We use cookies to help improve and maintain our site. More information.

February 25, 2020

Why no-deal is a real possibility

As we progress towards the start of EU/UK trade talks, we are becoming more pessimistic. We know, of course, that the two sides are playing to their home audiences. We also know that the EU has a long history of agreeing impossible deals. 

With all those caveats in minds, what makes us pessimistic is the lack of a common purpose in these trade talks. The reason why trade negotiations often succeed in adverse circumstances is their positive-sum nature: in the end both sides can claim victory. The same goes for EU treaties for so long as everybody values European integration in principle.

The reason we think this time is different is that both sides have framed the talks as a zero-sum game. The UK affirmed yesterday that its goal is regulatory independence from January 1st. The EU’s explicitly goal is a maximum degree of regulatory alignment. It hardened its level-playing-field demands, which it now wants firmly anchored in EU law. For both sides, these negotiations are not primarily about trade. 

As the larger partner, the EU is naturally in a stronger position. The UK has only got a single trump card. It can walk away from the talks. For so long as the UK is not bluffing about this, it can achieve its negotiating goal unilaterally. The EU cannot.

In a zero-sum game, it is much more difficult to find the narrow path at the end of which both sides can claim to have achieved a good result. If the EU prevails, with dynamic alignment on state aid and EU-law anchored level-playing field agreements, then the UK will have given in. The same goes the other way. This suggests to us that it might be easier for both sides to let the negotiations fail, and then make another attempt after defaulting into a WTO-based relationship next year. That would maximise frictional cost in the short term, but would have the advantage that the trade talks might follow the more traditional pattern of a positive-sum game. Both sides would at that point gain by liberalising trade flows.

Having said this, we cannot rule out a U-turn by Boris Johnson. He may be bluffing. But something would have to change in UK politics for that to happen. Remember the EU has misjudged the entire Brexit process from the start: the referendum itself; the failure by Remainers to organise a second referendum; Theresa May’s resignation; Johnson’s large majority in the December election; and then his refusal to extend the trade talks. Brexit is the defining issue of modern-day British politics. Its main characteristic has been lack of compromise. That mindset would have to change in the next eight to nine months. We see no obvious reason why that should happen. Johnson has a large majority. The Remainers are demoralised. The opposition in the UK parliament is weak. And Sir Keir Starmer, the likely next Labour leader, will probably not want to focus too much on Brexit either. 

The UK’s negotiating objectives will be signed off by a cabinet committee today. The EU will also publish its negotiating guidelines today, after yesterday’s general affairs council. 

Mehreen Khan of the FT saw the changes to Michel Barnier’s original draft. It sets EU standards as the reference point in the level-playing field discussion in respect of employment laws, the environment, climate change, and tax policies. And it would give the EU the right to oppose autonomous interim measures, again with the EU standards as reference.

Show Comments Write a Comment

This is the public section of the Eurointelligence Professional Briefing, which focuses on the geopolitical aspects of our news coverage. It appears daily at 2pm CET. The full briefing, which appears at 9am CET, is only available to subscribers. Please click here for a free trial, and here for the Eurointelligence home page.


Recent News

  • May 26, 2020
  • French fashion stores - lockdown is one crisis too many
  • An important German supreme court ruling against VW
  • Public scrutiny over lockdown rules
  • May 10, 2020
  • On court rulings and folk economics
  • EU regions - some far better on Covid-19 but not on downturn
  • April 27, 2020
  • The EU’s trickery of a fake MFF
  • Philippe to put down cards as trust evaporates
  • April 17, 2020
  • Should leaders cash in on their approval ratings and seek early elections?
  • Downing Street doubles down on Brexit deadline
  • April 08, 2020
  • Is Greece ready for virus spread in migrant camps?
  • On the future of the EU - the final part 12 of our series
  • March 31, 2020
  • Orbán's power grab
  • Why we would like to share the optimism on eurobonds, but can’t.
  • March 23, 2020
  • Orbán seeks to extend his powers
  • UK as the double counterfactual
  • March 16, 2020
  • Why many of the Covid-19 statistics are misleading
  • March 09, 2020
  • Lockdown measures are not working
  • Will the ceasefire hold in Idlib?
  • March 05, 2020
  • EU keen to avoid a repeat of 2015 migrant crisis
  • Sir Humphrey R.I.P.
  • March 02, 2020
  • What the return of the refugee crisis tells us about the EU
  • Does the UK really want a deal? Does France?
  • February 27, 2020
  • German polls point to red-red-green
  • Greece's struggle to improve migrants crisis
  • February 26, 2020
  • Laschet/Spahn vs Merz vs Röttgen
  • Fianna Fail and Fine Gael explore compatibility
  • February 25, 2020
  • Why no-deal is a real possibility