UK and EU are on the edge of a precipice
Can London really afford to spite Brussels in the middle of a global pandemic?
On Monday, French President Emmanuel Macron and German Chancellor Angela Merkel teleconferenced each other and agreed to a €500 billion (Dh2 trillion) plan to help the hardesthit economies of the European Union recover from coronavirus.
The money will be raised by the EU on financial markets where interest rates are exceptionally low at present, and will be dispersed to nations like Spain and Italy in particular but others who felt the sting of Covid-19. Oh, and even though the interest rates are low, there will be no need for those nations to repay it — the liability will instead be added to the overall EU budget to which member states make contributions according to the size and prosperity of their budget.
In the United Kingdom, which hasn’t been a part of the EU since January 31, there’s a report from the Bank of England that says its unemployment rate will double and the economy will shrink by 14 per cent. The bank is forecasting the UK’s deepest recession in more than 300 years, since 1706, when Queen Anne was on the throne and the economy was so bad Scotland had been forced into the Act of Union to form Great Britain.
The way things are looking right now, that union between Scotland and the UK is well strained at present.
That Bank of England report says that coronavirus has brought an immediate 25 per cent drop in the UK’s gross domestic product. So far, the measures put in place by the government of Prime Minister Boris Johnson are well above the £400 billion (Dh1.8 trillion) mark but, heck, who’s counting — it only needs to count when taxpayers are paying it back, right?
So, while Merkel and Macron did their thing on Monday planning a recovery, Downing Street was putting its finishing touches on what a new post-Brexit tariff regime will look like — one that will replace the EU scheme that it places on its external borders around Europe.
New UK global tariff
While the UK left the EU on January 31, it’s still in transition and the same rules apply until December 31. Come January 1, the UK will impose its own 10 per cent tariff on cars and levies on agricultural products such as lamb, beef, and poultry. Together, the new ‘UK Global Tariff’ (UKGT) will provide a baseline for negotiations for free trade agreements with the EU, the United States and other countries.
Clearly, London is trying to give the impression that under no circumstances will it consider extending the transition period beyond the end of the year. Under the terms of Brexit, both the UK and EU must agree to any extension by June 30.
If there’s no deal in place, both the UK and EU are back to those “hard Brexit” scenarios that were played out over the past four years or so — a massive hit on the pound, a 30 per cent fall in property prices, a seven per cent drop in GDP, soaring unemployment and the probability of violence and civil disobedience in Northern Ireland.
Yes, the stakes were that high before the pandemic. Now? Put Brexit and Covid-19 together and it’s an economic cocktail worse than … well … worse that no one knows — not even Queen Anne.
It is any wonder then that things are getting very tetchy indeed between Brussels and London — so tetchy that maybe it’s a good thing both sides can’t be in the same room and are better off negotiating at the other end of computer screens.
Talks are going nowhere fast nor slowly, and on Friday both sides demanded the other side give ground. No one is giving. The only thing they can agree is that they can’t agree.
Level playing field
The main sticking point has been so-called “level playing field” rules to ensure fair competition. The EU says they are indispensable to ensure Britain does not undercut its standards, but which Britain rejects as binding it to European laws.
“As soon as the EU recognises that we will not conclude an agreement on that basis, we will be able to make progress,” David Frost, London’s lead negotiator, said. “We very much need a change in EU approach for the next round beginning on 1 June.”
EU chief negotiator Michel Barnier fired back by saying the talks have been “very disappointing” and heading for a stalemate unless London changed tack.
“There will be no agreement with the UK without a balanced agreement on fisheries and a proper, balanced agreement on level playing field,” Barnier told a news conference, adding he was determined to get a deal but no longer optimistic it was coming. “We will not bargain away our values for the benefit of the British economy,” he said.
Remember that old chestnut phrase “cherry picking”? Late spring is cherry blossom season, and Bernier is accusing London of trying to pick and choose the tastiest morsels of the EU’s single market but rejecting conditions for access all the 27 member states honour.
Is it any wonder then that after years of Brexit political chaos in London, investors and companies are trying to work out if London and Brussels are simply ratcheting up the rhetoric or are so far apart that there could be a no-deal cliff-edge at the end of 2020.
A cliff edge then? No, the pandemic has brought us all to the edge of the precipice now. Maybe they need to remember it’s not the drop that kills — it’s the sudden stop.