August 31, 2018
Guest post by Georges Ugeux, founder of Galileo Global Advisors and lecturer at Columbia University
The last few days, I noticed in London an increased fever about the possibility of Brexit negotiations ending up without an agreed deal between the United Kingdom and the European Union.
What is happening in London?
Since the origin of the rumour comes from London, let us see what is happening in the UK first. Since the cabinet agreed on a Brexit strategy at Chequers, followed by the government’s White Paper on the future UK-EU relationship, two Brexiteers left the cabinet. There should, therefore, be more consensus at Downing Street on the future relationship with the EU. Indeed, the cabinet clarified it aspires a free trade area for goods between the EU and UK: aiming to avoid friction at the border, “protect jobs and livelihoods”, and ensure Ireland is not split between the UK and EU.
Despite this reassuring statement, the various UK regulators are insisting on the preparation of a scenario in which the EU and UK don’t reach a deal. In particular, the Chancellor of the Exchequer, Hammond, focusing on the future of financial services, took several initiatives to ensure that financial institutions established in the UK were taking adequate precautions ensuring the continuity of their businesses and contractual commitments in case of a no-deal situation. Also, Bank of England governor Mark Carney is openly concerned that that risk of a no-deal is “uncomfortably high” and urges EU and UK negotiators to do everything to avoid this.
It is those initiatives that were – wrongly – criticized by the British media as undermining Britain’s negotiating position. On the contrary, the Chancellor’s initiatives have strengthened the hand of the UK by explicitly ruling out the option of a no-deal that would undermine the UK, including the City of London. The UK government is right in being clear: March 2019 is not that far away.
What is happening in Brussels?
It is unclear whether the EU has undertaken an exhausting analysis of the impact of a no-deal on the Union. When Michel Barnier, exasperated by those rumours, states the EU will not participate in the blame game over a no-deal. I do see a blame game starting against the EU in case of a no deal…The EU will not be impressed by a blame game and everyone should understand that.”Meanwhile he is slow in progressing towards clarity on the EU position vis-à-vis the UK’s proposals.
The failure of a negotiation is always due to both parties. The UK and the EU have been playing different games. But while the UK was often undecided and assertive, the EU chief negotiator has played the passive-aggressive negotiation tactic, knowing perfectly that it could derail the deal.
Those of us who followed Brussels handling of Brexit, are far from putting the blame only on the UK. Since Brexit is first and foremost a political challenge, the role of the negotiators was bound to be a search for a liveable and constructive solution on both sides. The insults that came during the referendum campaign from Brussels are there to remind us that, as in any divorce, the one who is left is not the sole guilty party.
I remain particularly concerned by the position taken by France, influencing Michel Barnier, that seems to aim at taking advantage of Brexit in the self-interest of France. In the benefit of the EU and its member states, Brussels should fight for a deal that works for both parties.
The reputation of the European Union and the United Kingdom is threatened by a no-deal
Let’s have no illusions. A failure to produce a reasonable and practical solution to their divorce would have a shattering impact on the reputation of a continent who aspires at playing a role on the world scene. It is difficult to understand why, after 18 months of negotiation, negotiators are still pre-occupied by a no-deal option instead of focussing on finding common grounds.
It would have major political consequences for the 27 other EU societies and their economies. Europe would lose credibility in the international arena. It would also create divergence within the EU among the more dogmatic countries and those with a pragmatic approach.
A no-deal would have major financial consequences for the EU: the EU will be deprived of the UK budgetary contribution, while the UK will no longer benefit from the extensive financial contributions from the EU budget and the key agencies, such as the European Investment Bank. With London cut off from the EU, Europe will shrink its role in the world’s capital markets. Indeed, UK Chancellor Hammond recently warned that leaving the EU without a deal would blow a £80bn hole in the UK’s public finances.
A no deal has major social consequences as well: whether it is the UK and EU citizens living across the Channel, or the migrant policy that creates a common challenge, we are talking about organizing another type of migration, inside the European continent.
There has never been a winner in Brexit. There should not be two losers. Will the European leadership be able to put its immediate and political interests aside, to work out a solution within its continent? The trade treaties signed with Japan and Canada were also complicated, and are now in place.
The blame game for a no-deal scenario is a waste of time. It is time to solemnly accept on both sides of the North Sea, that no-deal is a no-starter. Let’s act responsibly.