Why “no deal” remains one of the greatest threats facing the UK

Some say a WTO Brexit would be less painful in the wake of Covid-19 destruction. This argument “makes no sense,” says a former judge of the European Court of Justice

June 09, 2020
Photo:  Jonathan Raa/NurPhoto/PA Images
Photo: Jonathan Raa/NurPhoto/PA Images

Four years ago, the British people voted in a referendum to get out of the European Union. For all parties involved, it was important to implement that decision. After the conclusion of the Withdrawal Agreement in 2019, a new negotiation was opened on a new EU/UK relationship, to be concluded (and approved) before the end of 2020 unless extended. Progress was slow before; now there is a growing feeling on the EU side that the UK government is not making the required efforts and is in fact pursuing a no-deal Brexit.

Meanwhile, many things have changed since 2016, generally not in a positive direction for an isolated UK. Trump has become US president, and this has now made the US enormously unstable internally and externally. It is far from sure that the 2020 election will bring a stabilisation. China has become more aggressive on the world stage, and uses trade threats more regularly. It is also now overtly operating a reinforced dictatorship model. Other big countries (Russia and Brazil, for example) provoke other troubles. Some peddle fake news in western countries. They are far from enthusiastic about rule-based cooperation. These are no partners with which to establish strong and stable political and trade relationships. Additionally, experience has now revealed that concluding new trade deals, especially ambitious ones, requires a lot of time and energy. All this greatly increases the need to preserve strong political cooperation with the EU.

Apart from this, the world trade system itself is crumbling. The Doha Round aiming to reform the WTO framework was a failure. The WTO dispute settlement system is in huge crisis. Big powers do not care much about WTO rules anymore. The coronavirus pandemic has also revealed the danger of relying too much on complex, distant and sometimes unreliable supply chains, for example in medical or food products. It has become rather difficult in such a context to plead for a Brexit exclusively based on WTO rules. This greatly increases the need to keep a strong trade connection with the EU.

[su_pullquote]“No deal will mean that the UK is characterised by the worst cooperation with the EU in all of Europe”[/su_pullquote]

Additionally, the world now has entered a deep recession (that could turn into a depression in case of coronavirus resurgence—though we shall not know that until the end of 2020). Growth has fallen sharply, and so has employment (in part due to the simultaneous oil crisis). Balance sheets have deteriorated everywhere; deficits have risen. That means that any damage due to no-deal Brexit will aggravate an already very serious situation. It is said that in some British government circles, they welcome the idea of hiding this damage in the even greater damage inflicted by coronavirus. If verified, this would make no sense. It is nonsensical to say you do not care about a liver cirrhosis because you have already had a heart attack. In economics, like in medicine, the accumulation of pathologies is precisely something quite dangerous (as proven recently by coronavirus), that absolutely must be avoided. It creates a much higher probability of permanent handicap (hysteresis in the economic domain).

Furthermore, business has already lived through a long period of uncertainty, on both sides of the channel. Though this seems hard to believe, four years after the referendum, some elements (beginning with the possible concessions) in the long-term trade strategy of the UK government are still not clear. This has inhibited quite a few investments, and imposed some precautionary spending for various scenarios. Adding again to such uncertainty will also be damaging.

Finally, even if the UK gets out of the single market with no deal at the end of 2020, some agreements will still need to be concluded later, in a more antagonistic context. It will be more difficult to improve the EU/UK relations thereafter. No deal will only be the launching pad of a new negotiation, where the UK will in fact be in a still weaker position. It will also mean that the UK will amazingly be characterised by the worst cooperation with the EU in all of Europe. Needless to say, this outcome was not at all proposed to the public in the 2016 referendum, on the contrary—even by the Brexit partisans.

Considering all these elements, it seems rather bizarre that the UK government is contemplating so casually such an outcome. The deliberate creation of a bigger economic crisis, with more unemployment, more poverty, more bankruptcies, will be very difficult to justify later. This will particularly be the case, of course, if a no-deal Brexit leads to a rupture of global production chains in the food sector and/or the medical one. The UK government already bears the heavy responsibility of a bad management of the coronavirus pandemic. Adding crisis to crisis certainly does not look like the best way to improve Great Britain’s situation.