There have been many among the advocates of Brexit and even more than a few among those opposed to it who have pointed out the relative stability in both U.K. GDP growth and the reaction of the stock markets to say that it wasn’t such a disaster after all, was it? Where is the economic collapse so many forecast?
Of course, we all like reassurance that all in the world is well but the reality is we are living in a phony war. The armies are massing but little engagement has taken place yet. The initial shots have been fired. The British pound dropped 10-20% against most currencies, notably the U.S. dollar and the euro. Japan sent an uncharacteristically strongly worded 15-page memo to the British government warning them of the consequences should negotiations lead to Britain leaving the single market. Jean-Claude Juncker, president of the European Commission with a long history of bitter antagonism towards the U.K., has uttered countless dire warnings as to life for the U.K. post-Brexit. But so far, in spite of these initial salvos, little has changed.
At some point, probably later this year or maybe early next, the U.K. will invoke article 50 formally announcing its intention to leave and then negotiations will start in earnest. Britain’s leave campaign-supporting Brexit Minister, David David, has talked airily of a fast exit saying Britain can be “nimble, fast and responsive” in establishing a fresh free trade accord with Europe. But the only case of a country leaving the E.U. was Greenland in 1982, the main area of negotiation between Greenland and the Union was over fishing rights, and it still took them three years to reach an agreement.
After 43 years of membership over which time the U.K. and Europe’s supply chains, cross border investment, laws and political institutions have become deeply embedded and mutually integrated, it could take five to 10 years to unwind. The Canada-E.U. trade deal negotiation was launched in 2007 and nine years later that agreement has yet to take effect.
Some are questioning whether Britain has the slightest hope of achieving a deal within the two-year time frame specified after the vote and, if not, what will happen after? Nick Clegg, the U.K.’s former deputy prime minister, has written a Brexit Challenge paper in an attempt to get politicians to focus on the realities of the situation. He feels that unless the deadline can be extended, or an interim arrangement can be put in place, there will be a hiatus between the point at which the U.K. formally leaves the E.U. and the point at which an E.U. Free Trade agreement comes into force. In these circumstances, the U.K. would have to rely solely on its basic schedule of commitments as agreed in the World Trade Organization.
This would leave the U.K. in a dangerous position. The country would face, among other things, immediate tariffs on its exports to the E.U., bureaucratic customs checks and loss of pass-porting rights for services. Some politicians compare it to falling off the edge of a cliff.
His solution is the U.K. and E.U. need to agree to an interim trade deal that can apply when the Article 50 time limit expires. Clegg suggest the interim deal might be based on the EEA/Norway approach, allowing the UK to preserve membership in the E.U. Single Market while allowing Britain to strike its own trade deals outside the E.U. Customs Union.
Junker would likely oppose that, as he would any amicable agreement with the U.K., but other members of the E.U. commission and heads of state may see a logic in trying to maintain a degree of the status quo. Even the British electorate that narrowly voted to leave largely out of a desire to see an end to immigration may support such a halfway house temporarily. The EU has a history of muddling through. Clegg’s proposal does have some merit, a disorderly exit would be in no one’s interests.