Dancing on the Brexit Cliff Edge

Wide Front against Chequers

But it is precisely this political declaration that is the second major obstacle. For a long time, the British government has been nego­tiating mainly with itself about the future relationship, while the EU-27 have stood firm on a clear position: The UK should be integrated into the EU’s existing relations with third countries, i.e., either participate in the Internal Market with all rights and obligations, as Norway does, as part of the European Economic Area, or conclude a deepened free trade agreement with the EU as a third country, such as Canada. The latter would allow tariff-free trade but result in significant cuts in mar­ket access for workers and (financial) ser­vices, and exclude the UK from the EU’s common regulatory area – and thus also trigger the backstop for Northern Ireland.

In July 2018 Theresa May, under intense political pressure, gathered her government behind the strategy named after the loca­tion of the Chequers plan meeting. Accord­ing to the strategy, the UK wants to keep a “common rule book” with the EU’s Internal Market for goods. The country is also to re­main in the Customs Union in the medium term until new technical possibilities for a solution have been found. In contrast, May’s strategy proposes removing the remaining freedoms for services, capital, people, and other EU policy areas from Britain. The EU rules should also not apply to purely domestic products either, and the British Parliament would retain a principal veto right (but with consequences if the UK decides to deviate from EU rules). This strat­egy is being sold to the EU-27 by May as the only acceptable solution in the UK.

The Chequers plan is being rejected by the hard Brexiteers in the UK as well as by the EU-27. EU opponents such as con­servative MPs Jacob Rees-Moog and Boris Johnson see Chequers as a plan to bind the UK in the long term to a “vassal status” vis-à-vis the EU in which it (partially) accepts EU legislation without having a say. EU negotiator Michel Barnier and all national governments of the EU-27, on the other hand, have made it clear that although parts of the Chequers plan are a good basis for negotiations, the central proposal – par­tial participation in the Internal Market without legally binding enforcement – violates the EU’s central red lines. This would divide the four freedoms, endanger the In­ternal Market, and at the same time allow British companies to gain unfair competi­tive advantages over their EU competitors.

In short, to cushion the backstop in North­ern Ireland, the political declaration on the future relationship between the EU and Britain should be as specific as possible. But the more detailed the statement be­comes, the more the EU will insist on its red lines on the integrity of the Internal Market and demand more concessions from the British. This, in turn, increases the risk of the withdrawal agreement failing in the British Parliament.

Scenario 1: Orderly Brexit

The scenario that the negotiators on both sides are working towards is an orderly Brexit on 29 March 2019. This requires the EU-27 and the UK to have agreed by then the withdrawal agreement and the political declaration for future cooperation. From the standpoint of the EU-27, this has to in­clude a legally binding backstop for Northern Ireland, the remaining separation modalities, and the transition. In order to have sufficient time for parliamentary approval and the implementation processes, an agree­ment in autumn 2018 is necessary. Further­more, the British Parliament has set a dead­line of 21 January 2019 for its government to conclude the withdrawal negotiations. Otherwise, the government will have to obtain approval for a new mandate from Parliament – which is likely to be difficult, given the majority situation outlined above.

If an agreement between the British gov­ern­ment and the EU-27 is reached, a num­ber of steps will still have to be taken. The most critical step is the vote in the British House of Commons. Looking at May’s recent speeches, the strategy of the May govern­ment to get its own parliamentarians to vote in favour is already taking shape: To give them the choice of either accepting the agree­ment May negotiated with the EU, or take personal political responsibility for the consequences of a “no deal” scenario and – addressed particularly at the Brexiteers – ac­cepting the risk that new elections, a Labour government, and a second referendum could follow. If May succeeds in this, final approval is necessary on the European side from the European Parliament (EP) and the European Council. The EP has also set clear conditions for the Brexit negotiations – in particular the protection of civil rights and the open bor­der with Northern Ireland. However, since this is largely congruent with the prior­ities adopted by the EU-27, simultaneous approval by the member states and rejec­tion by the EP can be regarded as unlikely.

The UK could then leave the EU on 29 March next year in an orderly manner and remain in the Internal Market and Customs Union until at least the end of 2020 as part of the transition phase. Nevertheless, even an orderly Brexit does not mean the end of Brexit uncertainty. Because the political declaration can only outline future rela­tions – legally non-binding – these have to be negotiated during the transitional period, with another cliff edge looming in January 2021.

Scenario 2: Extension

If the House of Commons rejects the out­come of the negotiations, or if the negotiators are unable to reach an agreement, a politically and economically very volatile situation threatens to emerge. A govern­ment crisis in London is then almost inevi­table, as are new negotiations among the EU-27 on how to proceed. A fall of Theresa May and either a new Prime Minister from the Conservative Party or new elections are the logical domestic consequences.

