A “no deal” about the future relationship is still in the room. Nobody would rule him out at the start of another “crucial” week of negotiations on a future EU-UK trade deal. EU officials are preparing for either “breakthrough” or “breakdown” of the talks. In order to increase the pressure on a deal, there are more and more warnings of the impending chaos. Ireland’s Prime Minister Micheál Martin urged that breaking off negotiations would have “catastrophic consequences for all concerned”.
The Bank of England’s prediction that the economic price of an unregulated Brexit would be many times higher than the costs of the Corona crisis in the long term caused a stir. Federal Reserve Chairman Andrew Bailey fears a slump in trade – and he wonders how the EU and the UK can approach each other again if they fail. “The real economy will take a long time to adapt to changes in openness and trade profile,” said Bailey. “No doubt it would be better to have a commercial contract.”
The virus forced the island into a severe recession in the second quarter, with GDP falling 20 percentage points. Despite the summer recovery, in view of the spreading second wave, the Bank of England is currently assuming that economic output will remain 1.75 percentage points below the pre-crisis scenario until the end of 2023. In September, the London School of Economics (LSE) assessed the long-term damage of a Brexit without a trade agreement two to three times higher than the consequences of the Covid 19 pandemic: eight percent less growth over a decade.
UK GDP (quarterly, in%)
The head of the central bank received opposition from the Chancellor of the Conservative government of Prime Minister Boris Johnson. The economic damage of the corona pandemic far exceeded that of a “hard” Brexit, countered Rishi Sunak in a BBC interview earlier this week. A “deal” would be preferable, he asserted, but Britain’s economy will continue to thrive – one way or another.
How likely is a last minute agreement?
The only hurdle to a deal is the increasingly isolated Prime Minister Johnson, tweeted Will Hutton, an economist and publicist critical of the government. With the departure of Chief Advisor Dominic Cummings from Downing Street, another Brexit hardliner left the government. But whether that affects Johnson’s willingness to compromise remains a mystery. Some rapprochement in the negotiations suggests that perhaps in the next few days the heads of state and government could stand to remove any remaining obstacles. EU Commission chief Ursula von der Leyen spoke of progress and more movement “on important issues”. The teams of experts worked day and night on the text of the contract.
What signals is the EU negotiator sending?
It seems that the EU side is leaving no stone unturned. She doesn’t want to be accused of anything. A Covid case in the warehouse of EU chief negotiator Michel Barnier caused delays. At the beginning of the negotiations this week, Barnier tweeted that there were “fundamental differences of opinion”, but that they were still working hard on an agreement via video link. In any case, a draft of the trade agreement is largely in place because many detailed questions have actually been clarified. But as long as this does not also apply to the important points of contention, the present 600-page draft contract is not worth much.
What are the remaining issues?
One of the unanswered questions is how to prevent British products from being heavily subsidized from next January and being exported to the EU internal market at dumping prices. The British side has so far been unwilling to adhere to the EU’s state aid rules. London would also have to maintain the current EU environmental, climate and health and safety regulations if it wants to keep duty-free access to the EU internal market in return. The EU is offering London a triple zero solution: no tariffs, no quotas, no dumping. In the event that there are violations, it must be clarified which authority checks the rules of the game and distributes yellow or red cards. “I believe there is a compromise that can lead to an arbitration mechanism,” said Irish Prime Minister Martin.
How far are the positions in the fisheries dispute apart?
Fishing rights are less fundamental and not of great economic importance. Nevertheless, they are symbolically highly charged because, for example, all of French herring comes from British waters. How much fish the EU trawlers are still allowed to catch in British territorial waters is apparently the greatest gap between the two sides. Ireland’s Prime Minister Martin is still cautiously optimistic. “A proposal should be developed here in the next few days,” he said.
Why is there no result shortly before almost?
London must actually be eager for a free trade agreement with the EU, because a hard break would be economically more painful in the next few years than a regulated connection with a limited trade agreement. The ruling conservatives do not want to be persuaded into fiscal and economic policy. Ultimately, the pursuit of a clear break, a liberation from the Brussels “dictate”, and the regaining of unrestricted national sovereignty stood at the beginning of the Brexit dynamic.
How does the change of power in Washington affect the talks?
Johnson actually wanted a quick trade deal with Donald Trump’s administration. For the hardliners, an agreement with the US has always been the gold standard with which they justified Brexit. In the meantime, London has signed free trade agreements with Canada and Japan. The new US government, however, is sending negative signals. She believes Brexit is the wrong way to go, which also endangers peace on the Irish island. After all, the President-elect is of Irish descent. In the UK it is now said that Johnson should at least conclude a deal with the EU in order not to start relations with Biden “at war” from the outset.
Who is stopping the clock?
The parliaments of the EU member states and the United Kingdom as well as the European Parliament would have to ratify an agreement by December 31, 2020. The time is already running out just for the translation of the agreement into the 24 official EU languages before the last regular meeting of the European representatives in mid-December. Presumably a special session would be called. The English version could also be used as the basis for the ratification process. France and Italy are said to be resisting this.
What happens without an agreement?
In the event of a hard Brexit without a trade deal, the UK would be treated like other third countries and would have to deal with tariffs, trade and travel restrictions. The rules of the World Trade Organization (WTO) apply, i.e. different tariffs on different groups of goods. But even a new trade agreement would require new procedures. In that case, however, the chaos should be clearer and it would be easier to bridge a transition with a deadline for adjustments.
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