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The decline and fall of Brexit

Jul 11,2018 - Last updated at Jul 11,2018

LONDON — In the beginning, British Prime Minister Theresa May had a plan: “Brexit means Brexit.” The idea was to withdraw the United Kingdom from the European Union so fast that voters would not realise they had been sold a bill of goods during the EU referendum campaign and should therefore not punish the Conservative Party for having lied to them.

The plan was to pretend that whatever deal was negotiated with the EU would be a “bespoke” and “best possible” Brexit, allowing Britain to quit the bloc while retaining unfettered access to the European market. In strictly partisan political terms, the plan made sense right up until the snap election last June, when May lost her parliamentary majority.

To be sure, May recently scored a victory when she faced down Tory Europhiles in the House of Commons. But it hardly matters. Since last June, British politics has been spinning around the same conundrum: How to avoid the sudden destruction of much of British manufacturing, which depends on European just-in-time supply chains, without also accepting the “Norway model” of obeying EU rules without having any say in making them.

To help the May government stave off disaster for British manufacturing, the European Commission has graciously agreed to a 21-month “implementation period” that will follow the UK’s official exit on March 29, 2019. The idea was that this period should be used to settle most of the details of the future relationship. Yet, May has already squandered the opportunity by continuing to insist on so-called red lines, which include rejection of the jurisdiction of the European Court of Justice (ECJ).

While May is trying to replicate the benefits of frictionless trade within the European single market, her red lines make this impossible for the commission to accept. As a result, the Brexit negotiations have gone nowhere, and reaching a final agreement in time for “Brexit day” has become virtually impossible. Moreover, even with the “implementation period” delaying “economic Brexit” until 2021, there simply is not enough time to restructure British manufacturing so that it can survive the introduction of the normal border controls that operate outside the EU.

Foreseeing disaster, pro-Europeans in May’s government have proposed a “Jersey model”, whereby British manufacturing alone would remain in the EU customs union, single market and common value-added-tax area, while free movement of labour and services would be curtailed. But this is a non-starter for the EU, which insists on the inseparability of the “four freedoms”, free movement of goods, capital, services and labour.

Nor can the vexing question of the Irish border be resolved within the confines of May’s red lines. In December, May agreed that there would be no physical or economic border between Northern Ireland and the Republic of Ireland, which will remain an EU member state. But she has also conceded to the Ulster Protestants that there will be no border between Northern Ireland and mainland Britain. These two promises cannot be reconciled, given that there is to be a hard border on the English Channel. May’s only way out, then, is to avoid a hard border with continental Europe by accepting the four freedoms, which also requires accepting ECJ jurisdiction.

Whether or not the Commission or the May government yet realises it, the contradiction between their goals is absolute. The British want the EU to abandon its founding principles in exchange for 40 billion euros, $46 billion, and no hard border in Ireland. But, given that the UK has already committed to those concessions, the EU has no reason to listen to its special pleading. Were the May government to renege on the commitments it made in December, it would confront a “no-deal Brexit”. The UK would crash out of the EU and many sectors of the British economy would be decimated.

Three possible outcomes remain, two simple and one complicated. In the first scenario, Britain would abandon its “red lines” and adopt a “Norway-plus model”, remaining not just in the single market, but also in the customs union. In the second scenario, the UK would accept an economic border in the Irish Sea and maintain its red lines for mainland Britain, by entering into a free-trade agreement with the EU. Paradoxically, both the European Commission and hardline Brexiteers could agree on this outcome for mainland Britain, except that the latter refuse to accept a border between the mainland and Northern Ireland.

The larger problem is that neither of these “simple” solutions will be agreed by May before the fall deadline. And the second outcome would spell disaster for British manufacturing, unless the transition period was extended by many years to give businesses time to restructure their operations.

The only way out, then, is through a political crisis. Such a crisis may well occur within Europe, as a result of conflicts between major member states or US President Donald Trump’s attempts to undermine the EU. But a European crisis would not come in time for May to secure a “Jersey model” for the UK as a whole. It is far more likely that before then, Britain itself will experience a crisis as the public grows increasingly aware of the massive economic and social costs of a looming no-deal Brexit.

Once the crisis erupts and British red lines begin to dissolve, any number of possible outcomes could follow. The transition period could be extended to, say, 2025, to be followed by a free-trade agreement and an economic border in the Irish Sea. Or Brexit itself could be delayed for a number of years, with the “Norway plus” model serving as the ultimate goal. Then again, either scenario might lead to a second referendum and a reversal of Brexit altogether. In any event, it is clear that Brexit, as the British side currently conceives it, is simply impossible. If it happens at all, it will not look like anything May has proposed so far.


Jacek Rostowski was Poland’s minister of finance and deputy prime minister from 2007 to 2013. Copyright: Project Syndicate, 2018.

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