Rethinking Europe

Boris or Jeremy: Expect No Present from the EU

Boris Johnson would face a specific handicap in his talks with Brussels. The desire to grant him any concession is virtually zero.

Credit: Philip Lange, Shutterstock.com

Takeaways


  • Boris Johnson would face a specific handicap in his talks with Brussels. The desire to grant him any concession is virtually zero.
  • There is no reason to believe the claim of some Brexiteers that they could have extracted concessions from the EU27 that May could not.
  • The EU remains ready to adjust the declaration on future relations if the UK drops some of its red lines.
  • Whereas Ireland would be eligible for significant EU help if required to limit the fallout of a hard Brexit, the UK would have to bear the cost all on its own.

The leading contender to succeed Theresa May, Boris Johnson, would face a specific handicap in his talks with Brussels.

Across the EU27, he is often portrayed as a former journalist who paid more attention to his storyline than to the facts, a former foreign minister with limited grasp of his turf and the public face of Brexit.

The desire to grant him any concession is virtually zero. However, he is also viewed as a talented self-promoter with little ideological baggage.

Seen from an EU angle, his potential flexibility could turn into an advantage. If and when he has achieved his ambition to move into 10 Downing Street, he may have an interest to limit the Brexit damage to the UK.

With his credibility as a Brexiteer, he may even pull off what May, for lack of that credibility, did not. It would not be surprising if Boris managed to convince more of his Conservative colleagues in parliament to pass the Withdrawal Agreement as the basis for talks about UK-EU future relations.

Dealing with Labour?

He might even do a deal with Labour for that purpose. After all, if he is in office, Labour would not need to insist on a “Boris lock,” that is an elusive safeguard against the risk that a May successor may not abide by a deal she might have struck with Labour leader Jeremy Corbyn.

The Brexit deal has two separate parts, the detailed Withdrawal Agreement and the short Political Declaration on future relations.

The EU27 have emphasized repeatedly that they will not re-negotiate the Withdrawal Agreement. There is no reason to believe the claim of some UK Brexiteers that with their better negotiating skills they could have extracted concessions from the EU27 that May could not.

Unlike the Withdrawal Agreement, the Political Declaration on future relations largely reflects the red lines (“no customs union, stop to free movement of labor”) which May herself had drawn.

As before, the EU remains ready to adjust the declaration on future relations if the UK drops some of its red lines.

The wild card: Varadkar

As part of the political solidarity within the club, the EU27 have used their entire commercial might to let small Ireland impose the “backstop” guarantee against a hard border between Ireland and Northern Ireland on the much bigger UK.

For those in the UK who never thought of the EU as a political club, this had come as a shock. Although the other EU members have little stake in the “backstop” issue, they will continue to back Dublin.

This puts the spotlight on Irish Prime Minister Leo Varadkar. If no other way can be found to get UK approval for the contentious Withdrawal Agreement, Varadkar may face a choice in late October between:

1. a hard border in Ireland in six years time, say after a transition period until late 2020 and a five-year time limit on the Irish backstop thereafter, or

2. a hard border in six days time in case of a no-deal hard Brexit. In the unlikely case that Varadkar were to agree to a time-limit for the Irish backstop at the last minute, the other 26 EU countries would go along with that.

The new UK prime minister may be tempted to try his luck in this way, waiting until late October to see whether Ireland would accept a time limit to the backstop.

A risky game

However, playing such a game of chicken would be very risky for Boris (or Jeremy). Back in March and April, Varadkar showed no inclination to flinch.

If the gamble were to go wrong, the costs would be felt across the UK (hard Brexit) and its province of Northern Ireland (hard border) much more than anywhere else except for Ireland itself.

Whereas Ireland would be eligible for significant EU help if required to limit the fallout, the UK would have to bear the cost all on its own.

No deal? Think twice

Of course, the UK could choose to leave the EU without a deal and hence without a transition period.

The immediate economic disruption would probably be limited, for the EU27 much more so than for the UK. Planes would still fly, lorries would still roll, medicines would still be delivered and financial regulators would see to it that existing derivatives contracts would not blow up.

In practice, the transition to general border controls and the ensuing damage to cross-Channel supply chains would probably be gradual.

The UK would feel the pain mostly over time through significantly lower trend growth. Many companies using the UK as their key base to serve the entire European markets would scale down their UK operations. Some skilled migrants from the Europe would likely leave the UK.

However, the option of a no-deal hard Brexit may not really be available to the UK in the sense that some Brexiteers seem to believe. Whatever the outcome of the Brexit saga, the UK and the EU27 will remain close neighbors and partners who will need each other regularly to settle all sorts of bilateral issues.

Given the relative size of their economies, the EU27 will usually have more economic leverage than the UK, be it in their bilateral dealings or in their negotiations with third parties.

After a no-deal Brexit, the EU27 would present the UK with the demand to first pay its dues as specified in the Withdrawal Agreement at every instance at which the UK and the much bigger EU27 would have a need to negotiate in the future.

Other trading partners may draw their own conclusions if the UK does not honor its commitments to the EU. And the more the UK deviates from EU regulations, the less access it could have to the EU27 market.

In other words, even in case of a hard Brexit, the UK would probably end up having to accept almost the entire Withdrawal Agreement step by step.

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About Holger Schmieding

Holger Schmieding is chief economist at Berenberg Bank in London. [United Kingdom] Follow him @Berenberg_Econ

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