Rethinking Europe

Brexit Negotiations: What Are They Waiting For?

In its negotiations with the EU, the UK government still puts false hopes on “heavenly” intervention by Germany’s Angela Merkel.

Credit: Prachatai www.flickr.com

Takeaways


  • In the Brexit negotiations, the UK government still puts false hopes on a “heavenly” intervention by Germany’s Angela Merkel.
  • For Berlin and the other capitals in the EU, cooperation within the EU matters much more than friction-free trade with the UK.
  • The UK’s departure from the EU single market and customs union without a trade deal would damage UK growth significantly – and would not impact the EU much.
  • At this moment, there still is a 35% probability for an EU/UK Brexit deal worth its name.

After the latest round of Brexit negotiations, EU chief negotiator Michel Barnier sounded even more downbeat than usual late last week, lamenting that “too often this week, it felt as if we were going backwards more than forwards.”

Barnier’s gamble

To leave enough time to ratify a deal before the end of the transition period on December 31st, the EU on its side would like to finalize a deal ahead of the EU summit to be held on October 15-16, 2020.

The key sticking point remains that the EU insists on tight “level playing field” rules close to the EU’s internal rules, as well as on continued generous access to UK fishing waters as conditions for granting the UK tariff- and quota-free access to its vast market.

Barnier apparently would like to seal a deal as a crowning achievement of his career. When the UK asked in June to intensify negotiations, he seemed to soften the EU position on level playing field and fisheries somewhat, getting close to the limits of his mandate.

False hopes

Barnier’s apparent hope that the UK would then shift its position significantly during the talks over the summer has not materialized, at least not yet.

Instead, the UK seems to be playing the same game that failed last year, namely sticking to a hard line and hoping that Germany’s Angela Merkel will intervene in the last minute for the sake of Germany’s export-oriented industry. At least, that seems to be the impression in Brussels.

It did not work last year and will likely not work this year. The reason is simple: For Berlin and the other capitals in the EU, cooperation within the EU matters much more than friction-free trade with the UK.

As seen from Brussels, it is astonishing to see that the government led by Boris Johnson still has not faced up to this basic reality.

In addition, the UK has yet to accept that size matters: The terms of any trade deal between a big and a medium-sized economy will be closer to the starting position of the bigger partner.

Last-minute deal?

A deal is still possible — if the UK shifts its position in the last minute. That at least is what Boris Johnson did last year when he resolved the Irish border question in line with EU wishes during a walk in the park with Ireland‘s Leo Varadkar on October 10, 2019.

At this moment, there still is a 35% probability for an EU/UK Brexit deal worth its name.

In the absence of a solid trade deal, the UK’s departure from the EU single market and customs union would likely damage UK trend growth significantly.

In contrast, it would probably not impact the EU much, which would suffer from reduced access to the UK market but benefit from some diversion of trade, investment and skilled migrants towards the EU.

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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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