No-deal Brexit could be second shock for Europe in 2020

JUST as Europe gets over the peak of the novel coronavirus health crisis, a second major "shock" could be on the horizon: A new Brexit crisis is brewing between London and Brussels that could see talks collapse in May or June.

Late last week, European Union (EU) Trade Commissioner Phil Hogan warned the United Kingdom that it needs "to get on with the job" if there is to be a deal by the end of the year. With a new round of talks starting Monday and lasting till Friday, and not expected to make major progress, he said June's stock-take would be "critical".

By common consent of both sides, little progress has been made since negotiations for a new trade deal began in March. There remain big gaps in positions, such as the EU's demand for guarantees of fair competition (so-called "level playing field" provisions) that have been rejected by the UK, fisheries policy, guarantees on personal data protection, the UK's request for continued access to the EU police and border database, the Schengen Information System; and how any deal would be enforced.

While the EU needs to show more compromise too, it is the UK government that seems most inflexible in its approach. This includes ruling out - for now at least - the mere possibility of an extension to the transition period at the end of the year, even if Brussels asked for this to take some of the political heat out of the issue in the United Kingdom.

Opposition parties including the Liberal Democrats and the Scottish National Party have both called on Prime Minister Boris Johnson to extend the transition period beyond December. Moreover, shortly after becoming Labour leader last month, Keir Starmer said the UK should prolong talks beyond December if "necessary to do so".

Furthermore, poll after poll has shown the UK public supportive of an extension, given the pandemic situation. For instance, a survey from pollster Focaldata found 66 per cent of voters supporting a delay, including 48 per cent of Conservative voters and 45 per cent of Brexit Party supporters.

There are at least three interpretations of the Johnson team's dogmatic stance, which comes at a time when dozens of civil servants have been redeployed from Brexit duties to fighting fires elsewhere in government because of the pandemic. First, that it is tactical and designed to convince the EU that London does not mind if it gets a deal or not in the hope that a better deal then emerges on UK terms; and second, that Mr Johnson's team would prefer a "no-deal" outcome which signals maximum political distancing from the EU to the outside world but then is somewhat softened by a series of sectoral side deals in areas to which the UK gives priority like energy and aviation.

A third explanation is that it is tactical, with the UK team having no intention of signing up to the likely terms on offer from the EU, and that with the economic recession accompanying the coronavirus crisis (the worst since 1707, the Bank of England forecast last week), leaving on World Trade Organization (WTO) terms is a less daunting prospect that it appeared before the pandemic hit.

It is noteworthy that London has already said that it has recommenced preparations to end the transition period for no-trade deal on WTO terms.

Former Irish minister Phil Hogan appears to lean toward the third explanation. He said on Thursday, "I think UK politicians and government have certainly decided that Covid-19 is going to be blamed for all the fallout from Brexit and my perception of it is they don't want to drag the negotiations out into 2021 because they can effectively blame Covid-19 for everything. There is no real sign that our British friends are approaching the negotiations with a plan to succeed."

That startlingly candid assessment has, of course, been rejected by Downing Street. Yet, unless the UK drops its doctrinaire position that there can be no transition extension, Mr Hogan's views are a plausible assessment of the government's true motivations, given the short amount of time now to reach a deal.

A NEW CRISIS

Even before the coronavirus crisis began, the ten-month period from March to December was not likely to be nearly long enough to agree more than what chief EU negotiator Michel Barnier has called a "bare-bones" UK-EU trade agreement - not the kind of deep-trade deal promised by some Brexiteers in 2016.

Indeed, one of those leading Brexiteers, Cabinet Minister Michael Gove, even said last week that the UK government may accept the "price" of tariffs on goods to strike a deal. This appears to signal that London has given up on a previous "zero-tariff, zero-quota" agreement.

All in all, with the political mood music between London and Brussels so bad, there is a growing possibility of what even Brexit Party leader Nigel Farage has called a new "crisis" next month, by which time both sides need to decide if there will be an extended transition into 2021. So there is growing pressure on both sides, with the prospect of a no-trade deal Brexit raising its head again.

If that no-deal scenario happens, especially in the absence of any sectoral side deals, both Brussels and London would almost certainly need to return to the negotiating table in the months that follow, but with a new set of incentives. Such discussions could take significantly longer in this scenario than if Mr Johnson were to secure a deal in the transition period.

Outside a transition, the negotiating process could get significantly harder, with the same tough trade-offs as before.

One factor that may make concluding a deal significantly more difficult is that - outside of the transition process which requires only a "qualified majority" of states to ratify - EU-27 unanimity would be needed. Indeed, the possibility of just one European state blocking an agreement thus remains a key risk for both Brussels and London.

The stakes in play therefore remain huge and historic, not just for the UK but also the EU, which could be damaged by a disorderly no-deal Brexit. Delivering a smoother departure now needs clear, coherent, and careful strategy and thinking on all sides so that London, Brussels and the EU-27 can move toward a new constructive partnership that can hopefully bring significant benefits for both at a time of continued Covid-19 crisis and wider geopolitical flux.