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The Brexit Process: A Hard Exit vs. No Exit at All?



The increasingly fraught talks over Brexit between the European Union and UK Prime Minister Theresa May’s battered government have reached a critical fork in the road. The most likely course is for Britain to capitulate to most of the EU-27 demands, leading to a hard British exit postponed by a few years. But the chances that Brexit will ultimately be reversed are also rising from their previously very low probability.

The EU and the UK have until mid-December to reach “sufficient progress” in their divorce negotiations before they can begin to talk about the future trade relationship between the two. The three main issues to be resolved are (1) how much the UK will have to pay to settle its EU accounts, (2) the rights of EU/UK citizens post-breakup, and (3) the management of Northern Ireland.  

Regarding the financial settlement, the UK government is likely to accept the EU-27’s demand for up to €60 billion—about three times as much as May has agreed to. A retreat would be more politically palatable for the Conservative government if the payments are spread over many years. Even the most ardent euroskeptics in the Conservative Party are likely to go along once they see that the alternative might be no Brexit at all.

On citizens’ rights, the UK will probably acquiesce to the demand that neither UK nor EU citizens will lose any of their current rights after Brexit, once the EU agrees that UK courts (rather than the European Court of Justice) can uphold such assurances.

The issue of preserving an open border—with Northern Ireland part of Brexit and Ireland staying in the EU and internal market—has been shrouded in wishful thinking about “innovative high-tech” solutions eliminating physical border enforcement. But as was obvious by a recently leaked report on Northern Ireland staying in the EU, the EU-27 is likely to take a harder stance. They know that the UK government’s decision to leave the EU customs union and internal market dictates creation of a “hard border,” potentially undermining the Good Friday Peace Treaty.  

Keeping Northern Ireland inside the EU customs union would alienate Prime Minister May’s supporters in the Democratic Unionist Party, risking her parliamentary majority and possibly leading to new elections—an outcome the EU-27 might welcome. But doing so would also deal a blow to Northern Irish peace, with dire consequences domestically and internationally.

The risk of no deal by mid-December is significant. Enough Tory Brexiteers may rebel against the required concessions to the EU-27 to get a deal in an erroneous belief that “no deal is better than a bad deal” and that failure to reach agreement would not cause economic volatility. Such a scenario, however, would quickly compel UK-based businesses to implement contingency planning for a “no deal Brexit,” further weakening the British pound and accelerating the redeployment of jobs and assets out of the UK. The resulting economic turmoil could then cause the collapse of the Conservative government and lead to another election in early 2018. Current polls suggest that the Labour Party would win such an election and Jeremy Corbyn would become the UK’s new prime minister. Without a deal in mid-December, Corbyn might well be tasked with overseeing the UK’s departure from the EU—a scenario that would probably see Brexit reversed by a new Labour majority in the British Parliament.

This scenario remains unlikely but no longer implausible. The Labour Party is opposed to Brexit if there is no deal with the EU-27. Under these circumstances, the party might be willing to go against the otherwise sacrosanct verdict of the British voters in the June 2016 referendum.

The EU-27 would clearly like to see such an outcome and will stand firm against further concessions to Corbyn, betting on him taking over and attempting to keep the UK inside the EU customs union and internal market to achieve Labour’s goal of a “Jobs First Brexit.” The only option for Labor in that case would be the “Norway model”:  become a rule-taker or abandon Brexit altogether.  

Corbyn might well choose the latter option. The “Norway route” does not save Britain much money but removes its voice in EU rulemaking, a probably unacceptable outcome.  Moreover, abandoning Brexit might let Corbyn pursue his ambitious domestic reform program, a goal that many Labourites—even those who supported Brexit—might be willing to sacrifice Brexit to achieve. In addition, if Corbyn undid Brexit, Britain’s corporate elite would forgive him for many a new regulation or taxes on their businesses.

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