Time is running out for a deal in December. Brexit talks are currently stalled on the first phase of negotiations, covering EU citizens’ rights, the money, and the Irish border. Of those, the border question is proving to be the most intractable, with a near-agreement collapsing at the last minute after Theresa May’s allies in the Democratic Unionist Party (DUP) deemed the text of the deal unacceptable because it implied Northern Ireland would stay in the EU Single Market.
Meanwhile, the Article 50 clock keeps ticking down. European Council President Donald Tusk has tweeted: “It is now getting very tight but agreement at December [European Council] is still possible.” If the deadline is missed, then that will leave even less time to get a final deal by March 2019, when the UK is set to leave the bloc.
If anything, phase two of the talks will be even more fraught with difficulty. During the second phase, the UK and EU will need to set out the framework for their future trading relationship, as well as agree on the terms of the transition period. It’s unlikely a trade deal will actually be concluded when Britain leaves the EU in 2019, but the outline needs to at least be in place, and business has warned that a transitional deal will need to be agreed in order to avoid a disorderly Brexit. The chances of talks collapsing have been put by some at over 50%.
What do our readers think? We had a comment sent in from Kata, who points out that a “no deal” scenario would also seriously damage the EU-27’s economy, resulting in the “loss of revenue, loss of businesses, and the loss of jobs”. Is Kata right? Who would lose the most if Brexit talks failed, the British or the EU-27?
To get a response we spoke to Patrick Minford, Professor of Applied Economics at Cardiff Business School and a former economic adviser to Margaret Thatcher. Who does he think stands to lose the most if talks collapse?
Well, the EU-27 would lose. The British wouldn’t actually be affected. We’ve looked at this through the lens of our trade and macro models. The main thing is the trade aspect; the UK wants to get to free trade because that’s the main thing that the EU stops it doing. It puts tariff and non-tariff barriers between us and the rest of the world, and the main object from the trade point of view in leaving the EU is to get rid of those barriers. That brings a big gain, either doing it through free trade agreements or getting rid of barriers unilaterally.
If the EU erects tariff barriers between us, which obviously we don’t want (and we don’t think the EU wants it either), that will mean that the EU producers will have to sell in our market against competition from the whole world at world prices, and to sell us anything will basically have to lower their prices to world prices. So, if the EU puts a tariff on what they sell us, or we are forced to put a tariff on them by the fact of no trade deal, they will simply get less money. And if the EU puts a tariff on our exporters, then our exporters anyway are going to have to sell at world prices to compete with competition from around the world, and they will have to charge EU consumers more. So, again, EU consumers will pay. Basically, no trade deal means that EU consumers and producers pay the tariff to the EU.
To get another perspective, we also spoke to Elmar Brok, a senior German Member of the European Parliament and part of the group of MEPs who met with Jean-Claude Juncker ahead of his lunch with Theresa May. What did he think?
We would all lose. Even if we have a Brexit on best terms, we will all lose. However, due to the different size of the European domestic market compared to Britain’s, the British side clearly has much more to lose not only in peripheral regions like Scotland and Northern Ireland but in total. Furthermore, there would be less investment [in the British economy] but it would take two three years to notice this, although you can already see it happening if you look at certain economic data. So, I think it would be in the British interests to come to a sensible solution and not listen to the hardliners so much.
Finally, we put Kata’s comment to Hans-Olaf Henkel, a German MEP with the Liberal Conservative Reformers, an economically liberal party that splintered off from the Alternative for Germany (AfD). What would he say?
For me, Brexit is a lose-lose situation. The British are losing from this, you can see that happening already in the economic data. In the past, Great Britain was far ahead of the Eurozone [in terms of growth], today it is at the bottom of the rankings. The British now have inflation of 3% and still have to keep interest rates low. The first jobs are already leaving the UK.
But the Europeans will also lose. We are losing the last nation with common sense, and we need the British in Europe. Because the British always stood up for freedom, personal responsibility and autonomy. That was an important corrective to the people here in Brussels, who constantly want more centralisation, more bureaucracy and more harmonisation. That’s why I’ve started a new initiative with other German business personalities and it’s called a “New Deal for Britain”. It is aimed at Brussels and calls on Brussels to make a new offer to the British, an offer that could prevent the British from actually going through with Brexit.
Who would lose the most if Brexit talks failed? Does Britain stand to lose the most, or would the economies of the EU-27 be more affected? Would it be equally disastrous for all sides? Let us know your thoughts and comments in the form below and we’ll take them to policymakers and experts for their reactions!