August 02, 2017
On the importance of a Brexit transition
We have been writing for over a year now that a transitional agreement for Brexit is unavoidable. But we have noted that virtually none of those previously supporting Remain have endorsed it. The reason is straightforward. If you are betting on a second referendum, as many of them still do, the last thing you want is a transitional deal to smooth out the economic impact of Brexit. Only the combination of economic chaos and political crisis has the potential to produce the necessary sequence of events for a reversal: another election followed by a second referendum before March 2019.
The converse of this argument has been made by John Springford of the CER, who says that Hard Brexiteers should enthusiastically endorse Philip Hammond’s proposal for a transitional phase. He is right. A transitional phase is the only sane way to transition to Brexit without creating chaos, and without endangering Brexit itself. Springford puts forward four arguments why a transitional period makes sense from the perspective of a Brexiteer. A transition is needed because:
- there will be no FTA ready for provisional application by March 2019;
- economic chaos before Brexit, and a political crisis, are avoided;
- it makes it possible to kill the politically unacceptable EEA option for a final deal;
- it gets the Brexiteers beyond the critical date of March 2019, after which Brexit cannot be reversed.
We would add one further point. A transitional agreement allows the UK and the EU to reduce the size of the Brexit bill because the UK would simply be paying the equivalent of its budget contributions for as long as the transition lasts, and at least until the end of the current budget period in 2020. As a non-member from 2019, the UK cannot be made liable for commitments made under the new post-2020 financial framework.
Springford discusses, and dismisses, the Brexiteers’ alternative strategy which is too force the EU’s hand by doubling down on the 'better-no-deal-than-a-bad-deal' posiion. His argument is that the UK has more to lose relative to the EU. This is true, but the EU may be politically less tolerant to a loss than the UK, because it has not voted to leave the UK while UK voters have chosen to leave the EU. A recent YouGov survey shows that the hardest of Brexiteers do not care about the economic implications at all, even if they are negative for themselves or their families. The EU would be much more sensitive to a smaller economic effects. We advocated that the best negotiating strategy for the UK would be an honest attempt to seek an agreement with a transitional period, while at the same time making concrete preparations - including even ex-ante legislation - for a no-deal scenario. The purpose of the latter is simply to encourage the EU not to overplay its hand in the negotiations. The political and economic disasters in Greece and Italy are good examples of what happens when you fail to lay down a plan B. We note, however, that the EU has so far exercised restraint, and pulled back from some of the more extreme demands in its original negotiating mandate.