“Decade of uncertainty” warning rings true

by Luke Lythgoe | 29.02.2016

Brexit might trigger “up to decade or more of uncertainty” which would damage financial markets, investment, the pound and jobs, according to a new government report. Chris Grayling has slammed this claim as “ludicrous”.

The eurosceptic minister instead argued on BBC Radio 4’s Today programme (listen at 2:33:00) that a deal on the UK’s future relationship with the EU could be “relatively quick”, citing the EU’s trade deficit with the UK. He has little basis for such optimism.

The government report, published by the Cabinet Office on 29 Feb., looks at the practical processes involved in disentangling the UK from the EU. Should the British public vote to leave on 23 June, there would be three negotiation processes.

The first, set out in Article 50 of the Lisbon Treaty, is to exit the EU. Many issues would have to be resolved including cross-border security arrangements, cooperation on sanctions against Russia, whether Brits could still use European health insurance cards and whether the UK would still have access to the single aviation market.

The second is negotiating Britain’s future relationship, especially its trading arrangements, with its EU partners. Article 50 doesn’t specify whether these negotiations can happen simultaneously with the exit negotiations, or must wait until afterwards.

If the UK pursues a free trade agreement with the EU, as it almost certainly would, this could take many years. Even the EU’s fairly delay-free negotiations with Canada have taken seven years. The UK’s negotiations would be more complex given how its economy is entwined with the EU’s. They might also be conducted in an acrimonious post-Brexit atmosphere.

Finally, the UK must renegotiate its trade deals with non-EU countries, all of which it originally agreed as a member of the EU’s single market. The report reasonably suggests other countries might be inclined to wait until the uncertainty of the UK’s new relationship with the EU was settled.

During this time the UK would have to rely on World Trade Organisation rules, with all the barriers to trade that entails.

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    Grayling has a faster scenario, arguing financial interest will force Europeans to seal a deal quickly. He points to the EU’s “£50 billion-plus” trade deficit with Britain. By contrast, the report points out that exports to the EU account for 12.6% of the UK’s GDP, while exports to the UK only count for 3.1% of the EU’s GDP. This suggests Britain would be more desperate to do a deal than its former partners.

    Grayling insists the Germans have already said they’d “move quickly to have a new trade deal with us”. But Germany is only one of 27 states, each of whom would have a veto at key points in the Brexit negotiations.

    It is ironic that eurosceptics, who complain so often about the slowness of EU bureaucracy, expect the divorce process to be so painless.

    Edited by Hugo Dixon

    2 Responses to ““Decade of uncertainty” warning rings true”

    • Lord Lawson on the World at One today claimed that the UK would not have to renegotiate new trade deals with those non – EU countries with the which the EU currently already has a trade deal. So nothing would have to change. The article above says the opposite. Who might be correct?

    • Lots of talk about the costs of membership even after netted down. However our net,net contribution is spent , presumably, in areas which if we were out we would still wish to fund so a net figure should be seen in that light. Can we break it down further?