Brexit: It Just Goes On And On

Milton Ezrati

Chief Economist

The hopes of early October have faded. A few weeks ago, Brexit negotiators, from both British and European, talked of having an agreement ready for EU leaders at their meeting in Brussels scheduled for October 17. Since each member would have to vote it up or down, it seemed like a perfect opportunity to begin the process. But it was not to be. Differences about the Irish border and the way the agreement will be enforced proved insurmountable, at least for now. Clearly, a resolution of this matter is going to take a long time, a lot longer than the March 2019 deadline for final separation, especially if the rumors are true and British Prime Minister Theresa May faces an insurrection within her own Conservative Party.

It speaks to how difficult this separation will be that the recent failed negotiations were just the beginning. Her Majesty’s government had hoped to negotiate both the divorce agreement and future trade relations in one package before the actual separation occurred. The government and most of British business wanted to secure a continuation of the common trade area, and the City of London, as well as the government, sought some arrangement that would privilege British finance within Europe. Finance is an inordinately large part of the British economy. But the union, pressured by France and the EU bureaucracy, insisted that things had to occur in two stages. First London and the EU would need to negotiate the terms of the divorce. Only then would the EU consider separate negotiations on trade and financial services. The talks that just failed to meet their deadline dealt with none of these more difficult matters. They were only about the divorce.

And even here, in this most preliminary step, talks foundered. Remarkably, they seemed to go well on the $50 billion divorce bill Britain will likely have to pay. Many expected trouble on this matter. Those in Britain more militantly disposed to separation had opposed this price tag. They will no doubt create tension in the present, almost evenly divided parliament, but the negotiators, on both sides, seemed to accept it. The big problem was Ireland. The Irish Republic is an EU member, and while the U.K. remains one, goods and services will pass freely between the two countries. That will change with separation, which all could accept, except that physical checkpoints at the border between the Republic and the U.K. province in Northern Ireland could cause trouble. The so-called Good Friday agreement that ended the IRA terror in Ireland and elsewhere rests in part on the free passage of people and goods at this border.

Nor can London accept proposals mooted in the negotiations that would allow for free traffic between the Republic and Northern Ireland but would establish checkpoints for other trade routes. Though seemingly an easy, if fudged solution, London could not accept an agreement that would effectively violate the U.K.’s constitutional integrity by dividing the country into two customs areas. The negotiators discussed compromises that would rid both entry areas of checkpoints by having the U.K. regulatory checks before moving goods to Northern Ireland and by conducting other customs and regulatory inspections at business premises instead of at border checkpoints. At this point, however, such fudges remain unacceptable.

In addition to this Irish question (variations of which have bedeviled British politics for just under 1,000 years), there was the enforcement issue. The EU negotiators can see no other arbiter other than the European Court of Justice (ECJ). Negotiators from the British side, cognizant of the resistance Brexit voters have to foreign impositions on British practice, rejected it as an authority for these purposes. A compromise from the EU side would have established an EU-U.K. panel that could refer matters to the ECJ but would not have to do so. Even though such an arrangement would have lifted any forced referral to the ECJ, it nonetheless failed to satisfy the British negotiators. So, with an impasse on this matter as well as Ireland, the negotiators could bring nothing to the EU summit in Brussels on the 17th.

Given the differences within parties on both sides of the negotiations, it is doubtful that even an agreed document would have won endorsement from the governments involved. In Britain, Prime Minister May holds her government together by only the slimmest majority. She also faces considerable resistance within her Conservative Party, from both extreme Brexit advocates on one side and on the other those who would have preferred to remain in the EU. On all these issues, she and her government must walk a fine line. Her position suffers still more, because her government depends on the help from the small Democratic Unionist Party from Northern Ireland, making her extremely sensitive to any compromise concerning the Irish border. Europe has its own disagreements. Because Germany trades a great deal with Britain, Berlin is disposed to a more amicable approach, while France has pushed for even preliminary negotiations to stipulate what the EU will rule out of any future trade relations. Complicating matters still more, the anti-EU bias of Italy’s still-new government impels the remaining members, including France and Germany, to make exit more rather than less difficult.

In such a fraught environment, forecasting is all but impossible. Best guess at this juncture is that negotiations will go on until the last minute at the earliest. Britain has already talked about an extension, and that’s entirely possible. Indeed, discussion at this juncture indicates that London thinks the need will arise. It also seems probable that whatever emerges will include a great deal of fudging. After all, the compromises already put forward, both on the Irish border and enforcement are fudges of a sort that ignore the principle involved in favor of appearances. Such maneuvers, common enough in all such negotiations, also mean that the problems they paper over will reemerge in new forms even after the parties involved seem to have secured “agreements.” And only after all this is worked out will the larger and more complex trade negotiations begin. Brexit and all the anxiety that goes with it seem well set to go on long into the foreseeable future. And if Prime Minister May loses her job, this reality will remain true, though for a time considerable smoke will hide it.

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