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May 12, 2020

Brexit decision is slowly approaching

We are now only a few weeks away from when the UK has to decide whether to take the Brexit negotiations to the next level or to prepare for a hard Brexit at the end of December. In the first case, the UK government may wish to ask the EU to extend the Brexit transition deadline by one year, or at most two as stipulated in the withdrawal agreement. 

Late last year, we, too, thought that Boris Johnson would extend the deadline. Much of the erstwhile Brexit controversy has dissipated. But his administration moved quickly to pass legislation to make an extension illegal. That in itself constitutes less of a constraint than it appears, since the UK parliament can undo that piece of legislation as quickly as it agreed it. In the end, it will be a political decision. 

The consistent signals from Downing Street have been that the UK won't extend. We treat this possibility seriously simply because the Johnson administration has shown a degree of consistency on Brexit. We also see the logic of the announced procedure: a decision is due in early June on whether or not to take the negotiations to the next level. If the two sides are too far apart, the UK will declare the negotiations to have failed. If not, they will form a judgement on whether they will need to extend. 

We don't know what private assurances the two sides have given to each other. However, if the Commission is serious in its proposal to apply EU competition law to the UK, in what would otherwise constitute a minimalistic free trade agreement, the chances of a WTO Brexit at the end of December must be very high. In that case, the trade talks would end before they even start. We think there is an objective case for an extension. We don't buy the argument that the trade talks themselves need more time. The technical work can be done in the second half of the year. The needed big political compromises will never happen in the absence of an approaching deadline. For us, the main reason for an extension is the sheer time it will take to get the border infrastructure ready for a WTO regime. Customs procedures have to be introduced. Transport queues will have to be managed in different ways. And we have seen reports that the UK plans to strengthen its east-coast ports in order to become less dependent on the Dover-Calais link, which is particularly vulnerable to industrial action in France. We think that a diversified port infrastructure is going to be critical. 

The June extension deadline really does appear to be hard according to Jean-Claude Piris. He asks the question whether the two sides could still change their minds in the second half of the year, and goes through the legal options. The withdrawal agreement itself is clear. It offers no legal basis for a late decision. He also pours cold water on the other theoretical avenues, like an amendment of the agreement. That option is not foreseen under Art. 50. The withdrawal agreement is final. You reach further agreements under it, but you can't amend it. 

What about the great fudge clause in EU law, Art. 352 TFEU? This essentially says that the EU can do whatever it likes even if the treaties have not provided a legal basis for it. Piris says this does not apply to withdrawal because of Art. 50. Furthermore, Art. 352 is explicitly not intended to be used as an instrument to widen the EU's powers. And the German constitutional court keeps a watchful eye on that.

This leaves an amendment to the withdrawal agreement under international law. While that is always possible in treaties between two states, it does not apply to treaty between a state and the EU. And the withdrawal agreement itself forecloses that option. 

So, this is really it. The decision has to be taken by June. 

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May 12, 2020

EU will remain closed for a while yet

We see more and more evidence that normalisation in Europe will take longer than elsewhere. This is not so much due to the usual decision-making processes, which naturally involve more parties, but as always to a lack of convergence between countries and regions that share borders. FAZ got ahold of a 21-page draft by the European Commission on a timetable to ease the lockdown, to be formally adopted tomorrow. The draft tells us that progress will be slow, based on the lowest common denominator principle. In particular, there will be no actual timetable.

The proposal uses regions, not countries, as the basis for border openings. One important criterion for border openings is the ability by the health authorities to follow chains of infection. France and Germany have detailed information at regional level that could be used as the basis for a decision to open selective border crossings first. Another condition will be monitoring capabilities during journeys, for example to ensure that people wear face masks on trains. The Commissions wants to replace a blanket ban on cross-border travel with a more selective policy that will initially only allow seasonal workers, cross-border commuters and health workers to pass through the borders. This is only a tiny fraction of the normal traffic. Member states have not taken any decision on the summer holiday season yet. This will be subject to separate proposals, also to be unveiled tomorrow.

The external borders will remained locked until the internal traffic is reopened, which could take months. What will not be allowed is the Austrian way of testing foreigners passing through the country, except for Germans.

This approach means that the EU will be locked up for quite a while longer. The pre-lockdown normality will probably not return soon. The Schengen area could thus become one of the last parts of the world to open its external borders. The UK's new policy of two weeks of self-isolation for any travellers also constitutes a significant barrier, and locks out any travel for less than that length of time. But that policy could eventually be replaced by a scheme of compulsory testing. Such a policy is not practical within Schengen, which is why the end of lockdown requires the EU's highly asymmetric crisis policies to converge beforehand.

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