The simplest way legally to defuse the situation between the EU-27 and the UK during this intra-British crisis would be to extend the negotiations in accordance with Article 50 TEU. This allows the parties to extend the negotiation period through a unanimous decision of the European Coun­cil of 27 in agreement with the UK. Legally, there are no limits to how long or how often the deadline can be extended. For example, an extension to the end of 2020, i.e., the currently planned transition phase, is conceivable. During the extended nego­tiation period, the UK would continue to be an EU member with all rights and obligations. In this context, it would also have to hold EP elections next May, which could easily turn into a vote on the Brexit process.

What is most critical, however, is that the supporters of Brexit have already legally anchored the exit date as part of the parlia­mentary process on Brexit. The British gov­ernment can therefore only request or agree to an extension if it has obtained par­liamentary approval. Since some of the sup­porters of Brexit within the UK Cabinet, such as Michael Gove, only support the gov­ernment’s current strategy because they want to “cross the line”, such an extension would be at least as difficult to get through as a negotiated result.

Scenario 3: “Managed No Deal”

If there is neither agreement nor an exten­sion of the deadline, the UK will leave the EU without any settlement, by automatic operation of law. In trade, this leaves WTO rules as a fallback, including the obligatory reintroduction of tariffs, while other areas – including citizen’s rights, the EU budget, justice and home affairs cooperation, and participation in EU regulatory schemes – have no such fallback options. The eco­nomic, political, and personal consequences would be very grave for the UK, but (to a lesser extent) also the EU-27.

The British government is therefore working in its preparations for non-agree­ment on the assumption that it can at least, to some extent, mitigate these consequences through a series of individual agreements – with the EU as a whole or bilaterally with its member states. In the spirit of such a “managed no deal”, the British government has already written to all 27 EU mem­ber states, for example to negotiate bilat­er­ally about access to their airspace for British airlines in case of no deal. Representatives of the citizens concerned are also constantly calling for their rights to be safeguarded by means of a separate individual agreement, even if the overall talks fail.

The conditions for a “managed no deal” are, however, extremely poor: a volatile po­litical environment in the UK, a negotiating situation in which negotiations conducted for two years would have failed, a potential withholding of British budget payments to the EU, a European Parliament in the mid­dle of an election campaign, and an enor­mous flood of areas to be regulated give rise to doubts that amicable management with­out a withdrawal agreement is possible in the short term.

Scenario 4: “Disruptive No Deal”

The transition to the most negative sce­nario – a disruptive Brexit without any com­mon rules – is therefore fluid. Legally, this remains the default option if there is no agree­ment: The UK leaves the EU with­out a transition phase, without any rules for EU citizens, and without any agree­ments for future cooperation.

However, even in this case, the adminis­trations on both sides should, and will, work to avoid complete chaos. The EU Com­mission’s “Brexit Preparedness” communications therefore assume that, at least in the short term, only unilateral measures by both sides are able to limit the worst con­sequences. But even if planes still fly across the English Channel, the reintroduction of tariffs and the abrupt expulsion of the EU’s second largest economy from the EU’s single market alone will lead to consider­able disruptions.

Even then, it will be necessary to maintain dialogue. Britain remains one of the EU’s most important neighbours in any Brexit scenario. Even if the cooperation of both sides would be impaired for years if no agreement were reached, in the medium and long terms, both sides will have to re­turn to the negotiating table – even, and especially, after a chaotic Brexit – in order to pick up the pieces and make future cooperation possible.

Fringe Scenario: Second Referendum

One conceivable outcome of a failure of the negotiations – especially in the event of a rejection of the withdrawal agreement in the House of Commons negotiations – is a second referendum. In principle, European politicians such as the President of the Euro­pean Council, Donald Tusk, and French President Emmanuel Macron have again and again kept the possibility open for Brit­ain to remain in the EU. At least until Brexit is formally implemented next March, the prevailing legal opinion is that it is legally possible for the UK to remain in the EU.

Politically, however, a second referendum is a long way off. First, there has been no substantial change in opinion against Brexit in the UK. Apart from a few outliers, surveys since 2016 show across the board that the country is still largely divided 50-50 on the question of EU membership, with only a marginal advantage for remaining.

Second, a second referendum requires a parliamentary vote, which is hardly likely to take place, given the current majority situation. Added to this is the time factor – the parliamentary procedure for the 2016 referendum took more than six months. A second referendum would therefore require new elections in the UK, the electoral vic­tory of a party or coalition in favour of a second referendum, and, finally, an exten­sion of Article 50 to hold that referendum.

This chain of events has become possible since Labour, at its party conference in Sep­tember 2018, voted in principle for a sec­ond referendum as a fallback option. At the same time, the Labour leadership has sent conflicting signals whether “remain” should actually be on offer in such a referendum, or whether it should just be between no deal and a negotiated result of Brexit.

In short: A second referendum could not be organised by March 2019 and would only be possible after a political crisis in the UK, new elections, a Labour election vic­tory, and a full commitment to revisiting the referendum.