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U.K.’s Brexit Walkout Threat Leaves EU Unmoved

Posted by hkarner - 10. März 2017

Date: 09-03-2017
Source: The Wall Street Journal By SIMON NIXON

EU insists it won’t discuss trade until divorce is done, putting Theresa May at risk of having to carry out her vow to walk away

Prime Minister Theresa May

With the U.K. most likely just days away from formally triggering the Brexit process, Downing Street is rattled. Its anxiety has little to do with the continuing parliamentary debates over the bill to allow the government to invoke Article 50 of the Lisbon Treaty: Despite two defeats in the House of Lords, senior officials are confident that Article 50 will be triggered as planned by the end of this month. Instead, what is really unnerving Prime Minister Theresa May’s government is the very real possibility that the Brexit negotiations will collapse before they have properly begun, leaving the U.K. to crash out of the EU in 2019 with no deal.

If the European Union continues to insist that it won’t discuss a new trade relationship until the U.K. agrees to an expensive divorce deal, Mrs. May really will walk away, British officials say. The U.K. government is adamant that both deals—divorce and trade—must be negotiated in parallel.

Downing Street has grounds for being rattled, because there is little sign the EU has any intention of giving way. True, the U.K. has some allies. Some senior figures in the German finance ministry, for example, believe the EU should, after a suitable delay, start discussing future trade ties with the U.K. But in the German Chancellery, which calls the shots and appears to have prepared for Brexit almost as intensively as the British government, officials are sticking to the EU script. There is frustration at what some in Berlin see as “deliberate misconceptions” being promoted by the U.K. government, including playing down the complexity of the divorce negotiations.
This goes well beyond questions of the money required to settle outstanding obligations, which Brussels has suggested could be as much as €60 billion ($63 billion). A deal will be needed to allow the grandfathering of regulatory arrangements to ensure British goods and services can still be traded in the EU. The U.K. will also need agreement on the terms of its continued participation in various EU projects, such the Horizon 2020 research-funding program. And a deal will be needed on the rights of EU citizens living in the U.K. and British expatriates in the EU.

Mrs. May has presented the latter as a simple issue held up only by German intransigence. In reality, it is highly complex. What rights does the U.K. want to guarantee? Will EU citizens still be eligible for permanent residence? Will they have the right to access public services, including the National Health Service? Will the U.K. honor their British pension entitlements?

These questions are all independent of any discussion over the future trade relationship. But Berlin fears the U.K. has unrealistic expectations of what trade relationship is possible too. There is bafflement at what Mrs. May might possibly have in mind with talk of a “customs agreement” to allow “frictionless trade.” Is she looking for technological solutions to minimize the barriers to trade that she knows will inevitably arise post-Brexit? Or does she expect a trade deal that will prevent any new barriers arising? Downing Street officials refuse to elaborate. But German officials are clear that it isn’t politically or legally possible for the U.K. to cherry-pick partial membership in the EU customs union.

More broadly, there is concern in Germany—echoed elsewhere in the EU—that much of the U.K. debate on trade is simplistic. Until recently, many Brexiters’ views on free trade appeared stuck in the 19th century, in which the only barriers that mattered were tariffs. These days, pro-Brexit Britons do acknowledge the importance of non-tariff barriers but insist that because the U.K. and the EU have the same regulatory standards, there is no need for new barriers. But in the modern economy, standards constantly evolve: two regulatory systems may be equivalent on Day One, but will rapidly diverge thereafter. Without a mechanism to ensure the U.K.’s continued compliance with new rules emerging from the European Commission and European Court of Justice, barriers are inevitable. Political logic cannot override sensible regulatory behavior, says a German official.

Mrs. May’s problem is that her threat to walk away if she doesn’t get what she wants won’t alter any of these underlying realities. Nor does the U.K. government appear to have fully thought through what this “no deal” scenario means in practical terms. Some senior British officials, alarmed at the prospect of the U.K. crashing out of common European foreign and security policies, want to see a parallel negotiation to ensure Britain’s security isn’t undermined. Home-office ministers similarly would like to ensure cooperation is unaffected on counterterrorism and other policing issues. Meanwhile, even Downing Street acknowledges it couldn’t completely walk away from the negotiating table, if only to seek solutions to the challenges faced in Northern Ireland, where Brexit threatens to create a new hard border with the Irish Republic.

Even so, Mrs. May may yet carry out her threat. Certainly it is taken seriously in Berlin. Much may depend on whether she thinks she has the political capital to lead the U.K. over the cliff edge of a chaotic Brexit in 2019. Faced with a feeble opposition, Mrs. May may believe she has a strong hand domestically. She shouldn’t assume that strong hand extends to the EU.

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