The growing danger of a no deal Brexit

Europe849x566.JPGCould the UK leave the European Union in March next year without a deal? For all the talk of ‘no deal being better than a bad deal’, the suggestion seems absurd. No deal would be a disaster for both sides in the negotiations. Britain would crash out of the EU without a transition period, plunging the whole continent into recession. Surely no rational government would go there? Surely sensible people will agree, in the end, to do sensible things, and there will be some great, last minute Euro-compromise?

Well, maybe. But governments do not always behave rationally.

Sometimes, as Barbara Tuchman’s The March of Folly reminds us, they pursue “wooden headed” policies that are against their best interests. Sometimes, they sleep walk into disaster.

Odds are shortening for ‘no deal’
A deal of some sort remains probable. An expert on the negotiations I spoke to recently put the odds against our crashing out at 7-2. But that is not too comforting and as we get nearer to 29 March 2019, without a clear UK negotiating position the EU can take seriously, the odds are shortening. Visiting Brussels last week, several non-British MEPs talked about the preparations their countries are making for a no deal Brexit, preparations that make the outcome more likely.

They also reminded me that there is a process, the sort of slow, multinational, multi-institutional process that put many British politicians off the EU in the first place, a process that makes a last minute deal less likely. Michel Barnier, the European Commission’s chief negotiator, is working to a mandate agreed by 27 member states. He cannot change his mandate and nor can individual member states: it is the mandate of the EU27, and it rules out the sort of pick-and-mix, have-your-cake-and-eat-it outcome that the government (and, it should be said, the Labour Party) wants.

This is why the UK is taking so long to agree a negotiating position. If we believe Barnier, we face unpalatable choices. At one end is a ‘clean’ but economically disastrous Brexit. At the other extreme, we could negotiate a soft, less economically damaging Brexit, but according to many Brexiteers this would leave the UK as a ‘vassal state’ (presumably in the sense that Norway is a vassal state).

The EU has other priorities
The UK government keeps challenging Barnier, hoping that the other member states will overrule the Commission, but all the evidence so far is that the Commission is doing their bidding. One reason member states have backed Barnier is that Brexit is far from their top priority. The EU faces big economic challenges, a migration crisis, populism. These are the things taking up time at Council meetings and in domestic debates about the EU, not Brexit.

Most EU politicians and Eurocrats feel sad about Brexit, but they are a bit cross too. As one German Christian Democrat told me, ‘Brexit is about emotions, but don’t forget there are emotions in Europe too’. A German Social Democrat MEP said: “Brexit is a rejection of the EU’s model. It sets a precedent and we don’t want it repeated.” This is about protecting the EU, not punishing the UK, but it will feel like punishment. What of the economic costs to the EU of no deal? “In EU history, politics has always counted for more than the economics.”

European Parliament could veto a deal that’s bad for the environment
Even if an agreement can be reached with the European Council, the European Parliament has to ratify it. There are European elections in May 2019 and the Parliament’s support for a deal certainly cannot be taken for granted. The European Parliament has always been the most consistently green of the European institutions. Should the UK government and the European Council cobble together an agreement that prioritises trade over the environment (eg one in which the UK agrees to regulatory alignment on tradable goods but is allowed to deviate from EU rules on habitats, birds, waste, air quality or water quality), there is a good chance the European Parliament will reject it.

Today, all eyes are on Chequers. Next week, we expect the Brexit white paper. Political predictions are a mug’s game, but I expect the prospects of a no deal Brexit to be talked down. Nevertheless, it remains a serious possibility, one that grows with every passing week. Business is increasingly clear that no deal will be economically catastrophic. Next week, in advance of the official publication of the white paper, Greener UK will issue a short report on the environmental consequences of crashing out of the EU without a deal. They are pretty eye-watering.

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