How Brexit will unfold – Britain will get a deal, but it'll come at a price

Opinion piece (The Guardian)
09 November 2017

The UK will end up paying €50bn and accepting a hard Irish border: 10 predictions based on my conversations with people on both sides.

Article 50 negotiations have stalled over the money Britain is prepared to pay the EU. Neither side expects progress before December at the earliest. But even if the terms of separation are agreed this year, the negotiation on the future relationship is likely to prove much harder. EU negotiators believe that the British government is deluded about the kind of relationship it can achieve. After speaking to key people on both sides, here are my 10 predictions for the Brexit talks.

1. There will be a deal in December.

The UK will accept a financial settlement involving payments amounting to something close to €50bn, higher than what it has so far indicated it is willing to pay. And the EU will compromise on citizens’ rights by climbing down from demanding a powerful role for the European court. This will allow it to declare “sufficient progress” has been made on the terms of separation, paving the way for talks on a transition and future relations.

2. There will be a hard border between Ireland and Northern Ireland.

Despite Britain’s public commitment to find “creative solutions” to the border problem, both sides admit there will have to be some sort of checks on or close to the border. This is the inevitable consequence of Britain leaving the single market and customs union.

3. The UK will agree to a transition on the EU’s terms.

That transition will feel very much like membership to the British – with free movement of people and Britain subject to European court rulings – except that it will not have a voice in EU institutions. Both sides will pretend that the transition will last only about two years (Britain’s hardline leavers are very keen to keep it short). In fact, it will take many more years to negotiate the future trading relationship and build the required physical infrastructure at borders, and for the Home Office to set up the IT systems for registering EU migrants.

4. Theresa May’s hope that the future relationship can be sorted out before Britain leaves the European Union will not come to pass.

She argues that because UK and EU rules are already aligned, the details of the future relationship can be settled within a year. But most trade experts think that future economic ties will take many years to negotiate. One of the hardest things to agree on will be what punitive action the EU can take when UK rules diverge from its own.

5. The UK will avoid making detailed proposals on a future economic partnership.

A detailed plan would be hard to get through the divided cabinet – and also increase the chances of an outright rejection by the EU. But the UK will ask for a bespoke deal that provides better market access than the Canada model (a free trade agreement with only limited provisions on services) but much less than the Norway model (fully in the single market).

6. The EU will reject the British request for a bespoke agreement.

It will insist that the UK choose from a menu limited to Norway, Canada or WTO rules. It will say the single market is a package – you are either in all or none of it. But the UK is counting on the unity of the 27 fracturing. It hopes those most dependent on UK trade will see that it is in their interests to give the British a better deal than the Canadians, that is to say one with more provisions on services.

7. The EU might eventually soften and agree to something close to single market access in specific areas.

But it will demand cash payments, that Britain remains subject to the jurisdiction of the European court of justice (or something close to it), and perhaps a liberal UK regime on migration.

8. The EU’s top priority in the trade negotiations will be to prevent the UK undercutting its regulatory standards.

It fears the UK will steal investment by eroding social and environmental standards, slashing corporate taxes or diverging from EU rules on state aid and competition. The EU will insist on provisions that allow it to punish the UK for any such undercutting.

9. The City of London will be damaged.

So far, the British government has not made a priority of defending the City’s interests. But even if it does, UK-based firms will lose the right to “passport” into the single market. As second best, the City is hoping for a good deal on regulatory equivalence, but even that will be very hard to achieve, and is likely to involve the UK being a rule-taker rather than a rule-maker.

10. A free trade agreement of some sort will be agreed.

This is due to two reasons. First, if it looked like the UK would crash out of the EU without a trade deal, the EU would face a major headache. Angela Merkel and Emmanuel Macron plan to spend next year concocting new plans for the eurozone. A messy Brexit would get in the way, so they will try to prevent it. Second, if the financial markets believed that the UK was going to leave without an agreement, they would panic. The pound would sink, business confidence would evaporate and investment would dry up. The UK government would come under enormous pressure to return to Brussels to seek a compromise. The Conservatives would fear losing their reputation for economic competence for a generation. Whatever they say in public, May and most of her ministers know that any deal, however bad, is better than no deal.

Charles Grant is director of the Centre for European Reform.