London 16x4.5

Brexit Finally On the Move

The United Kingdom is leaving the EU tonight and will surely be missed, not least by the Nordic countries. The UK has been a like-minded Member State when it comes to free trade, an open and deregulated economy and subsidiarity. Brexit will have an effect on the identity of the EU and the policies pursued by the EU institutions, as well as individual capitals.

Westminster’s Parliament has voted through the Brexit legislation and the EU Withdrawal Agreement Bill that it is necessary for the United Kingdom to leave the EU on 31 January.

The UK has been granted a transition period until the end of the year, during which a post-Brexit trade deal needs to be negotiated. The Prime Minister, Boris Johnson, has stated that he is looking for a free trade deal, not a deal based on alignment with EU rules. He has also rejected any prolongation of the implementation period. The Chancellor, Sajid Javid, has stated that there will be no UK alignment with EU regulation in the future.

The EU will, however, not accept any UK dumping of standards or social costs that could lead to unfair competition with the EU. If the United Kingdom insists on going down the road of non-alignment, then difficulties can be expected.

Additionally, the ambition of concluding a trade deal in 11 months is very high. It could end up with the trade deal being divided into different parts, the main one being concluded within the year.

Trade, no matter how complicated a negotiation, is not the only thing that the EU and UK needs to agree on. They also need to negotiate and agree the future of their political relationship.

EU Chief Negotiator, Michel Barnier, has already stated that the timespan won’t be long enough to cover all areas of negotiation agreed upon in the Political Declaration.

Even with the best will in the world, the negotiations could prove to be more complicated than set out by the British Prime Minister. If so, a discussion on the prolongation of the transition period might follow in the autumn. Prime Minister Boris Johnson, however, claims that it is “enormously, epically likely” that a trade deal will be completed by the end of the year.

According to Bloomberg Economics, Brexit has already cost the United Kingdom economy 130 billion pounds, with an additional 70 billion pounds to be added for 2020. Investments have been held back and economic growth has been reduced by 1% to 1% annually. Bloomberg estimates that the accumulated GDP is now 3% smaller than it would have been without Brexit.

Judging from the general election, the Prime Minister will bridge the immediate effects of Brexit by increasing government spending.

Starting now, the United Kingdom will also need to negotiate trade agreements with a large number of third countries, since it’s leaving the Common Trade Policy and the Internal market, one of them being the United States. It could well be that the United Kingdom will find the negotiations more time consuming and technically and politically complicated than previously believed.

The United Kingdom will remain a vital partner for the EU and individual Member States. The EU will remain the key market for the United Kingdom, as well as the country’s closest political friend. No party stands to gain from Brexit, and the political and economic consequences needs to be mitigated by both sides. However, it’s not certain that all Member States will share the same priorities.

The best possible Brexit outcome will be achieved if the United Kingdom and the EU demonstrate a willingness to rapidly agree upon the future political, economic and trade relations in order to limit political and economic uncertainty.

RPPA Commentary 16x4.5