Wednesday, August 07, 2019

Can we expect the EU to behave "rationally" in the face of "no deal"?

Published in The Daily Telegraph:

Brexit negotiations have descended in a game of chicken, with the EU repeating that it is unwilling to reopen talks on the binding part of the deal Theresa May struck. This rules out pretty much any concession to the UK..

It was predictable that the EU wouldn't simply change its tune the day after Boris Johnson became PM, but what will happen in the next few weeks? Will EU capitals look at the withdrawal agreement again, and perhaps change the terms of the Brexit negotiation mandate  they have given to the European Commission in order to offer concessions?

Rationally, that's what they should do. Avoiding a "no deal"  Brexit would deliver much more of what Ireland is trying to achieve than letting a no-deal Brexit happen. After all, a o deal may hit Ireland's economy harder  even than the British, and because the Irish government would need to put up a border of some kind, both the peace process and Irish relations with its EU partners may come under strain.

As for the other EU member states, a deal is rationally preferable to no deal too. Any damage to the UK economy would do little  to soothe the pain inflicted upon the Belgian, French, Dutch and German economies. Amid predictions of a German recession and the escalating trade tensions between the US and China – to which the EU is particularly vulnerable given its weaker industrial base – one can hardly think of a worse time for Europe for a "no deal" Brexit to occur.

So will the EU be rational? Nobody can predict the future, but there are a number of reasons to suppose there is at least a chance.

First of all, the EU side has  shown some flexibility already during the Brexit process. In November, it conceded that as part of the "backstop", the whole of the UK – and not just Northern Ireland – could enjoy tariff-free access to the EU. Another example is how, in the spring, after weeks of grand statements that the EU was "prepared" to go for no deal, it was ultimately only an isolated French President still pretending this that this was true. It wasn't very credible then, given how Calais had been plagued by customs strikes for weeks, with question marks hanging over bureaucratic preparedness for all to witness. Various reports, including one from the CBI, have highlighted how  today, too, the EU isn't exactly as well-prepared as it claims.

More fundamentally, claims that the EU would be unable to violate certain sacred – and often arbitrarily defined – "principles" are simply factually incorrect. During the eurozone crisis, emergency bailout funds worth billions and billions of euros were agreed over a weekend, in open violation of the letter and the spirit of EU rules, given how Germany had only sacrificed its D-Mark in return for a Treaty ban on bailouts. During the chaos of the migration crisis, member states simply stopped applying the letter of the Schengen agreement, which scraps passport checks, once again dubiously bending the law.

Over the years, the EU has reconsidered deals it had struck with governments, after referendums and parliamentary votes contesting them. In the 1990s, the Danish received an opt-out from having to join the euro and other grand EU schemes, after the Maastricht Treaty was rejected in a referendum. Lesser concessions were granted to the Irish after they rejected a new European Treaty twice in the 2000s, to the Dutch after they rejected the EU-Ukraine Treaty in 2016 in a referendum, and to Wallonia's Parliament when it refused to agree the EU-Canada trade deal in the same year.

Some have argued that these were all concessions to member states, which are not likely to be offered   to  the UK since it is  leaving. But, given how economically integrated the EU27 are, that overlooks the fact that this is really a negotiation to prevent damage due to a part of the pan-European economy breaking off. This is an intra-European divorce and the UK leaving is no minor  matter, as its economy is equal in size to the economies of the EU's 19 smallest member states.

The EU has, moreover, been flexible to non-EU countries in the past – for example to Switzerland and Ukraine, entering into trade frameworks with both in which the sacred "four freedoms" were split. The EU-Ukraine Treaty, for example, does not include freedom of movement of persons, something which EU propaganda has in other circumstances described as intrinsically linked to openness to goods and services trade.

There are nevertheless also good reasons to think the EU won't be rational and will continue to refuse concessions. If Boris Johnson doesn't reassure them that any concessions will actually result in a deal, it gets tricky. And  the EU side may be complacent when it comes to no deal. They may think that predicted massive job losses can reasonably be avoided through mitigation measures, while forgetting that they may also  find themselves in a context of mutual blame sharing, which would make such measures harder to agree. How big would French President Macron's room to be flexible be, for example, if French fishermen lose access to UK waters, which is an automatic consequence of no deal? And how much room for manoeuvre would Irish politicians have, if they attempt to blame the UK to deflect domestic criticism that they had not properly prepared for no deal? It's not clear that the EU side have thought this through, so don't bank on them being the adults in the room.