What are the chances that the Brexit talks break down?

29 March 2020

In the last few weeks, leading Conservative Brexiters have been talking up the possibility of walking away with no deal. Theresa May herself said that “no deal is better than a bad deal.” This is not true, and it is good that Theresa May’s letter to Donald Tusk struck a more constructive tone, praising the EU’s achievements. Leaving the EU with no deal would mean tariffs on trade; legal chaos, with every British company selling to the EU unsure if they are doing so legally; and Britain’s alliances with other European countries in ruins.

But there is a decent chance that this outcome, not desired by anyone with a passing understanding of modern trade, comes to pass. The process for leaving the EU is simple, but hands power to the EU-27. Article 50 matters in two ways. First, the agreement only need cover the withdrawal arrangements — it simply needs to ‘take account’ of the future relationship, if any. Second, if no deal is struck in two years, the member-state departs — unless all 28 countries agree to extend the talks.

The article was written to make it possible to deal with an errant state that wanted to leave because the EU suspended voting rights, according to John Kerr, its author (and chairman of CER). But applied to Brexit it is a recipe for brinksmanship. The EU-27 know that Britain will feel the costs of a failure to strike a deal more than they will. The 27 have some specific things that they all want — the rights of their citizens who live in the UK to be secured, and the UK to pay for its EU commitments to the EU budget. So they have an interest in sticking together to ensure that these issues are sorted out first (with the UK agreeing to respect migrants’ rights and pay up). Only once that is agreed, the EU-27 say, will they move onto negotiating any transition arrangements and the future relationship. We can expect the EU-27 to suspend talks if the UK refuses to meet its terms. The first test of the negotiations for Theresa May — in fact, of her premiership — will be whether she can face down the radicals in her own party.

We do not know what the EU-27 will demand in return for agreeing to a transition deal. Such a deal is needed to prevent tariffs, customs controls and legal uncertainty before the ratification of a free trade agreement. The 27 have little interest in setting up new rules and institutions for the UK’s transition. The 27 may demand that the UK de facto remain in the single market or customs union, with EU law still in force, and free movement continuing, or for Britain to leave and apply for a free trade agreement from the outside.

Meanwhile, the “bold and ambitious” free trade agreement that Theresa May called for in her letter, including financial services, data and telecoms, is not far in scope from the current single market; yet May has made an end to free movement and the European Court of Justice’s supremacy her red lines. She will have to risk defenestration by the right if she is to deliver such a deal, since the price the 27 will demand for it will be high. No deal is still a big risk, despite May’s warmer tones now that the negotiations are about to begin.

John Springford is director of research at the Centre for European Reform.