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The British proposal to the European Union for its post-Brexit economic relationship drew fire from President Trump as too soft. That criticism rankled Prime Minister Theresa May, who already had her hands full because of defections within her ruling Conservative Party. The possibility of no parliamentary consensus over how to leave the European Union makes a “no deal” Brexit increasingly likely. The result of these developments is that the EU27’s hand will be strengthened as the Brexit deadline of March 31 approaches next year.
May has basically recommended that Britain stay in the EU single market for goods and agriculture while sort of staying in the EU customs union. The plan would set the UK services sector, the country’s most internationally competitive part, on course to diverge from the rest of Europe. As a starting point for negotiating with an economic block many times larger than the United Kingdom itself, this represents a material climbdown from May’s earlier vision.
In the political fallout over this plan, two Cabinet members, David Davis, Secretary of State for the exit negotiations, and Foreign Secretary Boris Johnson, resigned. More worryingly, the number of Conservative backbench members of parliament (MPs) opposed to May's new Brexit vision may exceed her parliamentary majority (of around 15 to 20, depending on how many pro-Brexit Labour MPs can be counted on to vote with her government).
As a result, while May might find it easier to deflect blame for a failure of the Brexit negotiations on to the EU27, what Britain wants from Brexit remains uncertain.
May’s opponents have enough votes to force a Conservative leadership contest but not enough to actually win it. Meanwhile, what the opposition Labour Party wants regarding Brexit is obscure. Labour grassroots voters are increasingly in favor of a second referendum, which Labour leader Jeremy Corbyn has repeatedly ruled out.
Assembling hard-to-reach parliamentary majorities is usually the result of economic circumstances at the time votes are taken. As political paralysis in Westminster persists and the Brexit deadline of March 31 moves closer without a deal, the economic pressures will rise. The UK government’s own (woefully inadequate) planning makes it clear that a “no deal” Brexit could shock the UK economy as financial markets price in this risk, leading to a plunge in UK asset values. That prospect could cause parliament to walk back from an impasse.
These circumstances give the upper hand to EU27 negotiators. Given the turmoil in parliament, the EU27 might not want to waste time and effort on negotiating over May’s new proposal, which would effectively divide the European Union’s fundamental four freedoms of goods, services, capital, and labor while setting up an untested, complex, and burdensome alternative to simply staying in the EU customs union. And to top it off, May’s envisioned UK-EU dispute settlement mechanism would undermine the legal supremacy of the European Court of Justice.
The negotiators could end up kicking the can down the road by simply agreeing some sort of stopgap to address the Northern Ireland problem, and then leave all the tough issues to be settled during the transition period from 2019 to end-2020 when the United Kingdom will have legally left the European Union. But why should the EU27 compromise now to help a hapless British prime minister and her reckless and hopelessly divided Conservative party? Why would the EU27 undercut the majority of young British voters, who supported remaining in the European Union, if they have a chance to engineer a better scenario?
Despite having only May’s envisioned “association agreement” with the European Union, Britain is still likely to side more with its European partners than the Trump administration’s side on most economic issues. And for the EU27 to compromise with the United Kingdom on Brexit now would only encourage Trump to make even more demands in return for rescinding his imminent auto tariffs. A serious transatlantic trade war would be even harder to avoid. And in the end, is “security” really a good enough reason for the EU27 to agree to the United Kingdom’s demands, with the American defense secretary warning that France may soon become the United States’ “defense partner of choice”?
An ultimately uncompromising approach from the EU27 to May’s proposals later this fall is likely to create political instability in the United Kingdom. Were the EU27 to stick to its earlier proposals of either a clean Canada-style free trade agreement (with Northern Ireland still inside the single market) or full membership of the European Economic Area (EEA, i.e. full membership of the single market and de facto status as rule taker), the remorseless political and economic logic that pushed May to publish her latest Brexit proposals would, however, undoubtedly push in the direction of a majority in the UK parliament ultimately accepting the latter EEA option.
This would be a far superior outcome for the EU27. It would show that truly leaving the European Union is politically difficult. Such an arrangement might also unleash calls for another referendum over Brexit, possibly undoing the last vote. From the perspective of the EU27, choosing between the EEA option and undoing Brexit entirely, is for UK domestic politics to decide. There is no real upside for the rest of the EU27 either way, as the EEA option hardly looks politically sustainable in the long run. Once Britain becomes an “EEA rule taker” rather than a “rule maker,” British voters look certain to try to get back full EU membership.
