No-Deal Brexit Looks Likelier Than Ever After the Pandemic
The U.K. and EU still find themselves far apart on crucial issues—with time running out.
Talks between Britain and the European Union over their future relationship are going absolutely nowhere, with the EU’s chief negotiator saying Friday that the two sides made “no substantial progress” in their latest round of discussions and lambasting what he called Britain’s “backtracking.”
“In all areas, the U.K. continues to backtrack on the commitments it has undertaken,” said Michel Barnier, Brussels’s point man for the talks, at a press conference.
Almost four years after the United Kingdom voted to leave the EU, and nearly five months after it finally did, Britain now looks closer than ever to crashing out with no deal—an outcome actually made more likely by the COVID-19 pandemic. The pandemic has disrupted an already abbreviated schedule for talks, distracted political leaders, eroded trust in the British government—giving it even less political leeway to ask for a much-needed extension—and created an economic upheaval that many pro-Brexit people figure will mask any pain from the departure, making a no-deal exit seem relatively less painful.
Warnings that Britain needs to prepare for a future without any clearly defined trade relationship with Europe are now starting to come fast and furious. Nissan, the big automaker, this week warned that its huge plant in Sunderland probably won’t make economic sense if cars it makes there face import tariffs on the continent. The head of the Bank of England warned banks to start taking the prospect of a no-deal departure more seriously. The British pound is weakening as investors start to weigh the risk of a no-deal exit by the end of the year.
The acrimonious end to the latest round of talks, which concluded Friday, only underscores how far off a deal remains—with time running out to even find common ground, let alone get a final trade agreement ratified.
“We are stuck in an impasse here. The positions of the two sides are far apart and for the moment irreconcilable,” said Anand Menon, the director of the U.K. in a Changing Europe, a research outfit focused on U.K.-EU relations.
If the two sides can’t reach a deal, the economic costs could be significant. Menon’s think tank estimated that departing without a new trade agreement could lead to a reduction of between 3 percent and 8 percent of British GDP over the next decade; services, which make up the bulk of the British economy, would be hammered even if a deal is reached.
And unlike the pandemic, whose economic damage is deep but short-lived, perhaps encouraging some British officials to risk bailing out now while supply chains and firms are already in disarray, “the impacts of Brexit will keep on being felt, perhaps for years,” Menon said.
There are several obstacles. One is simply the gulf between what the EU has said must be present in any future agreement with the U.K. and what Britain is willing to accept. Europe insists, for instance, on “level playing field” provisions to avoid unfair competition from a big and nearby economy, as well as a continuation of Europe-wide fisheries policy that would ensure EU access to British waters; for a Britain that sold Brexit as a way to “take back control” from Brussels, neither is acceptable. The top U.K. negotiator, David Frost, laid into Europe and its demands in an icy letter last month.
For the EU, the frustration is that Britain did seem to agree to many of those demands when it signed the political declaration last year outlining mutual commitments on future cooperation in areas like trade, state aid, fishing, and security. Now, British negotiators are walking that back, Barnier again charged. It’s essentially a continuation of British Prime Minister Boris Johnson’s famous “cakeism”—wanting to have the cake and eat it too, by enjoying most of the benefits of closer ties with Europe while accepting few of the obligations.
“We cannot accept this backtracking from the political declaration,” Barnier said, calling it “the only valid reference” for talks between the two sides.
That retreat doesn’t just create tensions over the areas in question, Menon said, but creates a lack of trust that bleeds into all other areas of the talks.
“There is no doubt that the government has been willing to revisit the things it signed up to, so the EU no longer trusts it,” he said. “It has an impact on other areas of the talks: The EU says, ‘If you signed up to that last year, and now you say you’re not going to do it, how can we take you on your word for your other future commitments?’”
The whole dispute is further complicated by the impossibly tight deadline the two sides have to hash out and formally agree on all the aspects of their future relationship, from trade and tariffs to agricultural inspections to cross-border police and judicial cooperation. The so-called transition period, where EU rules still apply, ends at the end of this year.
The two sides could extend that transition—but only if they agree to do so by the end of June. Despite Barnier’s reiterated offer of a one- or two-year extension to win more time to reach a final agreement, the British government has repeatedly ruled out the idea of any extension and even outlawed the prospect of one through legislation. And any wiggle room to backtrack on that and seek an extension is vanishing as the government comes in for criticism of its handling of the pandemic.
“I don’t see that we’re going to get an extension in June. That would be a U-turn too far for the U.K. government,” said David Henig, the director of the U.K. Trade Policy Project at the European Centre for International Political Economy.
But if there’s no extension, that makes a no-deal departure even more likely. Experts like Henig figure that the future agreement needs to be completed by mid-October to allow time for ratification by EU member states; Barnier himself said a deal must essentially be reached by the end of October at the very latest. That leaves just five months to bridge a fundamental chasm, soured further by a lack of trust on both sides.
“Normally, talks like this take place over several years. This concentrated time scale accentuates the lack of trust because it doesn’t allow the space and time for tradeoffs,” Henig said.
The two sides have a few near-term opportunities to get the talks back on track. Later this month, Johnson will meet with Ursula von der Leyen, the president of the European Commission. Barnier said he hoped to restart face-to-face trade negotiations next month; the COVID-19 pandemic has turned the talks so far into virtual affairs, making it even harder to bridge the divide. But experts see little prospect for any big breakthrough unless political leaders get directly involved—but they have spent months distracted by the pandemic and haven’t had the bandwidth to engage in the discussions.
“You need engagement from political principals, but they have better things to be doing,” Menon said. “They are needed to unlock the issues that are causing problems,” he added, noting that the EU can’t budge much on the question of fisheries until leaders of fishing states, like French President Emmanuel Macron, get involved. Likewise, to get over the impasse of Britain’s adherence to level playing field rules, Johnson needs to get involved. Most importantly, making trade-offs across various issues to reach agreement—say, trading some fisheries access for continued British financial services in Europe—requires high-level involvement.
But the big question ultimately remains whether Johnson, who delivered the Brexit he promised, is willing to accept the risks of a no-deal departure—as many of his advisors seem happy to do—or if he will seek to make some compromises to ensure some trade and financial security for a Britain already hard-hit by the pandemic.
“Johnson probably wants a deal, but the people around him don’t want anything to do with the EU,” Henig said. “So does he follow those people or decide he needs a deal?”