Agreement on the Brexit “divorce bill” is very good news, involving the UK settling its outstanding commitments to the rest of Europe. Trade negotiations will now be able to start and they will not be straightforward, as Michel Barnier recently explained with the backing of the remaining EU 27. There will be no exceptions to the rule, the UK cannot have a tailor-made agreement, all sectors will be treated equally with no special allowances.This is a judicious strategy from the European Union as the UK economy depends very heavily on the EU for its external trade. Once again it is worth remembering that countries trade primarily with their neighbors. There is a logical and proven relationship across the world between the extent of trade between two countries and the geographical distance dividing them. For example, Australia can be part of the Commonwealth and enjoy a privileged relationship with the UK, but the extent of the trading relationship is less extensive due to the physical distance between the two countries. So it is unlikely that trading ties can develop on a long-term basis between the UK and countries that are geographically remote, contrary to the argument put forward by Brexiteers that does not hold water.
It means that the countries of Europe will remain the UK’s privileged trading partners.
At the same time, the UK is a key partner for a number of European countries. It is a country where business is diversified and it is geographically close to its European partners, so following the logic outlined above, it stands to reason that it is in Europe’s interests not to reach the point of no-return with the UK. Not to mention that in the absence of an agreement, business with the UK could not continue. How could countries have their planes land at Heathrow without a trade agreement? Impossible. It is therefore vital for this sector and many others that an agreement be reached if we are to avoid serious repercussions for EU companies.
It is in the interests of all concerned to pull in the same direction and the UK should thus maintain access to the single market even after its vote to exit the bloc as the EU will remain the UK’s main external trading market. However, in light of European Union legislation, this means that the UK would have to agree to the rules dictated by Brussels without having a say in them.
If the UK refuses to abide by the EU’s conditions, the country would then trade under general WTO rules, which would be more damaging for business in the UK.
I think it is vital for the UK to accept access to the single market and comply with Brussels’ conditions. This is the only feasible outcome for the country.
However, I do not think that the UK will put up with this situation. Norway has access to the single market and follows these same rules set by Brussels, but the country boasts strong oil production and the resulting high revenues, while the rest of the economy is not very diversified. Complying with Brussels’ regulations is therefore neither a severe limitation nor entirely prohibitive for them.
Yet the UK cannot adopt a similar framework to Norway. It no longer enjoys high oil revenues and its economy is highly diversified, so it can only grow in tandem with its main partners by following EU policies, which will not be decided or even influenced by London (it is worth remembering that the UK has traditionally been the most active member in Brussels in influencing legislation on the single market).
The straitjacket on the UK economy will be pulled so tight as to make this situation unsustainable in the long term. The country’s economy and its growth will be hampered in the long term and it will no longer be in a position to attract talent as before. The only solution will be to join the European Union again and this is my take on the situation. In ten years, if things play out as outlined above, the UK will join the European Union again as it will be in its best interests to do so.
The short-term risk for now is the resignation of Theresa May and the appointment of a hardline Brexiteer successor, as this would mean no deal on access to the single market, and Brexit pushing the UK economy into very deep water indeed.
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This is the English version of my weekly column for Forbes (read it in French here)