We Must Plan For A 'No Deal' Brexit, Now

12/10/2017 11:49
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When considering Brexit negotiations, it is easy to fall into the trap of believing that these negotiations are taking place between two parties who want to achieve similar outcomes which, if possible, benefits both parties - a win/win situation.

If the UK was negotiating with EU member states either individually or collectively, we might think that everyone involved wanted to achieve a situation which benefits everyone. After all, every state in the EU wants broadly similar things such as prosperity, economic growth, low unemployment, security etc. Wouldn't every EU state want to avoid a situation where damaging the UK also damaged themselves as well.

However, there is a snag here. The UK is not negotiating with the EU (in terms of member states) but with the EU Commission to which the EU states have effectively sub-contracted the negotiations. It would be a mistake to assume that the Commission has the same agenda as the member states. While, as noted, member states would probably want broadly the same things as the UK such as trade, economic growth, security etc the agenda of the EU Commission is very different. While they have to keep in mind the aspirations of the member states they also, strongly, wish to keep the EU together and, if possible, to enlarge and deepen the union (see Jean Claude Juncker's recent address to the EU Parliament which clearly showed this) and gather more powers into the Commission's fold. This is why they have made it quite clear that their aim is to prevent the UK being from being better off by leaving the EU since this would encourage other member states to consider withdrawal. I think we can take this further and postulate that the Commission would really like to see the UK worse off after withdrawal since this will really hammer home the point.

This is something that needs to be borne in mind when observing the process of negotiation taking place. Some may see this analysis as hopelessly cynical but let us face the fact that the EU Commission may be facing an existential crisis and desperate people do desperate things

Consequently, we have to recognize that there are only a limited number of scenarios for the UK around Brexit, some with a greater likelihood of occurrence and a greater degree of consequences than others:

1. A great deal for all - The EU Commission and the UK quickly agree a Brexit deal which is good for the UK and good for the EU. As I suggest above I think this is an extremely unlikely scenario because the EU Commission will not countenance a deal which is seen as good for the UK.

2. The Wallonia collapse - The EU Commission and the UK quickly (in the next few months) agree a Brexit deal which is seen as just about adequate for the UK. However, such a deal has to be approved by the European Parliament, the EU countries and some individual provinces within those countries. Remember the Wallonia episode where the Belgian province of Wallonia vetoed a trade deal with Canada which had taken years to negotiate. My guess is that the EU/UK deal would collapse very late in the day because of one or more objections such as Wallonia. At that point the UK would face a no-deal Brexit completely unprepared just a few months before the deadline.

3. Renege on Brexit - if the UK government decided to renege on Brexit, my best guess is that the EU would be prepared to stop the Brexit process, whatever the legal niceties, and allow the UK to remain in the EU. But (and a big but) this would again require the approval of member states (and perhaps others). These member states would sense weakness and would exact a price for setting aside article 50. The price could be such things as joining the Eurozone, joining Schengen, dropping the EU rebate to the UK etc. The reality is that we would be much worse off than we would have been before Brexit started.

4. Plan for no-deal Brexit now - this has talked about and seems to me an essential step for the UK to take. My scenario 1 seems unlikely to happen and scenarios 2 and 3 are potentially catastrophic for the UK. This scenario would involve starting to plan for a no-deal Brexit in the next few months and committing whatever resources are needed to the project. On the political side it would also demonstrate to the EU and the member states that we are serious about a hard Brexit if necessary. This option seems an eminently sensible precaution and it is irresponsible for Phillip Hammond, the Chancellor of the Exchequer to state that he will not commit funds to this process.

The UK is now in very dangerous waters with no clear direction and no clear leadership. Confusion reigns everywhere. It seems sensible to plan for the one scenario Number 4) which is at least under our own control