regime, coupled with the fact that it is the only Member State apart from Ireland where English is an official language, might give it an edge over other competitors. However, Prof. Briguglio says that this would not apply to the manufacturing industry due to higher transport costs, Malta’s small domestic market and its lack of natural resources. Dr Sant was even more sceptical. While doubting if UK companies would seek to relocate at all, he believes they would rather choose locations closer to the geographic heart of the EU like the Czech Republic.

Imports from UK: The sharp drop in sterling against the euro means more spending power for those visiting the UK or making online purchases from British suppliers, Prof. Briguglio believes. However, this will largely depend on exchange rate fluctuations which over a period of time should stabilise, Dr Sant pointed out.

The ‘divorce’ timeline

The first step will be for the UK to invoke Article 50 of the Treaty of the European Union which regulates the departure of any Member State. However, this might not happen till October, by which time the ruling Conservative Party would have elected a new leader in the wake of David Cameron’s announcement that he does not want to be the one to lead Brexit negotiations.

Once this hurdle is cleared exit negotiations (which shall take no more than two years) would begin. The agreement would then be put to the vote before the 27 EU leaders in the European Council. It would require approval from at least 20 countries with 65 per cent of the EU population, prior to being ratified by the European Parliament.

If no agreement is reached within two years, EU treaties would cease to apply to the UK which will be out of the bloc. Moreover, the UK Parliament must then repeal the 1972 European Communities Act.