Opinion

Is Europe drifting towards a hard Brexit?

Theresa May's recently announced that she will trigger Article 50 no later than March 2017. Guntram Wolff debriefs May's speech and the implications for the future of EU-UK relations.

By: Date: October 6, 2016 Topic: European Macroeconomics & Governance

This op-ed was originally published in Nikkei Veritas “Market Eye”. It was also published in RzeczpospolitaNikkei Asian Review, and Nikkei Report. It will also be published in L’Expansion and in La Stampa.

nikkei-veritas

Expansion logo

la-stampa-logo-italy

nikkei

nikkei

Rzecszpospolita

Theresa May has finally spoken. In a major speech, she has set out her plans to trigger Article 50 and negotiate Brexit. The announcement has brought clarity on the timetable for negotiations, which will start no later than March 2017 and probably last for 2 years. But May also gave the clearest information yet about the British government’s aims, setting out some key “red lines”. Of course, such lines are drawn in sand, not stone, and they can change in the course of negotiations. But compromise is politically difficult, so we should expect the UK to fight for its position.  It is therefore worth unpacking what these red lines imply for the future of EU-UK relations. The signs are not good those for those who support a “soft Brexit”.

The first and most important point is about sovereignty. As Prime Minister May puts it: “We are going to be a fully-independent, sovereign country, a country that is no longer part of a political union with supranational institutions that can override national parliaments and courts.” And she continues: “We will be free to pass our own laws….And we are not leaving only to return to the jurisdiction of the European Court of Justice.” These statements are clear and have clear implications for the nature of the future relation between the EU and the UK. There cannot be anything even closely resembling the deep integration of the single market.Far-reaching integration like the single market needs much more than a shared set of standards and rules. It also needs a uniform enforcement of these rules through supranational institutions like the European Court of Justice and the European Commission.

Far-reaching integration like the single market needs much more than a shared set of standards and rules.

This is not just a theoretical observation but an issue with immediate economic consequences. So-called passporting (the ability to provide banking services across borders) is only conceivable within a supranational jurisdiction. And it is not only financial services that are concerned. In many other sectors, such as healthcare, it is shared standards and their enforcement that are most important in facilitating international trade — not tariffs, which are already low. Just as vital is the supranational surveillance of competition and state aid, without which unfair competition and dumping can become a real threat to business and consumers.

What other arrangement is possible? One obvious alternative is a free trade agreement.

Since anything closely resembling single market membership has been excluded by the British PM’s choice of red lines, one question naturally arises. What other arrangement is possible? One obvious alternative is a free trade agreement. The PM immediately mentioned the mantra of “Global Britain”. But with almost 48% of UK goods exports going to the EU, the first priority for the UK would surely be to forge a deal with the EU. Such a deal would exclude large parts of the services sector, in which the UK is relatively strong. But the UK’s hand will be weakened further by the fact that no EU country sends more than 14% of their total exports to the UK. The EU could well try to leverage that relative strength in negotiations.

The negotiations for the CETA agreement with Canada started more than seven years ago.

However, there are also potential pitfalls on the EU side. Even in a scenario where the EU institutions were willing to engage with the UK and develop a mutually-beneficial trade deal, no outcome can be guaranteed. For a start, trade negotiations can take a long time. The negotiations for the CETA agreement with Canada started more than seven years ago. Moreover, even with cooperative EU institutions, it is far from certain that any trade deal would be implemented. Although EU law formally gives the EU an exclusive competence on trade negotiations, this supremacy is now in question. In particular, after the European Commission’s decision to allow all EU member states to pre-approve the CETA deal, it has become unclear whether the EU is actually still able to forge meaningful new trade deals. As a consequence, Britain may leave the EU without a new trade deal in place, and with uncertain prospects of a new deal anytime soon.

The consequences of such a “hard divorce” could be painful for business and citizens, but there are also some reasons for hope. The PM has announced that the British government will enact a law to incorporate all EU law into UK law. That could offer the basis of an interim trade agreement. However, the UK would have to fully follow EU law to minimise disruptions until a new arrangement was agreed. In this case, of course, the UK’s regained “sovereignty” would remain an illusion.


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint.

Due to copyright agreements we ask that you kindly email request to republish opinions that have appeared in print to communication@bruegel.org.

View comments
Read article More on this topic More by this author

Blog Post

Is this time different? Reflections on recent emerging-market turbulence

Since the beginning of 2018, currencies of two large emerging-market economies – Argentina and Turkey – suffered from substantial depreciation. Other currencies also recorded losses. Which factors are determining macroeconomic and financial stability in emerging-market economies? And what can be done to prevent a crisis and avoid its economic, social and political costs?

