Xmas Eve trade deal is not Brexit's 'endgame'

THE historic UK-EU trade deal secured on Christmas Eve is seen by many as the end of Brexit. Yet, the huge, wide-ranging processes unleashed by the United Kingdom's 2016 referendum are only just beginning to play out in ways that could have contrasting implications for the European Union and the UK. For while the 2020s could potentially see a more federal, centralised EU after the UK's departure, the opposite may be true for the UK itself. With pressures growing for Scottish independence and potentially even Irish reunification, the 2020s are an uncertain time for the union of England, Scotland, Wales and Northern Ireland.

The immediate backdrop for this is Dec 24's trade breakthrough which is, mostly, welcome news for European and wider global business after more than five years of Brexit uncertainty. It provides a platform, which could now be 'laddered-up', for renewed UK-EU economic cooperation.

However, this is tempered by the fact that the agreement is the first international trade negotiation in history where barriers go up, rather than down, compared to the status quo, and is only a partial solution to future UK-EU economic collaboration. For instance, the deal does not cover the services sector which accounts for 80 per cent and 70 per cent respectively of the UK and EU economies.

Much attention, in the last half decade, has focused on these trade (and the earlier withdrawal) negotiations between the EU and UK. This has obscured the fact that the UK referendum set off a much wider set of changes.

Indeed, the EU-UK trade talks are, in fact, only one sub-set of much broader, forward-looking debates in four areas: between the EU and the UK; within the UK; within the EU; and also between the UK, EU and the rest of the world.

Take the example of the EU-UK discussions on their future relationship. Important as the Christmas Eve deal is, there are key holes in it, not just for economic sectors like financial services, but also other critical areas of cooperation, including foreign and defence policy, which had originally been proposed to be in the agreement.

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Moving beyond EU-UK negotiations, Brexit has also set off important debates within the UK; within the EU about its future; and also between the UK, EU and the rest of the world. Within the EU, for instance, there are several key debates about the 27-member bloc's future well underway, including rebalancing the union given the new balance of power within it; and whether the EU now integrates further, disintegrates or muddles through.

The importance of these issues underline that how the EU changes because of Brexit could be the most important, but often overlooked, outcome of the UK's vote to leave. For instance, with the UK no longer in the Brussels-based club, the EU-27 has already made in 2020 significant steps towards greater federalism.

One example is the new 750 billion euro (S$1.2 trillion) Covid-19 recovery fund, a major political milestone in the post-war history of European integration, which saw the continent's presidents and prime ministers commit for the first time to the principle of jointly issued debt as a funding tool. This potentially paves the way for greater future EU supranational powers of taxation giving rise to talk about a 'Hamiltonian moment' for Brussels in reference to Alexander Hamilton, the first Treasury Secretary of the newly created United States of America, who in 1790 convinced Congress of the benefits of common debt.

This example highlights how, going forward, a broader range of EU policy could change, post-Brexit, altering the political economy of the union. The UK's previous influence over the EU here can often be overlooked. London, for instance, largely succeeded in pushing for an enlarged union where deregulation and free-market economics are the norm. Further attempts to move away from this, for example in tax harmonisation, could take further steps forward now without the UK 'blocker'.

Yet, it is not just the EU, but also the UK, where there are major internal debates too about the future. However, whereas the next few years may result in a stronger, centralised union of EU states (despite significant continuing disagreements between these same nations), the opposite may be true across England, Scotland, Wales and Northern Ireland.

Brexit has exacerbated tensions over the UK's unity in several ways, including putting Northern Ireland at the forefront of UK politics in a way it had not been since the Good Friday Agreement around a quarter of a century ago. UK Prime Minister Boris Johnson's decision to allow a new border between Northern Ireland and the rest of the UK has angered much of the unionist community, especially the Democratic Unionist Party (DUP). This, combined with the 2019 UK general election result which saw the nationalist parties - Sinn Féin and the Social Democratic and Labour Party - win nine Westminster MPs compared to the DUP's eight seats, has given rise to questions as to how soon a referendum might be held on Irish reunification.

The possibility of such a vote, let alone the outcome, remains far from certain. While London remains committed to the unity of the UK and Dublin to the cause of Irish reunification, there are challenges for both sides. Northern Ireland's politics and society have long been distant to many in Britain. Meanwhile, the constitutional, economic, social and security costs of potential Irish reunification are not a matter that decision-makers in Dublin can overlook.

While Northern Ireland was relatively muted as an issue during the 2016 referendum, the prospect of Brexit leading to Scottish independence was actively debated. Now the 2019 Westminster election result and the Scottish National Party (SNP)'s continued political strength in the Scottish legislature mean either a new independence referendum or growing tensions with the rest of the UK are almost inevitable, particularly given that the SNP has asked Mr Johnson to agree to a new independence vote. His decision to reject the request to date deals with the issue in the immediate term; however, the SNP are playing a longer game, expecting to dominate results in the 2021 Scottish elections after which this issue could come to the boil.

Taken together, this is why the short to medium-term implications of Brexit could have significantly different implications for Brussels and London. While both unions are under stress, the 2020s could yet see a tighter, increasingly federal EU while the UK could become significantly more de-centralised or even broken up given the growing threat to its territorial integrity.

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