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Challenges Of A No-Deal Brexit – Analysis

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While the issues are tricky for the UK, the EU is also in a difficult position with the wider EU under stress.

By Harsh V. Pant

British Prime Minister Theresa May finally announced a Brexit deal last month. It led to some initial turmoil as after the cabinet cleared it, some high profile ministers decided to quit. Boris Johnson who has been an ardent Brexiteer made a big show of his displeasure with what May was proposing.

This plan is for a far closer relationship with the EU than what the Brexiteers had desired. Those who had been most vocal about the need to leave the EU are not happy with the final outcome which their leader has presented, but most of them have few options even as they differ among themselves as to what’s the best way forward. The Conservatives remain as divided as ever on Europe but they know that a decision is needed and May has made the first move.

This agreement on which May’s cabinet put its stamp of approval, and was later released as a white paper, is Britain’s only preferred way forward as negotiations with the European Union (EU) about the future relationship reach a crucial stage. As part of this understanding, post Brexit, the UK will continue to share a common rulebook for all goods with the EU, including agricultural products. In line with Britain’s aversion to the European Court of Justice, it is proposing to set up a joint institutional framework to interpret UK-EU agreements. In order to safeguard its ties with Ireland, the borders between the UK and EU will be treated as a ‘combined customs territory.’ Most significantly, it is proposing to end free movement of people, “giving the UK control over how many people enter the country.”

The Brexit deal will have significant implications for the British economy as is clear from the remarks of major companies and business houses. It has been suggested by Jaguar Land Rover, for example, that a ‘bad’ Brexit deal would threaten £80 billion worth of investment plans for the UK and may force it to close factories. Despite such dire warnings, the focus remains on the issue of migration. It was the issue of immigration, after all, which had made Brexit possible, and so it is this aspect that will receive the greatest scrutiny.

And now fears are rising of a ‘no deal Brexit.’ While May remains confident of striking a deal with the EU, her international trade secretary and a strong votary of Brexit, Liam Fox, is suggesting that the chance of failing to come to an agreement is ‘60-40’, blaming Michel Barnier, the EU’s chief negotiator for dismissing the UK’s proposals simply because “we have never done it before.” The Bank of England governor Mark Carney has also underlined that the possibility of a no-deal Brexit is ‘uncomfortably high’ and ‘highly undesirable.’ Scottish First Minister Nicola Sturgeon has argued that Theresa May’s Brexit plan “seems to be dead,” asking her to set out an alternative to avoid the UK leaving the EU without a deal. Amid this growing fear that the UK could leave the EU without a trade deal, the Sterling has hit a nine-month low against the Euro. The International Monetary Fund (IMF) has warned that without a deal, economic growth across the 27 remaining EU states would fall as much as 1.5 per cent by 2030, and wipe out almost 4 per cent of the UK’s GDP. This is a nightmare scenario for Europe which has just about managed to recover from the financial crisis.

Thirteen years ago, May’s predecessor David Cameron had vowed that the Tories would “stop banging on about Europe.” He couldn’t have been more wrong. Mostly due to his referendum move, the Tories today are struggling to make Brexit work. May is trying and she is fighting hard with her back to the wall. Those who want to see her out are plotting every day, but, so far, she has managed to shape the Brexit narrative. The ordinary Britons probably want to get on with their life and want May to sort out a working deal with the EU. For May, some deal is better than a no deal and that’s what her outreach to her European counterparts has been all about. It is in that spirit that she has urged the EU to ‘evolve’ its position on Brexit and not fall back on unworkable proposals so that the UK can avoid leaving the EU without a deal in March next year. But Michel Barnier has argued that May’s plan for a future trade relationship with the EU could weaken the single market and create burdens for business though he has not rejected the British white paper outright.

While the issues are tricky for the UK, the EU is also in a difficult position with the wider EU under stress. Apart from Brexit, the issue of migration is at the centrestage as disputes over immigration have divided the EU, with splits between and within governments about who should take responsibility for migrants crossing the Mediterranean. Across the EU, there has been a rise of politicians who are using anti-immigration rhetoric to challenge the basic foundations of the order in place since the end of the Second World War, emboldening hardliners such as Hungary’s Victor Orban and Austria’s Sebastian Kurz.

Together, they are pushing migration at the centre of the EU agenda even as mainstream political parties are finding it difficult to take the challenge head on. No wonder, a sense of an impending danger is looming large. “The fragility of the EU is increasing,” EU Commission chief Jean-Claude Juncker has warned, underlining that “the cracks are growing in size.”

As demands rise for a second referendum on Brexit, all balls are still in the air, but the challenges of governing Britain and the wider EU are unlikely to become any easier even if the UK and the EU are able to find some temporary accommodation.

This article originally appeared on DNA.


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Observer Research Foundation

Observer Research Foundation

ORF was established on 5 September 1990 as a private, not for profit, ’think tank’ to influence public policy formulation. The Foundation brought together, for the first time, leading Indian economists and policymakers to present An Agenda for Economic Reforms in India. The idea was to help develop a consensus in favour of economic reforms.

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