25 September 2017

A chaotic no-deal Brexit is still on the cards


In the history of European thought, the Renaissance was an advance on Medievalism, but still fell far short of the Enlightenment. The same could be said of Theresa May’s thinking about Brexit.

The Prime Minister’s speech in Florence, the birthplace of the Renaissance, was more reasonable and realistic than her pre-election rhetoric. The tone was softer and more conciliatory, while the substance brought Britain’s position closer to what the European Union (EU) would accept. But May’s thinking remains confused and deluded in many respects. Greater clarity and further concessions will be needed to avoid a chaotic no-deal Brexit and ensure a smooth departure.

As the fourth round of Brexit negotiations starts today, the immediate priority for the UK is to flesh out the Florence speech in formal position papers. Vague assurances are all well and good; now the technical details need to be hammered out and nailed down.

The EU won’t move on to discussing its future trade relationship with the UK until it deems “sufficient progress” has been made on the initial dossiers of EU citizens’ rights, the Irish border and the financial settlement. The soonest that could happen is 19-20 October, when EU leaders next meet at the European Council. While EU chief negotiator Michel Barnier called May’s speech “constructive”, there is still plenty of building work to do.

Start with citizens’ rights. EU migrants in the UK are understandably worried about their future. They feel less welcome, not least after May’s conference rant against “citizens of nowhere” last year. They stand to lose some of their existing rights under the post-Brexit “settled status” that the Government is offering them.

They fear that those rights could be further eroded, as would happen if the leaked Home Office immigration proposals were implemented. And they have little faith in overstretched and incompetent Home Office bureaucrats, who among other recent blunders wrongly sent deportation letters to 100 EU nationals.

The EU position on its citizens’ rights is crystal clear: they must remain the same after Brexit and be implemented and safeguarded in the same way in the UK as in the EU – that is, by the European Court of Justice (ECJ).

May made two significant steps in that direction. To reassure EU citizens, she offered to incorporate the exit treaty fully into UK law, ensuring UK courts could refer directly to it. And whereas previously she rejected any role for the ECJ after Brexit, she also said UK courts could take account of future ECJ judgements interpreting EU citizens’ rights. Whether that is a sufficient guarantee for the EU remains to be seen, but the UK will certainly need to improve its settled-status offer.

On the Irish border, May had nothing new to say. Merely stating that both sides don’t want “physical infrastructure” at the border doesn’t magic the problem away. If, as May reiterated, the UK eventually leaves the single market and customs union and seeks to control migration from the EU, there will need to be checks of some kind.

The only way to avoid a hard border between Northern Ireland and the Irish Republic would be to seek a special status for Northern Ireland whereby it remained in the Single Market and customs union. But that would create a hard border within the UK between Northern Ireland and Great Britain – something that May has previously rejected and that the Democratic Unionists who prop up her minority government would never accept.

On the financial settlement, May made important concessions. She pledged that Brexit wouldn’t leave other EU countries out of pocket “over the remainder of the current budget plan” (which ends in 2020) and that the UK would “honour commitments we have made during the period of our membership”. While she didn’t put a figure on how much the UK would be willing to pay, continuing budget contributions would amount to a net payment of around €20 billion.

Since that is still much less than the payment of up to €60 billion that the EU is seeking, the big questions are how the UK calculates its outstanding commitments and how flexible the EU is then willing to be.

May’s biggest announcement was that the UK would seek to remain in the Single Market and customs union for “around two years” after Brexit – a standstill transition period along the lines of what I recently advocated in CapX. This would avert a cliff-edge Brexit in March 2019, provide more time to negotiate a long-term trade deal and give businesses time to prepare and adjust (although as business leaders pointed out, three years or more would have been better).

Proposing a standstill agreement is a positive step. Yet the EU won’t agree to one without an exit deal, so a chaotic no-deal Brexit (whose catastrophic consequences I outlined in CapX) could still happen if the outstanding issues aren’t resolved. Nor will the EU agree to a standstill that provides all the benefits of the Single Market without all its obligations. So free movement would have to continue as now.

May’s insistence that EU migrants would need to register on arrival in the UK was immediately rejected by Guy Verhofstadt, the European Parliament’s Brexit coordinator. While requiring everyone in the UK to register would be fine, it would be discriminatory to require this only of EU migrants.

Another sticking point is that the UK would need to implement new EU rules and ECJ judgements during the transition period without having a say in shaping them – something that Boris Johnson has rejected.

The biggest hole in the speech was the lack of clarity about where Britain wants to end up after the transition and wishful thinking about the possibilities. May rejected the regulatory constraints of remaining in the single market (the Norway option) and the narrow scope for striking trade deals with non-EU countries if the UK is in a customs union with the EU for goods trade (the Turkey option). But she also wants much better access to the Single Market, notably in services, than Canada will enjoy through its recent trade deal with the EU.

With the cabinet deeply divided on this issue, May’s call for the EU to be “creative” in crafting a “bespoke” deal is the latest iteration of the UK seeking to have its cake and eat it. The Government needs to face up to this simple trade-off: the more the UK wants to “take back control” over domestic regulations and EU migration, the worse its access to EU markets will be. While all trade deals are bespoke, Brexit Britain cannot expect special favours.

Philippe Legrain is a senior visiting fellow at the London School of Economics’ European Institute and the founder of OPEN, an international think-tank on openness issues