By: Marek Dabrowski Topic: Global Economics & Governance Date: November 14, 2018
Read article More on this topic More by this author

Blog Post

US mid-term elections and the global economy

Democrats won control of the House and Republicans held onto the Senate in the most consequential US mid-term elections in decades. Bowen Call reviews economists’ and scholars’ analyses of the impact this might have on the world economy.

By: Bowen Call Topic: Global Economics & Governance Date: November 12, 2018
Read article More on this topic More by this author

Podcast

Podcast

Director’s Cut: Options yet open for a Brexit deal

Robin Niblett, director of Chatham House institute, joins Bruegel deputy director Maria Demertzis for an assessment of what progress can be reasonably expected from the final months of the Brexit negotiations.

By: The Sound of Economics Topic: European Macroeconomics & Governance Date: November 7, 2018
Read article More on this topic More by this author

Blog Post

Post-Brexit transfers of personal data: The clock is ticking

The UK government would like to keep EU-UK data transfers largely the same following the country's separation from the EU. But talks have yet to even commence on a future data-sharing relationship, and a landmark European Court of Human Rights ruling in September bodes poorly for the UK's future status under the EU’s General Data Protection Regulation.

By: J. Scott Marcus Topic: European Macroeconomics & Governance Date: November 7, 2018
Read article More on this topic More by this author

Opinion

The global economy’s three games

In this column, Jean Pisani-Ferry portrays the current international economic and geopolitical order as increasingly reminiscent of chess. Three key players: the US, China and a loose coalition of the other G7 members play three games simultaneously, and no one knows which game will take precedence.

By: Jean Pisani-Ferry Topic: Global Economics & Governance Date: October 29, 2018
Read article More on this topic More by this author

Blog Post

The United States-Mexico-Canada free trade agreement (USMCA)

While final ratification of the USMCA (also known as Nafta 2.0) is pending, we review economists’ assessment of the agreement.

By: Silvia Merler Topic: Global Economics & Governance Date: October 22, 2018
Read article More on this topic More by this author

Opinion

How could Europe benefit from the US-China trade war?

Under pressure from the US, Beijing is set to be more open to making new allies.

By: Guntram B. Wolff Topic: Global Economics & Governance Date: October 18, 2018
Read article More on this topic More by this author

Podcast

Podcast

Backstage: The new balance of Asia-EU-US trade relations

Amid the Asia-Europe Economic Forum on the fringes of the 12th ASEM Summit, Bruegel senior fellow hosts a conversation on developing global trade relations, with guests Moonsung Kang, professor as Korea University, and Michael G. Plummer, director at SAIS Europe – Johns Hopkins University, for an episode of the Bruegel Backstage series on ‘The Sound of Economics’.

By: The Sound of Economics Topic: Global Economics & Governance Date: October 17, 2018
Read about event

Past Event

Past Event

Policy responses for an EU-MENA shared future

In the third edition of the "Platform for Advanced & Emerging Economies Policy Dialogue" we will discuss trade flows and trade policy between Europe and MENA, integration of developing economies into global value chains, and regional energy relations.

Speakers: Karim El Aynaoui, Marek Dabrowski, Uri Dadush, Ignacio Garcia Bercero, Ettore Greco, Giuseppe Grimaldi, Badr Ikken, Joanna Konings, Said Moufti, Pier Carlo Padoan, Lia Quartapelle, Visar Sala, Nicolò Russo Perez, Nicolò Sartori, Simone Tagliapietra and Guntram B. Wolff Location: LUISS Business School Viale Pola, 12, 00198 Roma RM, Italy Date: October 11, 2018
Read article Download PDF More on this topic

External Publication

The EU response to US trade tariffs

The authors contributed to the new issue of 'Intereconomics - Review of European Economic Policy' with a paper on the EU's strategy for managing the trade war. The authors argue that to minimise the economic costs of the trade war and protect multilateralism, the EU's best and only response is to retaliate.

By: Maria Demertzis and Gustav Fredriksson Topic: Global Economics & Governance Date: October 11, 2018
Read article More on this topic More by this author

Podcast

Podcast

Backstage: Implications of the new EU-Japan trade deal

Bruegel senior fellow André Sapir welcomes Tamotsu Nakamura, dean of Kobe University’s Graduate School of Economics, and Maria Åsenius, head of cabinet to European trade commissioner Cecilia Malmström, for a discussion of the EU-Japan economic partnership in the context of heightening global trade tensions.

By: The Sound of Economics Topic: Global Economics & Governance Date: October 4, 2018
Read article Download PDF

External Publication

European Parliament

The EU - Japan Economic Partnership Agreement

This paper was requested by the European Parliament's Committee on International Trade (INTA) and analyses the EU-Japan Economic Partnership Agreement (EUJEPA).

By: André Sapir, Sonali Chowdhry and Alessio Terzi Topic: European Parliament, Global Economics & Governance, Testimonies Date: October 3, 2018
Load more posts