Fake Brexit or No Brexit

by Anatole Kaletsky–LONDON – Since last year’s Brexit referendum, the United Kingdom has been likened to a suicide who jumps off a 100-storey building and, as he falls past the 50th floor, shouts “so far, so good.” This comparison is unfair to suicides. The real economic and political message today is “so far, so bad.”
The “deal” to begin negotiations for a post-Brexit relationship, announced at the EU summit on December 15, followed Prime Minister Theresa May’s capitulation on all of the demands made by European leaders: €50 billion ($59 billion) of budget contributions, European court jurisdiction over the rights of EU citizens in Britain, and a permanently open border with Ireland.
The last concession was a game changer. The open border in Ireland has forced May to abandon her promise to “take back control” from the EU and its regulatory framework, as confirmed in the summit communiqué: “In the absence of agreed solutions, the United Kingdom will maintain full alignment with those rules of the Internal Market and the Customs Union which, now or in the future, support North-South cooperation.”
The result of this crucial concession on Ireland is that both scenarios usually proposed for Britain’s relationship with the EU can now be dismissed. With no parliamentary majority to revoke the agreement, a “hard Brexit,” in which Britain breaks free of EU regulations and trades simply on the basis of World Trade Organization rules, is no longer possible. And a “soft Brexit,” which attempts to preserve the commercial benefits of EU membership without the political obligations, is equally impossible, because European leaders reject any such “cherry-picking” – and now have the whip hand over Britain.
If hard and soft Brexit are both excluded, what other options are there? The obvious one, apparent after May’s failed election gamble, is some form of associate EU membership, similar to Norway. Britain would retain many of its current commercial privileges, in exchange for complying with EU rules and regulations, including free movement of labor, contributing to the EU budget, and accepting the jurisdiction of EU law. While May foolishly rejected all three of these conditions early this year, the likely result of the Brexit negotiations will be to blur all her “red lines” out of existence.
While businesses, investors, and economists would welcome such a Norwegian-style “fake Brexit,” it would carry a huge political cost. Britain would have to adhere to EU laws, regulations, and legal judgments in which it would no longer have any say. Instead of a rule-maker, the United Kingdom would become a “rule-taker” – or, in the emotive language adopted recently by Brexit hardliners, Britain would be reduced from an imperial power to a “vassal state” or a “colony” of the EU.
This “rule-taker” status is what the UK has already requested for a two-year “transition period,” beginning in April 2019. May claims that this will be a “strictly time-limited” arrangement, while she negotiates a free-trade agreement with the EU. But the EU has repeatedly made clear that two years is too short a period to negotiate even a simple FTA, never mind the “imaginative, bespoke” deal that May is seeking.
In truth, there is almost no chance of Britain ever negotiating the “deep and special partnership” May has promised. It is simply inconceivable that European leaders would offer Britain’s service industries access to the EU single market without imposing the legal and budgetary conditions accepted by Norway and Switzerland.
What, then, will happen at the end of the transition period in April 2021? The only plausible answer is a further transition, if only to avoid an economically devastating rupture in trade regulations just before the UK general election due in 2022. And, assuming the transition is extended from 2021 to, say, 2023, aren’t further extensions likely, probably evolving into a quasi-permanent arrangement? Norway’s EU relationship via the European Economic Area, also designed as a brief transition, has now lasted 24 years.
This “Hotel California” scenario, in which “you can check out any time you like, but you can never leave,” would ultimately enrage both Brexiteers and Remainers. So what are the other options?
If a hard Brexit is economically unacceptable to British business and Parliament, a soft Brexit is politically unacceptable to EU leaders, and a fake Brexit is unacceptable to almost everyone, that leaves just one alternative: no Brexit.

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