Given the high costs associated with a hard Brexit, argues Dennis Shen (Scope Ratings), it is unlikely to happen. The EU27 see no advantage in significant concessions and the challenge of maintaining public support for a hard Brexit is considerable. A transition period concluding in a soft Brexit – or even ‘Breversal’ – are the most likely outcomes.
The UK government’s objective remains a hard Brexit – involving an exit from the single market and customs union – but, importantly, a softening of this stance has already taken place. The UK has already indicated its willingness to agree to a two-year transitional arrangement, to protect the rights of EU citizens in the UK and to continue payments into the EU post-Brexit. Given the obstacles to leaving the single market and customs union, the rush to fulfil the referendum mandate by March 2019 is unrealistic.
These obstacles are considerable. They include the new trade arrangements with the EU alongside 60 other nations (learning from the difficulties faced in Greenland’s much less complicated exit from the European Economic Community in the 1980s), the irreconcilable contradiction between Britain’s desire to maintain maximum access to the single market whilst negotiating controls on EU migration, and opposition from Scotland and devolved administrations. Recognising these challenges, I commented last year that even after Article 50 were invoked, Brexit remains far from a foregone conclusion, because of the need to retain political support for it over potentially multiple political cycles. The negotiation of a long-run hard Brexit could be decade-long. The already narrow public majority to leave in 2016’s referendum comes under pressure from multiple risks over extended horizons: May’s failed snap election gambit earlier this year was only one of them.
In a research note published with Scope Ratings – a European rating agency – my co-author and I argued that due to these hindrances and the material costs associated with any immediate, no-deal Brexit, the two most likely outcomes are instead: 1) a form of soft Brexit or 2) a no Brexit (or Breversal) scenario. These outcome expectations are assumed in our ‘AA/Negative’ rating and outlook on the UK. In Scope’s baseline, the UK concludes an eventual soft Brexit arrangement, maintaining full or partial access to the single market, perhaps in a phased process. The conclusion of a soft departure end-state could last well past the two-year window given under Article 50, potentially seeing post-Brexit transitional states and/or an extension of Article 50 negotiations (the latter postponing the UK’s exit date from the EU).
However, we noted also that in April, a YouGov/Times survey was the first to show a majority against Brexit since last June’s referendum. Last month, a YouGov poll saw 46% of respondents saying it was wrong for the UK to vote Leave, while 42% back Brexit as the right decision. The Labour party has shifted its position to support transitional membership of the single market and customs union, and possibly on a permanent basis (in a form of Norway+ model, which is not far from favouring remaining in the EU). As such, were public sentiment to harden in opposition to Brexit, negotiations to meet significant difficulties and/or the economy to face increasing headwinds, a no-Brexit scenario (in which the country revokes Article 50, and opts to remain in the EU) is not off the table, and, in Scope’s view, the second most probable outcome. This would presumably need to involve a second election and/or a second referendum. Our expectation of a soft Brexit or no Brexit contrasts with the opinions of financial institutions and research institutions, which anticipate a different outcome.
Why has the EU adopted a stern negotiating stance towards the UK? One reason is the unrealistic objectives of the UK government, and the significant gap between the negotiating expectations of the EU and the UK. Another is the EU’s determination that conditions outside the bloc must be worse than those within, in order to preserve the integrity of the European project.
The UK’s dilemma is compounded by the weak negotiating hand it has been dealt. As the potential economic, financial and political costs of any form of no-deal Brexit would be much more damaging to the UK than they would be to the EU as a whole (see, for example, Oxford Economics’ report that the immediate costs to the UK of a cliff-edge Brexit might be ten times greater than those to Germany or France), the UK government’s threat that it could easily leave without a deal rings hollow. Even a default to WTO trade relations, viewed as the safe fall-back option in the case of no deal, is not automatic and would require completion of complex talks with WTO parties, including the EU.
The EU’s greater leverage means that any negotiated settlement reached under constrained time boundaries would probably resemble the EU’s opening gambit. This means that any deal on Brexit sought under the auspices of Article 50’s initial two-year window benefits the EU position and necessarily demands climb-downs by the UK. In that, the more prudent strategy from the UK’s angle has been and continues to be an understanding of the complexity of Brexit, emphasising a long-term, phased-in process with short-term objectives. Unfortunately, this approach has so far been lacking.
