Our Opinion: 2020

No-deal Brexit looms again

The chances of Britain leaving the EU without a trade deal continue to rise, with both sides agreeing that little progress had been made in the fourth round of trade talks. Michel Barnier, the EU’s chief negotiator, said that there had been no major changes on the main sticking points – those regarding fishing, the establishment of a level regulatory playing field, governance, and law enforcement and security matters – which Brussels consider the “most important”. Barnier also accused the UK of attempting to “backtrack” on parts of the Political Declaration on the future of the Irish border agreed by the two sides last year.

The EU insists that the UK agrees to follow a common regulatory framework after Brexit, but the UK rules that out, saying that has not been demanded in other countries’ trade deals with the EU. Fisheries policy also remains a stumbling block over fears the EU will attempt to assert the role of the European Court of Justice in any deal.

If Britain does leave without a deal, the consequences could be a serious strain for many British companies, at a time when many small and medium-sized firms are already fighting to keep their head above water through the coronavirus crisis. The idea of preparing for a chaotic change in EU trading relations in seven months is beyond the. Even larger industrial heavyweights such as BMW and Airbus, which have a sizeable presence in the UK, face the prospect of border disruption snarling up their highly efficient, just-in-time production lines.

The EU would suffer from a no-deal exit too. Growing fears over a messy departure have led a number of EU states to urge Brussels to take the shock of a hard Brexit into account in addition to the pandemic in its response to the bloc’s gravest postwar economic slump. Ireland and Belgium have said that they could be doubly hit by the UK’s no-deal departure from the EU, and complain that the current proposals for relief do not reflect this.

Those who criticise the UK’s government stance can not do a lot to make them offer additional concessions to Brussels, given that they have a parliamentary majority large enough to withstand any further Tory rebellions. A no-deal Brexit is looking increasingly likely. Still, those hoping for a softer Brexit may take comfort from the fact that trading on World Trade Organisation terms is a relationship with the EU that is likely to be short-lived. The EU has long been the UK’s most important trade partner, and the UK will have to arrange a closer relationship with Brussels at some point.

The coronavirus crisis may also make it easier for the government to press on with a no-deal Brexit. Many economists argue that a failure to agree a deal will mean that the economy’s shaky recovery from the coronavirus pandemic will be harder. But it would also mean that the cost of leaving without a deal will be obscured by the far more extensive damage wreaked by the virus. Maintaining trade links with Europe also seems less important at a time when people are arguing for the need to bring supply chains closer to home. Both the UK and the EU continue to insist that a deal is their preferred outcome, but the deadlocked talks and the limited time left mean the risk of no agreement is rising. Analysts at Eurasia Group now put the odds of that outcome at 55%.

19th June 2020