The abrupt break between the United Kingdom and the European Union (EU) at the end of the year seems the most likely outcome of the ‘Brexit’, after deciding the British Government to breach its own Treaty of Withdrawal from the EU and the failure this week of the new round of negotiations on the future trade agreement, which must regulate relations between the two as of January 1, 2021.
The UK left the EU on February 1. But the agreed transitional period maintains the socioeconomic relations between the two unchanged until December 31. Without this increasingly unattainable trade agreement, when the transitional period expires, an abrupt ‘Brexit’ will automatically occur, which will add a new economic shock, especially in the United Kingdom, to the serious recession of the coronavirus.
The endemic blockade of negotiations between London and the EU has its roots in the unreal and fanciful British approaches, which led to the triumph of ‘Brexit’ in the 2016 referendum and which have governed the government’s position since the previous ‘premier’ Theresa May: that the UK could continue to benefit from full access to the European market without being a member of the EU and without having to bear almost any counterpart.
The conservative government of Boris Johnson, dominated by the harshest wing of those in favor of leaving the EU, encourages with its behavior the abrupt ‘Brexit’ in order to achieve its political objective of regaining total control of national sovereignty through a total break with the EU and European Law. Instead of the economic paradise promised during the referendum, Johnson hopes to conceal the very high economic cost of that break in the middle of the deep recession of covid-19, which has led to an annual drop of 21.7% in British gross domestic product (GDP).
The new British internal market law, which violates articles 4 and 5 of the EU Withdrawal Treaty and articles 5 and 10 of the Protocol on Northern Ireland preserving the 1998 Peace Accords, is part of Johnson’s strategy to push the EU to break up negotiations, despite discrediting the UK’s international credibility. The EU fears that the new finance law that the government is finalizing will include new violations of the Withdrawal Treaty.
The EU has not played Johnson’s game and keeps negotiations open, threatening only sanctions for violating international law and the treaty. But the fundamental positions of both in the negotiations make an agreement virtually impossible.
The EU cannot give full access to its market – zero tariffs and zero quotas – without guarantees that the UK will maintain fair competition and that it will not become a tax haven at the gates of Europe, with public subsidies to the letter that give a competitive advantage to their companies and with labor, environmental and agrosanitary dumping. During these eight months of negotiations, for example, London still does not want to detail what the future system of public aid to companies will be.
The British Government, imbued with its sovereign rhetoric, cannot accept the legislative alignments requested by the EU, nor can it maintain the current system of fishing quotas, nor an arbitration mechanism linked to the Court of Justice of the EU. The Johnson administration also does not want any restrictions on public aid for fear of being left behind in the technological revolution and to be able to revitalize the deindustrialized regions where it captured the Labor vote.
The economic impact of an abrupt Brexit will be much worse in the UK than in the EU as a whole, because 47% of British exports are destined for the European market and because the British financial sector, key to the national GDP, will lose its current free access to the lucrative European market. Conversely, the UK only absorbs 6.8% of the total sum of exports from the 27 EU states, according to the European Commission.
An abrupt ‘Brexit’ will cause a loss of British per capita income of 8.1% (with the productivity impacts accounted for) within ten years with respect to the alternative of having continued in the EU, according to the Center for Economic Performance and the London School of Economics. The British Government calculated in November 2018 that an abrupt ‘Brexit’ will mean losing up to 10.7% of GDP and up to 9.5% of per capita income.
Conversely, the impact on the EU of the abrupt ‘Brexit’ will mean a global loss of 0.5% of GDP in the long term, according to the International Monetary Fund (IMF). Ireland will be the most affected EU country, with a loss of almost 4% of GDPfollowed by the Netherlands, Denmark and Belgium with a loss of around 1%. The IMF estimates a long-term loss for Germany of 0.5% and for Spain of 0.2%. The Bank of Spain, for its part, calculates a reduction of 0.5% of Spanish GDP within five years, which could reach 0.8% if the break is disorderly.