Coming Soon: More Brexit Confrontations
Since early December, phase 1 of Britain’s negotiation with the European Union over the terms of its exit have seemed to be on track, thanks to Prime Minister Theresa May’s capitulation on payments to the European Union, citizens’ rights, Northern Ireland, and other issues. But a number of factors are at work to ensure that the calm will not last. The European Union’s greater economic and political strength and negotiating leverage will come into play in coming months.
The Brexit negotiations are unfolding according to the EU27’s time plan. In December 2017, the EU Council agreed to a transition agreement with the United Kingdom, and said it would release guidelines for these negotiations by the end of January, and then another set of guidelines to define a future relationship with the United Kingdom by March. As the clock ticks, the European Union’s negotiating position grows stronger.
There is no done deal regarding a two-year UK transition period after the official departure from the European Union in March 2019. Despite what it said was “sufficient progress” achieved, the EU Council called on “the Union negotiator [Michel Barnier] and the United Kingdom to complete the work on all withdrawal issues, including those not yet addressed in the first phase.” The Council further underlined that “negotiations in the second phase can only progress as long as all commitments undertaken during the first phase are respected in full and translated faithfully into legal terms as quickly as possible.” Many issues can disrupt these negotiations in the coming weeks, especially the unresolved Northern Irish border issue.
EU leaders, including EU Council president Donald Tusk, EU Commission president Jean-Claude Juncker, and French president Emmanuel Macron, have all said the United Kingdom can change its mind about Brexit. Meanwhile, they have also supported an increasingly hardline EU negotiating stance.
The EU Council in December declared that any transition agreement would adhere to the status quo for all EU regulations. Now they have specified that the status quo includes all immigration rules, meaning that EU citizens coming to the United Kingdom after Brexit, but before the end of the transition, will be eligible to remain in the United Kingdom indefinitely. Hardline Brexiteers are unlikely to agree to those terms.
One reason that the pressure can work is that May seems desperate to secure a transition agreement to avoid an escalating exodus of UK firms while maintaining unity inside her Conservative Party. In the end, the UK government will have to remain a de facto member of the European Union until at least the end of 2020. Such a status quo transition — at least when May’s top lieutenants are talking to UK businesses — is now the official position of the UK government. Getting the hard Brexiteers to fall in line behind this policy, however, may require her to remind them that another election could hand the government over to Jeremy Corbyn, the Labour Party leader.
If Brexiteers rebel, the United Kingdom will careen towards a no-deal Brexit cliff edge, aggravating Britain’s financial markets and politics. The European Union could withstand any downsides of such instability because of its strong economic growth.The EU27 is essentially insisting that May’s government accept a 2-year trial run of the “Norway option”—the UK as a rule-taker and contributor to the EU27 budget.
The EU27 is essentially insisting that May’s government accept a two-year trial run of the “Norway option”—the United Kingdom as a rule-taker and contributor to the EU27 budget. That is the EU27’s preferred long-term outcome, since it would keep the United Kingdom firmly inside the European Union’s economic institutions but without a say in their future management—at least until the United Kingdom itself decided to reapply for EU membership. Juncker recently suggested such a possibility for the United Kingdom to reapply under Article 49 in the EU Treaty.
Many might argue that a country of the stature of the United Kingdom would find it insufferable to be a rule-taker in the long run. But just as the sky didn’t fall after the Brexit vote itself in June 2016, the United Kingdom public, businesses, and especially the Labour Party will find that it won’t either, if the United Kingdom loses it voice in the European Union after March 2019, but nothing else really changes. Indeed, the main economic pain of Brexit in this scenario would only arrive once the transition period ends, and the United Kingdom would either revert to trading with the EU27 on a WTO basis, or via a new much more limited Canada-style free trade agreement.
Accordingly, it is easy to see the EU27s “status quo transition” becoming permanent. It would solve the Northern Irish border issue, keep UK access to the European market, and limit the upheaval from Brexit.
Such an arrangement would seemingly obliterate the coherence of the Conservative Party, where hard Brexiteers have always insisted on “taking back control” when leaving the European Union, and definitely at the end of any transition period. Recently, however, Brexit Secretary David Davis said that “Britain will stay close to the EU’s regulatory regime after it leaves the bloc and only wants ‘the freedom’ to go its own way if it chooses in the future.” In other words, Brexit, “taking back control,” and restoring UK national sovereignty can be reduced to enabling future British governments to choose a “Norway status.”
That statement was a remarkable kicking of the can down the road from a leading Brexiteer member of a Conservative government, indicating second thoughts about breaking decisively with the European Union. Will enough Tory backbenchers objecting to the idea of Brexit being merely an “option for the future” still support May, or will they risk another election?
Britain and the rest of Europe will find out shortly.
© 2018 the Peterson Institute for International Economics