the uk ’ s political turmoil. as we know from international negotiation theory, a leader can use domestic dispute as a negotiation resource, arguing that she cannot move any further because she has no room for manoeuvre at home. that ’ s why it was necessary for eu leaders to call for the uk to deliver soon in order to move on to phase two in december. in sum, then, the state of negotiations has to be taken seriously – but there is no reason to panic. why not?, you may ask, as the outlook seems quite dramatic. there are two reasons. first, the process we are witnessing is not that unusual for complex political negotiations – they take time, and in the beginning both sides typically weigh up their options and their opponents first. thus, it is often the case in such negotiations that concrete results only become visible shortly before the deadline. that it takes time is also quite sensible, seeing as a lot is at stake. the decisions taken will influence uk - eu relations for decades ; moreover, they will have a lasting impact on global supply chains and geopolitical constellations. the second reason why we need to keep calm is that the uk government is apparently ready to compromise. while prime minister may ’ s speech in january was widely perceived as indicating a hard brexit – ( quote ) “ no deal is better than a bad deal ” ( unquote ) – her tone and stance have softened in the meantime. this was clearly signalled in her florence speech. we now know that the uk government aims to strike an ambitious free - trade deal and reach a customs agreement. in exchange, they are prepared to offer permanent residence for eu citizens and a clear budgetary commitment regarding their liabilities. overall, therefore, the chances of reaching a deal might be better than they appear at the moment. 4 hope for the best, but prepare for the worst given this calm assessment of mine, some may conclude that firms could simply sit back and wait. nothing could be farther from the truth. let me explain why, by focusing on the financial services sector. what will the impact of brexit be on financial institutions? financial institutions should prepare for the worst case – that is, a “ no deal ” scenario – with a disorderly exit of the uk in march 2019. as daunting as it seems, this “ no deal ” scenario is – if we take a positive view – luckily, quite clear ; there will be no surprises. wto rules

and businesses have to prepare meticulously. today i will talk about the current challenges on the road ahead. i will begin by outlining the consequences of brexit and explain why a disorderly brexit may mean substantial losses for the uk. the disorderly exit, as i will go on to show, is unfortunately not that improbable given the difficult current state of negotiations. that ’ s why firms and politicians must prepare for a disorderly exit, too. i will focus on the financial sector to highlight what that means. nevertheless, i will close with an optimistic outlook on the terms of our future cooperation 2 what if we don ’ t work it out? 1 / 4 bis central bankers'speeches but, first let ’ s take a look at what ’ s at stake. what are the economic consequences if we don ’ t work it out? well, economic impact analysis is anything but an exact science, but we can sketch some likely scenarios. seeing the writing on the wall, the uk government has apparently begun to realise that a hard – that is, a disorderly – brexit without a new agreement would have serious repercussions for the uk economy. this impact will come via two main channels. the first is the trade and investment channel. exporters will lose out as a result of the restricted access to the single market, and supply chains may suffer substantially. the second channel is the migration channel. the uk ’ s access to highly skilled workers from abroad could take a severe hit. i recognize that migration has played a big role in the brexit vote – but, especially today a failure to attract highly - skilled workers via migration could have a detrimental impact on future uk growth. the economic impact on europe will be limited by comparison. take germany for instance. the uk is an important export market, accounting for 7 % of german exports. but that ’ s only 2 % of value added to the german gdp. therefore, brexit will most likely not result in a major setback for the german economy. bundesbank simulations confirm that even a hard, disorderly brexit would be manageable from germany ’ s viewpoint. to sum up : the costs of brexit will most likely be much higher for the uk than for the remaining eu, though a disorderly exit would, without doubt, substantially disrupt economic cooperation on both sides – just think of the transnational supply chains. and these consequences were not transparent to those who