Towards a transitional deal
The Brexit debates used to have the quality of a slow-motion train wreck, but the debate is now moving in a direction that we have anticipated for some time. Whether the ultimate Brexit is hard or soft, there will have to be a transitional agreement to smooth things out, and to minimise the economic costs. This argument is strongly supported by Philip Hammond, the chancellor, while David Davis, the Brexit secretary, is now also accepting that a transitional period is at least possible. We should be discounting the continued talk about paying into the EU budget as a quid-pro-quo for membership of the single market. That option will not be on offer. Continued membership of the single market is highly unlikely, unless the UK and the EU were to agree on EEA membership or a bespoke arrangement with equivalent structures. But this would be inconsistent with any form of immigration control. It is yet possible for an interim agreement to include transitional membership of the customs union, during which the UK could naturally not negotiate third-party trade agreements, to be followed by a bilateral FTA at the end of the transition. The FT quotes Jacob Ress-Mogg, one of the Conservatives' most outspoken Brexit advocates, as saying that he, too, could live with a short transition period.
The FT also reports that the head of the Bank of England’s prudential regulation authority told the Treasury Select Committee that clarity about the transitional agreement would be vital for financial stability. He said such an agreement should be made ideally within nine months of triggering Article 50, i.e. before the end of 2017. Clarity would stop financial firms planning for a worst-case scenario.
There is one area where the UK and the EU will need to co-operate - or even deepen their existing co-operation - and this is defence. Sophia Besch has an excellent analysis on the state of European defence and foreign policy coordination. Besch writes that the Europeans are underestimating the potential impact of Donald Trump, who has severely damaged the EU’s security by questioning Nato's security guarantee. And with Brexit the EU will lose one of its strongest European militaries, as well as a country in favour of more competition in defence procurement. She says that Trump is right to criticise the EU for lack of defence spending, and fears that differences between France and Germany on the future direction of the common security and defence policy might weaken the EU further. And it's going to be tricky to co-operate with, let alone integrate, the UK.
“Brexit will not prevent the UK from participating in exercises and operations that are conducted outside the CSDP framework. But to include the UK in the EU’s military activities post-Brexit, London and Brussels will have to negotiate a third-country association arrangement...
The UK will not want to accept the subordinate role that the EU currently assigns to non-EU troop-contributing countries. British officials have indicated that they want to negotiate a ‘privileged’ partnership with the EU – though they have not yet specified what that entails. This means that the political fall-out from a worsening relationship between the EU-27 and London could affect the security and defence relationship as well. If the UK squanders Europe’s goodwill over the course of the Brexit negotiations, a privileged status for the British on defence matters may become elusive.”