WITH NEGOTIATIONS IN TURMOIL, INVESTORS BETTER BRACE FOR A HARD BREXIT
Ireland impasse a microcosm of hurdles scheme presents, Joe Chidley writes.
More than 600,000 people took to the streets of London last Saturday to demand a “People’s Vote,” a kind of do-over wherein whatever deal Britain and the European Union eventually strike on Brexit would be subject to plebiscite. Depending on how you look at it, this demand is either redundant — the people already voted on Brexit, back in June 2016 — or perfectly reasonable, given that nobody back then realized how shambolic the process of divorcing the EU would become.
No doubt the Remainers who staged the march see opportunity in the polling numbers, which suggest a very slim majority of voters now favour reversing the course on Brexit. No doubt Prime Minister Theresa May is disinclined to allow an agreement with the EU to be tested at the polls. But none of that probably matters anyway, because it looks increasingly likely there won’t be any deal for Brits to vote on again, even if it were allowed.
The restrictions presented by space and the attention span of readers do not allow a comprehensive account of the vicissitudes of the Brexit negotiations here. Suffice to say, they have not been going well. U.K. and EU officials are reportedly 80 per cent of the way toward some kind of free trade deal, or agreement on a free trade area, but the other 20 per cent is not nothing.
The sticking point, which caused the already-halting progress to break down in midOctober, is the Emerald Isle. The Republic of Ireland is not part of the U.K. (putting this on the record, because apparently some people, including the president of the United States, might not know), but it is an EU member; Northern Ireland is part of the U.K., but would not be an EU member after Brexit. For more than 25 years, people and billions of pounds worth of goods have freely flowed between north and south, with no customs checkpoints, because both were part of the European single market. Brexit would sticky up that wicket.
You could look at this as a special case, but in fact the Ireland problem is a microcosm of the challenges the whole Brexit scheme presents. Both sides agree that a deal is better than no deal — nobody wants a hard border in Ireland again. At risk is not just commerce, but also the hard-won détente between north and south, which those who are old enough to remember the Troubles would rather preserve. So the EU and May’s negotiators have agreed that there needs to be some kind of “backstop” for Ireland, post-Brexit. But that’s where the agreement ends.
Europe has proposed that Northern Ireland more or less stay in the EU in all but name — same customs union, same VAT, pretty much the same common market. This is not acceptable to the Brexiteers, of course, as it would weaken the “united” part of the United Kingdom, and it would be particularly unpopular in Northern Ireland. May has reportedly proposed that the entire U.K., including Northern Ireland, remain part of the EU customs union, but not the EU regulatory regime, for a while after 2020 (the date by which the transitional period following an agreement would end). That’s not acceptable to the EU, nor is the idea that a backstop would expire acceptable to Ireland.
Like so much about Brexit, it’s a case of trying to solve the unsolvable. Against the highest rhetoric of moderate Leave campaigners, you can’t exit the EU and still enjoy all the benefits of being a member. You can’t effectively put up a wall around parts of your country and then pretend the wall isn’t there. At a certain point, you’re either in or you’re out.
The trouble is, the baseline under which the May government has been operating seems to be that there will be a deal. Yet the deadline for reaching one — March 29 officially, but the U.K. parliamentary process demands that it will have to be done months earlier — is fast approaching. As is the reality of a “hard” Brexit.
No one really knows what would happen then, but the risks are clear: a run on the pound; trade frictions if not stoppages brought about by higher tariffs as the U.K./EU relationship reverts to World Trade Organization rules; soaring inflation in the U.K.; adverse ripple effects on the European and global economies and equity markets. The U.K.’s contingency planning, such as it is, looks inadequate. According to a recent report from the U.K. National Audit Office, the chaos at the border might be particularly acute. Key infrastructure and staffing issues have not been adequately addressed, 11 out of 12 IT systems that would be needed on “Day 1 of no deal” are at risk of not being delivered on time or to acceptable quality by March 29.
There might still be a deal, of course, but it’s past time to reset expectations. The more extreme voices in the Leave movement have long argued for forgetting about a deal with the EU and just embracing a hard Brexit. One hates to admit it, but it’s increasingly looking like they have a point.