Finance: Research, Policy and Anecdotes

Brexit - new excitement!

So, here we are, hurtling towards a new season finale in the Brexit soap opera.  Latest twist: the oven-ready Brexit deal, approved just a few months ago by (freshly elected) Parliament “never made sense”, according to the Tory House Newspaper The Telegraph. And if you read the article, it gets even better: the WA “would leave Northern Ireland isolated from the rest of the UK, something that was ‘unforeseen’ when [Boris Johnson] agreed to it last year”. Never mind that many commentators, including Chris Grey, pointed to the consequences of the Northern Ireland frontstop, agreed to by Johnson (I wrote about it here). To claim that this was unforeseen is either perfidious or stupid!  

 

The reason that this comes up now is directly related to the dire state of the trade negotiations between the UK and the EU. While controls in the Irish Sea will be necessary with or without a trade deal, a no-trade-deal scenario (or trade deal with tariffs) will complicate things further, as goods coming from Great Britain into Northern Ireland will attract tariffs if at risk of being exported to the Republic of Ireland (to be reimbursed if they do not cross the non-border into the Republic). As the Telegraph quotes a senior government source, “the administrative costs would be considerable.” This statement is a bit odd, though, because the UK government just proudly announced that it is working to increase red tape (“growing the customs sector”). It should have become obvious by now that the whole Brexit soap opera is an exercise in creating red tape, not removing it, so this complaint about administrative costs is a bit odd, indeed.

 

Ultimately, we are back in the Brexit Trilemma: The UK decided to exit Single Market and Customs Union – this would require a customs border between Northern Ireland and the Republic of Ireland – as this is seen contrary to the Good Friday Agreement, there will have to be a customs border in the Irish Sea. Over the past four years, lots of myths have been created on how the UK can get around this (alternative arrangements, GATT article 24, Article 62 of the Vienna Convention on the Law of Treaties), but it seems Brexiters are back at their favourite past-time: staging a tantrum in the sandbox and throwing out the toys: threatening that if Withdrawal Agreement (on which Johnson won the last election) is not being changed, they will simply undermine it with domestic legislation. As pointed out by lawyers, this would simply end in a tit-for-tat with the EU, resulting in penalties and sanctions and worsening the relationship.

 

Which brings me to my final point: anyone who thinks that this soap opera is over one way or the other by the end of the year, should think again. The relationship between the EU and UK will be dominating UK politics for a generation to come. If there is no trade deal this fall, eventually there will have to be fresh negotiations, but with the UK in an increasingly weak position. If there is a bare-bones deal, then there will be pressure on both sides to extend such an agreement to other areas.  This is a scenario that the Swiss are well familiar with. In the case of the UK, however, this will come with the British hubris and sense of exceptionalism and with the rabid belief of Brexiters that the EU (whoever that is) is out to get them and take away their wet dreams of sovereignty.