The victory of the UK prime minister Boris Johnson’s Conservative Party in the recent election will have impressed several European leaders. Many of them will be envious when they look at the elections ahead, none can be thinking of achieving such a commanding majority. However, they will soon be putting together the rules that will guide the Brexit negotiations to follow on the future relationship between the two sides.
For the European Union, facing a prime minister entrusted with such a popular mandate to implement his policies and his vision of Brexit does not change much in terms of the economic reality. EU leaders have already started to remind Johnson of the predicament he has put himself in with promises that seem incompatible with the tough realities of international trade and its negotiations.
The new president of the European Council, Charles Michel of Belgium, was among the first to congratulate Johnson on his victory. The EU is “ready for the next phase” and will “negotiate a trade deal which ensures a true level playing field”, he tweeted recently. “Everything is there, we’re ready, let’s move on.”
Brussels will have Michel Barnier in charge of future treaty, negotiating with the UK just as he did for the withdrawal agreement and it will be emphasised in the next few weeks how impossible it will be to conciliate Johnson’s promises to strike a deal by the end of the 11-month transition period that will start on 31st of January with his stated intention to conclude a “comprehensive” agreement.
But in taking a hard line on negotiations, the EU will do well to bear in mind that the Eurozone’s economy is stuck in its worst spell in six years, economists have warned, after it failed to gain momentum at the close of 2019. Output barely increased in December, registering a score of just 50.6 on IHS Markit’s Flash Eurozone purchasing Managers’ index (PMI) Composite Output Index. Anything below 50 represents a contraction. While services sector figures in the Eurozone PMI hit a four-month high at 52.4, manufacturing’s recession deepened over the month, falling from 47.4 in November to 45.9.
A normal trade deal, based for example on the one concluded with Canada, would take between five and seven years to negotiate, conclude and ratify, according to most experts.
As Pierre Briancon of Barron’s Group points out, the complexity is compounded by the fact that the UK no longer has a proper bureaucracy able to negotiate trade deals. Trade matters have long been the exclusive remit of the European Commission, and national governments no longer have the expertise and talent to conduct trade talks, which have relocated to Brussels.
The sequence of events is easy to predict, Briancon says. Uncertainty will prevail over whether or not the UK government asks for an extension on the transition period for one or two years (the maximum allowed).
This predictable drama will unfold in the first half of the year, since a request has to be presented before 1st July. The EU is able and maybe ready to clinch a quick deal, of the type that would hurt the UK economy most.
As Sir Ivan Rogers, the former UK representative at the EU, has noted, a bare-bones agreement of hard-core Brexiteers profess to prefer would only cover the exchange of goods, on which the UK has substantial deficit with Europe. Such a deal would have to leave aside the sector of services, on which the UK, on the other hand, has a significant surplus.
Some in Brussels are already pointing out that Johnson previously warned that he would “rather die in a ditch” than extend the first Brexit negotiation beyond October 31, however, it did get extended. It is still unclear whether the hard-core right wing Brexiteers will keep their influence on the prime minister, and how strong they will be in the new parliament.
But a limited treaty would also be compatible with Johnson’s stated intention to diverge significantly from the EU rules and regulations.
The downside, here again, is that it will hurt the UK economy the most. Maybe the prime minister thinks the shock could be smoothed out with a little help from the central bank.
On the other hand, requesting an extension to negotiate a more comprehensive treaty would expose Johnson to the fury of Brexiteer MPs who want to see the UK get out of the EU’s regulatory control as soon as possible. (The author is our foreign correspondent based in the UK. He can be reached at andyjalil@aol.com)
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