Britain’s brutal encounter with reality
Posted by hkarner - 1. April 2017
Source: The Economist
Time to be honest about the trade-offs ahead
NINE tumultuous months after Britons voted to leave the European Union, the real Brexit process is at last under way. Theresa May’s dispatch of a letter to the European Council on March 29th, invoking Article 50 of the EU treaty, marked the point at which Britain’s withdrawal from the union became all but inevitable. For half the country’s population this was a moment to celebrate; for the other half, including this newspaper, it marked a bleak day. The future of both camps—and of the EU itself—now depends on what Mrs May does next.
The negotiations are sure to be difficult. Time is short, since Article 50 comes with a two-year deadline. The task of unwinding Britain’s membership of the club is fearsomely complex. Neither side is well prepared. In Britain, where Brexit increasingly resembles a faith-based initiative, voters have been given wildly unrealistic expectations of the Utopia ahead. Their first contact with the reality of losing preferential access to their main market will be traumatic. Unless Mrs May can persuade the Brexiteers on her own side that they must accept concessions, Britain may end up flouncing out of Europe without any deal at all.
The timetable is tighter even than it looks. The sides may spend weeks arguing over process. The EU wants to fix the terms of the Article 50 divorce, covering such matters as the rights of citizens resident in other countries and Britain’s multi-billion-euro exit bill, before starting work on a future trade deal; Mrs May wants to negotiate on everything at once. Nothing much will be agreed on before the German election in September. At the end of it all, ratifying the deal will take six months. That leaves little more than a year for the talks themselves.
Mrs May’s priority is to fulfil the Leave campaign’s promise to “take back control” by ending the free movement of EU citizens to Britain and the jurisdiction of the European Court of Justice (ECJ). She has acknowledged that this means leaving the EU’s single market. But leaving would be a mistake. Even if it takes control of immigration, Britain will not be able to cut the numbers much without damaging the economy, as ministers are slowly realising. And the government is wrong to claim that there exists some relationship with the single market that has all the benefits of membership with none of the costs.
It is true that many Britons backed Brexit because they wanted to cut immigration and regain sovereignty, but they did not vote to make themselves poorer—as Mrs May’s “hard Brexit” will. Her government has been characterised by U-turns and her letter this week was more emollient than some of her earlier statements. Even so, in thrall to Brexiteering backbenchers and the Eurosceptic press, she is unlikely to change course now.
Mrs May is not just making the wrong choices, but also downplaying awkward trade-offs. By promising barrier-free access to the single market while stopping EU migrants and ending the ECJ’s jurisdiction, she is still telling Britons they can have their cake and eat it. Although she concedes that exporters to the EU will have to obey EU rules, the more Mrs May insists on controlling EU migration and escaping the ECJ, the less barrier-free will be Britain’s overall access to the single market. This is not just because free movement of people is a condition for the EU, nor because it will be hard to secure tariff-free access for trade in goods, something both sides can readily agree on. It is because the biggest obstacles swept away by the single market are not tariffs or customs checks, but non-tariff barriers such as standards, regulations and state-aid rules. Unless Britain accepts these, which implies a role for the system’s referee, the ECJ, it cannot operate freely in the single market—as even American firms trading in the EU have found.
Boxed into a corner
The most dangerous of Mrs May’s illusions has been her claim that no deal is better than a bad deal. Her letter this week steps back from this notion, but only a pace. To revert to trading with the EU only on World Trade Organisation (WTO) terms would cause serious harm to Britain’s economy. It would mean the EU imposing tariffs plus a full panoply of non-tariff barriers on almost half Britain’s exports. No big country trades with the EU only on WTO terms. An acrimonious break-up would make it harder to co-operate in such areas as foreign policy and defence. And it would surely increase the risk of Brexit triggering Scotland’s exit from the United Kingdom.
Mrs May needs not merely to soften her tone, as she has started to do this week, but to lower expectations. Instead of threatening to undercut her European partners by building an unregulated Singapore-on-Thames (something that, despite its appeal to free-traders, would horrify most Brexit voters), or hinting that Britain might co-operate less fully on security, or claiming that the EU needs Britain more than the other way round, she should accept that in these negotiations she holds the weaker hand. She should hence be more flexible over payments into the EU budget, a subject her letter skates over.
Because negotiating a full free-trade deal is certain to take more than two years—no country has concluded one with the EU in so short a time—she should accept another consequence: that transitional arrangements will be needed to avoid “falling off a cliff” in March 2019. Her letter talks airily of “implementation periods”, but does not acknowledge how hard these may be to sort out. A proper, time-limited transition might mean prolonging free movement of people and the rule of the ECJ, but that price would be worth paying for a better Brexit.
The softer tone of Mrs May’s letter might, with luck, encourage her EU partners to be more accommodating. So far they have reacted to threats from London in kind, talking up the exit bill, insisting that Britain ends up being worse off outside the club than inside and digging in over terms for co-operating in foreign and security policies. There is a possibility of a deal between Britain and the EU that minimises Brexit’s harm. Unfortunately, in a negotiation against the clock where both sides start so far apart, there is also a big risk of one that maximises harm instead.