Leaving the EU without a deal?

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Posted on October 10, 2017

Leaving the EU without a deal?

In an attempt to wrestle back control not only within her party, but also to put pressure on the the EU, Prime Minister May has now indicated the UK will be preparing to simply walk away from the EU, should the two sides fail to negotiate a full deal. Whilst she was clear that this was not the expected outcome and that it wouldn’t benefit either side, she is positioning this as being prepared for all eventualities. It is increasingly clear that any negotiated settlement will be agreed at the last minute.

So what does this mean?

The UK does not currently have the infrastructure to deal with leaving the customs union or the single market. There are no facilities to hold up and check goods coming into the UK from the EU in order to apply WTO tariffs. Some 15,000 trucks make the trip daily in both directions, these would be subject to tariffs and inspection. And there is currently no money or budget to set this up and recruit the staff, so the government would have to increase borrowing to deliver cover these significant expenses. And it is accepted, irrespective of the potential run on the pound, that as an importing nation, the economy would suffer should import tariffs be imposed. This now, of course, includes goods coming in from Canada as CETA is up and running.

In addition, but not mentioned, passporting of financial services and air services would need to be dealt with, in an effort to allow UK based financial services companies and airlines to operate and travellers to move about.

The PM’s approach is part of the negotiating ploy to put pressure on the EU by showing the UK is serious about leaving the single market and the customs union, becoming an ‘independent trading nation’. This positioning by the Mrs. May is also designed to keep her Brexiteer cabinet and backbench colleagues, who are pushing for a swift exit from the EU and the clutches of the European Court of Justice, in line.

How long can she carry on?

Whilst she is trying to keep her party together, appear resilient and show ‘calm leadership’, ultimately she is unlikely to be in it for the long term. The Conservatives know that any sense of a general election will allow the Labour Party in, who need to do little except cheer from the sidelines as the Conservatives tear themselves apart. Who would eventually replace Mrs. May as PM (or indeed leader of the opposition) remains conjecture.

And what about business?

There has been no clear agreement that the UK will get an additional 2 years to leave the EU, which puts more and more pressure on companies to start putting plans in place to move parts of their businesses to mainland Europe, especially those operating in the financial services sector.

And the divorce budget, the Irish border question and the status of EU nationals?

Whilst progress at working level has been agreed, there has been no breakthrough as yet, and particularly on Northern Ireland, no concrete proposals acceptable to the Dublin government. The Brexit negotiators have so far not been able to come up with a solution to have a ‘frictionless border’ as Northern Ireland would be a) still part of the UK and b) outside the single market and customs union. Fiction over friction.

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