Blind Deal Brexit Beckons

Anton Muscatelli | 7 September 2018

© 2018 European Union

September sees the re-emergence of politics from the summer recess and, with the continuing Brexit negotiations in Brussels bringing no breakthrough, the situation is as confused as ever.

Two key points describe the current shape of the Brexit landscape.

First, a no-deal outcome is a real possibility. A ‘chaotic Brexit’ scenario is being used by political actors on both sides of the Channel to sharpen thinking. And, yes, it’s an utterly scary prospect. The estimates of the economic cost of a ‘no deal’ Brexit have been around for some time. Independent economic analysts have put the long-run costs at between 8-10% of GDP by 2030 relative to remaining in the EU, depending on the precise assumptions.

But the short run is completely uncharted, as the WTO’s Secretary-General Roberto Azevêdo has pointed out. Very few economies operate as stand-alone WTO members, and there has been no comparable experience of a member of a regional trade association or free-trade area crashing out of that area without agreement. So the UK crashing out of the EU would be a first. The consequences would be dire in terms of disruption not only to trade in manufactured goods, but in the short run to the food supply in the UK, air travel, enforcement of existing contracts in other EU countries. The list goes on. The UK in a Changing Europe has recently produced a very good summary of what ‘no deal’ would mean for different UK sectors.

Second, following an initially cautious response from the European Commission, Michel Barnier has been more explicit about the serious problems the EU27 have with the Chequers deal proposed by the UK government. To some extent this was not a surprise. The EU27 have always been consistent about wanting to maintain the integrity of the EU single market. To the EU, a single market in goods only does not work in a world in which increasingly the specification of traded goods includes an element of service trade. So for the EU, a Chequers deal which proposes a partial integration of the UK in the Single Market, segmenting goods from services, and not allowing an EEA-style dynamic alignment of UK and EU regulations with an EFTA-style court and a surveillance authority simply will not fly. The EU27 would rather negotiate a Canada style Free Trade Agreement with the UK.

The EU had been cautious, hoping to use elements of the Chequers plan as a basis for negotiation. But the strong opposition to ‘Chequers’ from those in the Conservative ranks who want a ‘hard Brexit’ (no single Market, no Customs Union) has convinced Brussels that it’s best to be clearer about its position. (It has also led to the rather curious endorsement of the Barnier position by members of the ERG in Conservative ranks).

So where are we heading? I still think the chances of a no-deal, chaotic Brexit are low – probably 15-20%. It would be highly disruptive, not only to the UK but to some of the EU27 – notably Ireland, precipitating the problems the EU27 would like to avoid regarding the border – but also those EU countries with high trade volumes with the UK. But with the Chequers deal effectively dead, the central scenario is one in which the UK and the EU agree on the 20% which is still needed to reach a withdrawal agreement. This will include an Irish backstop which is sufficiently strong to satisfy Ireland and the EU27, and which will condition the future trade negotiations between the UK and the EU during the transition phase.

The political declaration which will accompany the withdrawal agreement will say very little about the shape of the future framework of the UK-EU relationship. It will include lots of warm words, but no substance. Of course, that means that we are most likely heading towards a ‘blind’ Brexit, and we will leave the EU without knowing where we are heading.

This is utterly undesirable. From the EU’s negotiating perspective, it’s a logical negotiating position to hold. Knowing that there is no UK parliamentary majority for any single Brexit plan, what are they supposed to do?  But from the UK’s position we, like Ireland, need a backstop. From the outset I and a number of other commentators have said what that backstop should be: continued membership of the EEA and a customs union as the only ‘second best’ to full EU membership which will minimise economic damage to the UK and Scotland.

As the status quo, it is also a position which does not prejudge where public opinion might eventually land on Brexit. What we need is leadership in the UK parliament to deliver this, if Brexit cannot be stopped altogether.

Anton MuscatelliAnton Muscatelli | Twitter

University of Glasgow

Prof Sir Anton Muscatelli is Principal and Vice Chancellor of the University of Glasgow. He is Chair of the First Minister of Scotland’s Standing Council on Europe and Advisory Board member of the Scottish Centre on European Relations.