Brexit, crisis and Whisky
Is the Whisky supply of Continental Europe running low?
Since the vote of the British people to leave the EU, the issue has become a hot topic in the media. Which journalist is not ’happy’ to report bad news?
Currently, the way in which democracy is exercised in London is strongly criticised by Central European media. But what does democracy really mean? Isn't it about the struggle for the best solution? And who knows what the best solution is in advance? Trade restrictions such as duties are terrible, they separate people more than they connect them. And the EU duties on our bourbon (25%) have not improved our supply.
Will the United Kingdom and its Whisky distilleries sink into the sea after the Brexit? I don't think so. But I know that the British pound has existed for hundreds of years. Ok, the pound has also suffered massive inflation. But the currency has never failed in hyperinflation. Unfortunately, this cannot be said of the continental currencies. Their half-lives are rather short, except for the Swiss Franc.
Let us analyse the problems surrounding our Scotch Whisky individually.
- Will we no longer receive Scotch Whisky?
- Will Scotch Whisky become more expensive? Maybe due to a customs duty?
When the Brexit takes place, the supply of Whisky will come to a halt. So far, trucks have been driving on the ferries and into the Channel Tunnel largely uncontrolled. After the Brexit, an additional customs check must be carried out in addition to checking the freight documents. So it does make sense to stock up our Whisky storage a little more.
The processes for these customs controls are all already in place. After all, Great Britain is a major exporter to all parts of the world. This also includes the huge economic area of the 52 states in the Commonwealth of Nations. In the event of a withdrawal on the basis of the WTO and the GATT agreement (No Deal Brexit), we only have to expect delays until the new custom controls and clearance procedures are well established. The Whisky supply chain is also packed. We here at Whisky.de are not the only ones to keep our Whiskies in stock for several months; the major manufacturers from Scotland also have intermediate storage facilities on Central European soil.
It won't be easy and some Whisky will be out of stock for a while. If you have always wanted to buy special bottles and kept putting it off, you should not hesitate any longer, as long as the supply is still running.
And a duty? The EU - and above all Germany - are in a dilemma. The EU may directly collect customs duties levied at its external border. This accounts for around 15% of its revenue1. It is therefore the aim of the Brussels bureaucracy to raise customs duties as much as possible, since this will improve their financing without difficult voting procedures among all member states.
Those who levy customs duties must, however, prepare themselves for counter-duties. And what does Britain import on a large scale? German cars! Of the 4 million exported cars out of Germany, around 670,000 went to the island alone in 20182. At 17%, the UK is thus the largest single market for German cars, ahead of the USA (470,000) and China (287,000), which follow in second and third place. Germany, by far the largest net contributor in the EU, would seriously endanger the financing of the EU by imposing a punitive duty on cars. As I said, a dilemma.
Well, cars aren't everything. In 2018, Britain exported 5.3 billion Euros worth of Whisky to the EU. But that's only a quarter of the value of cars imported from Germany alone. And the UK had a trade deficit of around 100 billion Euros with the EU in 2018. Great Britain imported 100 billion Euros more from the EU than the other way around - 50 billion from Germany alone. So if customs duties are imposed on the border to Great Britain, this damages the export economy of the EU member states much more than the other way around. That is why I do not believe that customs duties will be imposed. This would hit our automotive industry to the heart, trigger a huge crisis and bring down the current governments.
Game theory defines such behaviour as a Chicken Game3. The participants in the Brexit race towards each other without a seat belt. The seedling of the emerging crisis takes root.
The pound has already lost 25% in value since the Brexit was announced. As a result, British goods are becoming cheaper and cheaper on the European market. The Bank of England has therefore been more successful with its interventions than the ECB. Great Britain will thus become stronger in exports and Whisky could become cheaper, as well. The first price reductions are already visible. In any case, this exchange rate advantage enables covering any duties.
The game theory implies that in the Chicken Game the one who gets out of the way loses, while the one who races through wins. The disadvantage of one is the advantage of the other. Mrs May was about to turn while the EU was racing through. Now Boris Johnson is again heading straight for the opponent's vehicle and is additionally accelerating. The odds are equal again. The problem with the Chicken Game: If nobody swerves, both lose. In the Chicken Game it is impossible for both to win. That is the big disadvantage with this kind of dare. Either one wins and the other one loses, or both lose. Only if both swerve, nothing happens; there will be no winner. What happens during this game with the fire in any case, is a destabilisation of the markets. The delicate balance is distorted and the first dominoes begin to fall even before the game is over.
And this is the big problem. The Brexit could be the trigger for the next crisis. Then Germany will no longer be able to export cars and the United Kingdom will no longer have to supply Whisky, because everyone will be busy with the crisis.
But that's not quite true. The past crises (9/11, financial crisis) have shown us that it is much easier for people to part with things other than their Whisky. Here is an example: The Estée Lauder cosmetics group defined a Lipstick Index4 after 9/11, which was supposed to represent the demand for cosmetics. We know such indices from the Big Mac Index, for example. But the result was surprising. While sales of high-quality cosmetics decreased after 9/11, sales of lipsticks rose surprisingly. Psychologists found the explanation: Purchasing a cheap lipstick is a satisfactory substitute for losing high-quality cosmetics.
And that is what happened to our Whisky, too. Instead of spending 50 Euros in one night on a nice meal in a restaurant, the taste of which would have vanished the next day, the connoisseurs rather bought a bottle of high-quality Single Malt Whisky, which lasted a whole month. Pleasure in the cosy home instead of living out a short-term hype. In a crisis, people get to know the true enjoyment. Another reason for stocking up on Whisky now!
Finally, a brief hint for the very anxious. If the crisis turns out to be as severe as the Great Depression of 1929, then the shops will be empty and there will be nothing left for all the money in the world. When bartering begins, cigarettes will no longer be the substitute currency. The number of people who smoke has decreased too much. Alcohol will become the substitute currency instead. With cheap vodka you get bread, but with Single Malt Whisky you get everything you need. However, before you sacrifice your expensive Whisky collection, it makes sense to stock up on a few dozen inexpensive Single Malts for this purpose. With this substitute currency you are well prepared for a possible crisis.
And should the crisis not come, you have a nice stock to enjoy and for your friends.
2) Balance of Trade Great Britain
3) Game Theory
