The prime minister implied when she spoke to the Confederation of British Industry yesterday that she wants to avoid the economy falling off a cliff after we quit the EU. But Downing Street refused to say whether this means Theresa May wants a transitional deal to bridge the period between our departure from the EU and the start of a new trade agreement with the bloc. No wonder. It’ll be hard to negotiate one.

In other words, the premier is still speaking in riddles – just as she has been since she started saying that “Brexit means Brexit”.

There’s a risk that the economy will fall off a cliff when we quit the EU. This is because we will only have two years to negotiate our exit once May triggers Article 50 – but it may take 5-10 years to agree a new trade deal. The gap between the two could be painful since the EU accounts for nearly half our trade. 

The prime minister is presumably anxious to avoid a cliff-edge so we don’t have a recession just before the 2020 general election. May might hope to avoid one by persuading our EU partners to negotiate a new trade deal in break-neck speed. But that seems delusional.

Otherwise, we will need a transitional deal. The snag is that it will be hard to negotiate a good one in the time we’ll have. Give the fact that talks will only gain momentum after next autumn’s German elections and that they may have to finish by end 2018 so the European Parliament (and maybe our own) has time to ratify them, there’ll barely be a good year of negotiating time.

One problem is that during this short time-frame we’ll also be negotiating the nuts and bolts of divorce such as how to divide up our share of the assets and liabilities. That won’t be trivial. The FT reports that the EU is looking for a divorce payment of up to €60 billion.

Keeping things simple

How will we then squeeze in talks about an interim deal? To have a chance of seeing eye to eye we’ll have to keep things simple. We just won’t have time to negotiate anything elaborate.

There is one deal we probably could do: keep arrangements just as they are for several years, with the exception that we would leave the European Commission, the Council of Ministers and the European Parliament. We’d keep full access to the single market, but at the price of maintaining free movement of people, following the bloc’s rules and paying into its budget. In a further blow to national pride, we would no longer have any vote on the rules we had to follow – hardly taking back control.

Perhaps May could sell this to the hard Brexiters in the Tory party if she could reassure them that it was a temporary deal with a clear conclusion. But given that she won’t be able to tell them what the end point is for 5-10 years, they will probably smell a rat. They will worry that the temporary arrangement will just go on and on – and that we might never really leave the EU.

The prime minister may, therefore, seek some alternative transitional deal – for example, to stay in the EU’s customs union but quit its single market. This would avoid a cliff edge for our manufacturers, but not for our services industries including the City of London. If May is prepared to pay this price – which will be high given the large and growing role services play in our trade – the EU may not insist on full free movement during the transition. 

But even this is not certain. One problem is that an interim deal may need approval by all the 27 other governments and their parliaments – not just a “qualified” majority of the governments and the European Parliament. If so, we’ll struggle to clinch such an arrangement deal because everybody will have a veto.

Even if unanimity isn’t required, our EU partners may be unwilling to negotiate a customs union-only interim deal. It doesn’t want to make the divorce too easy in case it encourages other countries to leave the bloc. 

The best explanation for May’s Delphic utterances is that she doesn’t know what she’s going to do. Neither option – tipping the economy off a cliff or cutting an interim deal that hard Brexiters will choke on – will be palatable. But, unless the premier can pull a rabbit out of her hat, she’ll eventually have to choose. That could be the defining moment of the Brexit process – and also potentially the point when the people decide they don’t want to quit the EU after all.

by Hugo Dixon | 22.11.2016

Hugo Dixon is co-founder of CommonGround as well as editor-in-chief of InFacts.





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