European leaders have expressed hope that the UK’s decision to leave might be reversed. On the one hand, that could help to explain the EU’s unwillingness to compromise materially in the negotiations. But the EU should be careful what it wishes for. In the aftermath of the referendum, the EU has looked more united and stronger, with the common dilemma that Brexit represents enabling states to unite around a clearer and more purposeful message. It could be argued that a no-Brexit scenario – in which the UK remains, after failed negotiations – could revive momentum towards a multi-speed Europe, along with escalating Euroscepticism in segments of a divided UK.
This post represents the views of the author and not those of the Brexit blog, nor the LSE.
Wrong on the WTO. That is automatic, give or take some adjustment on TRQs, which is tiny economically (albeit not politically) and only affects 19 WTO members anyway.
Adjusting TRs only requires consent of 19 WTO members??
Yes. Others are not affected.
“It could be argued that a no-Brexit scenario – in which the UK remains, after failed negotiations – could revive momentum towards a multi-speed Europe, along with escalating Euroscepticism in segments of a divided UK.”
Indeed. It is hard to see how we could stop Brexit now, especially on the grounds that it is too difficult. That would effectively be saying it is impossible to the leave the EU – a thought that may even cause some remain voters some unease.
Regardless, stopping Brexit would upset many leave voters would feed a betrayal myth that will endure for a long time. Also it is hard to see how we take up our role again in the EU, especially when they are trying to agree the next step of integration. We would not only be giving up Brexit, but would continuing in an even more centralized organization.
One hope is that the next round of updates to the EU institutions allows for a looser membership (similar to what David Cameron tried to negotiate prior to the referendum). However I find it hard to imagine the EU giving back powers.
I believe that the author’s conclusion do not into account the internal politics of the United Kingdom. Indeed, Theresa May is facing a decreasing amount of support in the population yet her efforts to pursue the negotiations with the European Union lets her keep the support of still the majority of Brexiteers. Theresa May can not go back on triggering the Article 50 or stop the negotiations without risking to be alienated by all sides pro and anti brexit. She would lose face as the leader of the country by overruling the popular will like in France and ultimately provoke a political crisis in the UK, which I believe Theresa May will try to avoid at all costs.
I am only a humble American, with no “skin in the game” when it comes to Brexit, but I cried large tears of sadness the morning I learned the U.K had voted to leave the EU. I cried for what it meant for the future of the British people, since I, along with many of my fellow Americans, consider Britain a home away from home. You are our most important friend in the world, and your fall is essentially our fall. And perhaps being that I live in a country that allowed the likes of Trump to be unleashed onto the public stage, some readers may feel I am a hypocrite, but I’m not. I’m one of those crazy Americans that felt Trump shouldn’t be President for all the reasons that many of my fellow citizens felt he should be; very similar to the way that many British people felt that staying in the EU had more benefits for growth and unity for the British people than cons. That being said, I believe those same people that either chose Vote Leave and Vote Trump were misled by the rhetoric rather than believed the truth and facts of either Trump’s character, that gleamed so brightly many, many times prior to Election Day, or the overhyped alarmist cries of the false promise of an additional £350m a week for the NHS and Turkey’s entrance into the EU would allow Muslim populations to overrun British soil. And given the fact that Vote Leave broke election laws and Russian money and influence appears to have had an influencing presence, similar to revelations also being investigated in America related to Trump, we need to stop fighting amount ourselves, respect our differences, giving each of us the benefit of the doubt and move forward, together. I would love to talk about this point in history 30 years from now, refer to it in nostalgic terms as if it were a rocky point that we battled through but came out in the end stronger and better for having experienced it and stuck together, much like we refer to the unity just after WWII when we defeated fascism, hate, and corruption… it is my humble hope. I see the path home for both our countries, back to unity and faith in our laws and institutions: we need to agree that it isn’t our neighbor we need to be fighting, but the enemy in the shadow that will stop at nothing to divide us. Unity is my humble hope.