Great Britain & EU need a fresh start

The risk of tripping has been around for a while. The EU could theoretically react to the mechanisms provided for in the Withdrawal Agreement or choose the nuclear option by denouncing the EU-UK Trade and Cooperation Agreement (TCA). The notice period is one year. This would mean the introduction of tariffs between the UK and the EU from early 2023.

This would undoubtedly create a significant amount of friction. It is trivially true that the smaller country has more to lose than the larger country, but this bird’s eye view of the macro obscures the fact that there is a lot of friction on the EU side as well.

If the EU cancels the TCA, the fishing rights granted to EU members, including France, will also be canceled. The EU has a very large trade surplus with the UK. The imposition of tariffs would therefore be a tax on EU exports and a flow of funds from the EU to the UK.

Not an easy way back

I find it difficult to side with either party in this dispute. Britain’s former Prime Minister Theresa May negotiated in good faith but hit an impasse as her parliament did not support her strategy. Prime Minister Boris Johnson found the impasse by accepting the current arrangements for Northern Ireland with the full expectation that they would not be tenable.

The EU has made a huge mistake in allying itself with the backbenchers of Parliament against the May government. Johnson is the result of a political miscalculation by the EU.

The EU has abused the possibility of a technical extension of the Brexit deadline for political purposes in the hope of extending the process beyond a hypothetical second referendum. That was when there was no going back in EU-UK relations.

Now there is no easy going back. I think the least bad outcome would be to end both agreements – the Northern Ireland Protocol and the TCA.

Then we should let things rest for a few years and, after Johnson’s term ends and a new commission unrelated to this debacle, start all over again – whenever that is.

Implement Brexit

Johnson obviously wants to run again on the subject of Brexit in the next elections. That makes sense too. In 2019, the focus was on completing Brexit. In 2024 it will be a matter of creating Brexit. The Labor opposition is divided over Brexit and is determined to continue. If the EU cancels the TCA, it would offer Johnson the best possible campaign platform.

The EU needs to be aware that by canceling the TCA, the UK will choose a more disruptive regulatory environment for goods and services. And she should prepare for a fish debate in the European Council. There will be losers demanding compensation.

For this reason I am not ruling out a compromise. There are interests at stake that are currently not being heard in the briefing wars. Around this time last year there was extensive information on both sides that a no-deal Brexit was likely.

Dismantling border controls – a compromise attempt?

Then they agreed on a deal at the last minute. Back then, however, the gap was easier to bridge than it is today. There are no obvious technical solutions to the Northern Ireland problem in sight.

The EU’s recent proposal to dismantle border controls between the UK and Northern Ireland was, in my opinion, a real compromise. However, the UK Government believes this will make little difference on the ground. As for the content of the debate, we are going in circles. There is not much that can be done to keep a region in two separate customs unions.

Triggering Article 16 is therefore a plausible scenario. The same applies to a termination of the TCA by the EU. As bad as that sounds, it may not be the worst result.

Wolfgang Münchau is the director of www.eurointelligence.com

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