Föhrenbergkreis Finanzwirtschaft

Unkonventionelle Lösungen für eine zukunftsfähige Gesellschaft

How Brussels Thinks Brexit Should Work

Posted by hkarner - 25. November 2016

Date: 24-11-2016
Source: The Wall Street Journal By SIMON NIXON

EU officials are starting to think pragmatically about an exit deal for the U.K.

Theresa May’s acknowledgment this week that the U.K. may need a transitional deal so that businesses aren’t faced with a cliff edge after Brexit was greeted with relief in British boardrooms.

This was an important moment. It has taken the Prime Minister five months to reach a conclusion that had been obvious to business groups and European Union policy experts since June 24th. Yet even now, some senior Brexit ministers still argue that a transitional deal is unnecessary, and that the entire Brexit process can be negotiated and ratified within two years. Indeed, there are influential voices in the Conservative party who question the need for any kind of exit deal at all, arguing the U.K. should simply walk away.

There is increasing concern among officials that the U.K. government is starting from a very low base of understanding of how the EU works, leading to dangerously unrealistic expectations of what might be achieved. The European Commission has just completed a week of “confessionals” with representatives of the other 27 member states—one-on-one meetings with senior advisers to understand each government’s position on Brexit. Those meetings underlined just how badly recent comments by Mrs. May and other Brexit ministers have gone down in other European capitals, helping to harden the determination of the other 27 to stay united in defence of core EU principles.

But what also emerged is a clear desire not to let the relationship with the U.K. spiral out of control, an official familiar with the talks says.

As a result, the Commission is increasingly shifting into pragmatic, problem-solving mode. Its starting point is that an Article 50 exit deal is overwhelmingly in the interests of both sides, but particularly that of the U.K. The alternative to an orderly divorce is years of expensive, time-consuming, relationship-destroying litigation as the battle over who owes what to whom is dragged through the courts, with both economic and geopolitical consequences.

British businesses would face the hardest of Brexits as the U.K. abruptly reverted to third-party status in all aspects of its relationship with the EU, with no prospect of any free-trade deal while the two sides were locked in litigation. Some British officials fear that repudiating its EU obligations would also turn the U.K. into an international legal pariah.

But if Brussels is convinced that an Article 50 exit deal is essential to provide legal certainty and a strong basis to agree a new relationship, no one is under any illusions that the negotiations will be easy. Much will depend on what future relationship Mrs. May says she wants to seek. That doesn’t need to be spelled out in great detail when she sends her formal Article 50 notification; indeed, the letter should be kept short, says one senior official: “If it contains a list of 20 demands, we would probably end up rejecting 19 of them straight away.” But clearly, the closer the ties the U.K. wants to keep with the EU, the easier—and less costly—the Article 50 exit terms will be.

In Brussels, the assumption is that the U.K. will seek a comprehensive free-trade deal or Association Agreement. Past experience suggests that these deep deals can take several years to negotiate and would require ratification in 38 European parliaments and regional assemblies, in which case a transitional deal would certainly be necessary.

There are two ways this might be achieved. One is that the new relationship is negotiated in parallel with Article 50. In this case, the U.K. would remain part of the EU until the end of the process and so would not regain sovereignty in 2019 but would continue to be subject to EU rules on free movement of people and remain under the jurisdiction of the European Court of Justice.

The alternative is that Article 50 and the future relationship are negotiated sequentially. In this case, Commission lawyers have indicated that it would be possible for European leaders to come to an informal agreement to preserve current trading arrangements, providing neither side puts up new trade barriers for up to three years. This assumes that Mrs. May will have delivered on her pledge to introduce a so-called Great Repeal Bill, incorporating EU law into U.K. law in order to retain legal equivalence.

In this scenario, the U.K. would no longer be subject to the jurisdiction of the ECJ. The sanction for non-compliance would be the collapse of the process and the introduction of trade barriers.

Of course, this option would hinge on Mrs. May’s being able to convince the EU that she has full control over her party and Parliament. As things stand, her credibility is damaged in Brussels after she assured Commission President Jean Claude Juncker that Parliament would have no say in the Brexit process only to have to call him days later when the High Court ruled otherwise. Brussels officials are also concerned that the U.K. is due to have a general election in 2020, likely in the middle of any negotiations over any future trade deal.

One solution might be for Mrs. May to call an election after a securing a quick Article 50 deal in 2018, thereby arming herself with a strong mandate to negotiate the future relationship. True, that may be asking far more politically of Mrs. May than she is currently willing to contemplate—but the onus will be on her to come up with a better plan.

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