Brexit Briefing No.48 - Post-Summer Reality

Westminster and Brussels are still preparing to return from the summer break, but Brexit Secretary of State Dominic Raab and EU chief brexit negotiator Michel Barnier met this week and promised to start continuous Brexit talks, with a view to finding deal before the deadline of October’s European Council Summit, less than two months away now. 

In both the UK and Europe the summer has been dominated by speculation of no deal at all being agreed before the UK is due to leave in March next year. 

British ministers have repeatedly emphasised the historic breach a no deal scenario risks in UK-European relations as they tour European capitals in an attempt to reach around Michel Barnier directly to European leaders. The UK government views fellow governments as more pragmatic than the Commission negotiating team, and are emphasising the damage that no deal would do to individual European economies. 

However it suits everyone to play up the possibility of no deal. For the UK government a no deal is being presented as the only alternative to the Chequers proposals. For the EU it is being highlighted as the only alternative if the UK does not agree to the provisions on Northern Ireland included in the backstop agreement; effectively keeping the province in the single market and customs union and splitting it off economically from the UK or keeping the whole UK in the single market and customs union, but without any say over the rules governing them. 

The reality is that no deal is still extremely unlikely, partly because of the significant economic impact (with global repercussions) that it would have on both sides but mainly because the two sides are not actually very far away from a deal which would allow the UK to leave the EU and move into the transition phase from next March, leaving the contentious trade discussions to the transition period. 

giants causeway

The sticking point is, as always, the Northern Irish border. The other elements of the withdrawal agreement (the divorce payments and citizens rights) are in principle agreed. The only outstanding issue is how to find a form of words to inform the future trade discussions which satisfies the EU that there is not going to be a hard border on the island of Ireland. 

This has been a seemingly impossible task up until now, and if this is not agreed there will be no transition period and no future trade deal, hence the increased talk of no deal. At that stage the only options would be either no deal or to extend the negotiating period by extending article 50. 

There are however a variety of ways this can be overcome, ranging from the Irish government softening their position to the entire issue being fudged (as it was initially in the withdrawal agreement) until the trade talks get underway during the transition period. The smart money is still on a fudge of this type being agreed and the Brexit timetable continuing along the lines set out by the UK government, that is leaving the EU in March 2019, transition until end of 2020, and a future trade deal from start of 2021.

There is undoubtedly a danger that such a fudge would just risk a rerun of the same brinkmanship in 2020, and ultimately, indefinite extension of the transition period as both sides would be faced with the same no deal dilemma at the end of that period. 

It is for that reason that the outline of the future trade agreement needs to be agreed now, otherwise British MPs will have to vote on a Brexit deal without knowing what it would really mean on the soft to hard Brexit scale.  

white paper

The Chequers agreement tries to bridge the gap between the two sides and proposes a relationship which meets the EU red lines on Ireland and the UK red lines on freedom of movement, customs and the ECJ. 

Chequers has though faced severe opposition both at home and in Brussels, where the EU is reluctant to agree to a third country policing its customs borders, even if it is the only option to avoid the hard border in Ireland that it also sees as a red line.

It is for this reason that government ministers have been touring Europe over the summer. Yes, the UK political situation is unstable and the government will have to work very hard to get any deal through Parliament, but the EU also has a big choice to make this autumn. Does it continue adding new red lines without compromising on any of them (and in the process condemning both sides to a no deal) or if not, which of its red lines is a deeper red? No hard border in Northern Ireland or no British role in protecting the external customs borders of the EU? 

So we enter the final, crucial phase of the Brexit negotiations with the UK government already having taken some of the hard decisions on which areas to compromise on but without the EU having done the same. At some stage the EU will have to make those hard choices, they will come from the national governments rather than the Commission but they need to come soon. 

Whether it will be enough remains to be seen. Even if a deal can be agreed, it seems unlikely that this can be done before December, which given the time needed for parliamentary ratification really is the last possible moment to ensure that there is no delay in Britain leaving the EU.

In addition, it is not clear whether any deal has a majority in the British Parliament. A rejection of an agreed deal would lead to a hugely unpredictable situation where all the options (no deal, article 50 extension, second referendum) would be back on the table. 

The next six months will therefore be very unpredictable, and genuinely anything can happen. However, despite all the noise, the smart money is still on an agreement being reached, and the UK leaving the EU in an orderly manner next year, into a transition period where the future trade relationship will be finalised.