Analysis

Good, bad and ugly – the three possible Brexit outcomes

by Hugo Dixon | 27.02.2017
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As Theresa May hurtles towards triggering Article 50, there are three main scenarios: hard Brexit; very hard Brexit; and no Brexit at all. I put the chances at roughly 60%, 30% and 10% respectively.

But these percentages are not set in stone. Much depends on the actions all of us are willing to take.

After the prime minister’s flimsy White Paper, there is no chance of soft Brexit. The scenario that would cushion the blow the most – membership of the single market and customs union – is not on offer.

A hard Brexit would involve a deal to quit the EU – but not a good one. A very hard Brexit would involve crashing out without any deal at all.

Under the merely “hard” variety, EU citizens here and Brits in the rest of the EU would have their rights guaranteed and we would negotiate a rough outline of a new trade deal as well as a transitional arrangement in the two-year period allowed for under Article 50.

It would take perhaps another five years to nail down the final trade deal.  But that wouldn’t do much for our world-beating services industries. Goods exports would still suffer problems at borders. We’d also have to pay an exit fee running into tens of billions of pounds.

The economy would become less dynamic because of the loss of skills and reduced access to international markets. Uncertainty would also be a drag for years. But the damage would not probably stop May winning the 2020 election, so weak is the official opposition.

Pursuit through the courts

Under a very hard Brexit, by contrast, we would refuse to pay what the EU says we owe. It would then pursue us through the international courts.

We’d have to fall back on the World Trade Organisation (WTO) to govern our trade with the EU. That would involve the imposition of tariffs and non-tariff barriers, which nowadays are a bigger block to commerce than tariffs for most industries. We might even struggle to fit smoothly into the WTO given that each of its members, including the EU, could frustrate the process and cause delays.

The fate of EU citizens already here and Brits across the Channel might be up in air.  The economy would fall off a cliff, causing a recession. There would also be political turmoil. The Tories might lose the 2020 election, especially if Labour had by then chosen a better leader.

Hard Brexit is the more likely scenario because crashing out would be bad for us and the rest of the EU. This is not just about economics. We live in an increasingly dangerous world – with terrorist threats, Vladimir Putin trying to undermine western democracy and Donald Trump in the White House.

Crashing out

But good sense may not prevail. The prime minister has already said no deal is better than a bad one. The talks could easily become acrimonious – especially if we again threaten that we will become a Singapore-style tax haven if we don’t get our way or make more jibes suggesting EU leaders want to give us “punishment beatings” as in a World War Two movie.

May’s decision to suck up to Trump could also poison the talks, as the US president is hostile to the EU. Britain could be seen as allied with an enemy.

What’s more, EU leaders worry that their club could fall apart. They cannot allow us to exit with such a good deal that others follow suit. If Emmanuel Macron or Martin Schulz wins this year’s elections in France and Germany, it will be even harder to get a good deal. Both are staunch pro-Europeans who will put maintaining the integrity of the EU way above economic considerations.

Meanwhile, the European Commission doesn’t want to discuss a new trade deal until there’s progress on how much money we’ll pay – with the opening bid expected to be around €60 billion. If it sticks to this line, the Brexiters may go ballistic – making it tricky for May to stay at the negotiating table.

A further problem is that there isn’t long to nail down a deal and no realistic prospect of stopping the two-year clock if we run out of time. There’s no adult who could knock heads together either. If Barack Obama was still US president, he could have done that. But Trump would probably revel in the chaos rather than tell the two sides to shelve their differences.

Staying in

The prospect of crashing out of the EU, though, is also the scenario that could lead to us not leaving at all. The markets might go haywire if they thought the prime minister was driving the economy over a cliff – particularly if, as seems likely, inflation was also rising. International investors could start cancelling projects and business (which is currently meek) could start sounding the alarm.

External factors could also start to impinge on voters’ minds. If there was a geopolitical shock – say as a result of more unhinged behaviour by Trump – it might seem foolish to abandon our European friends and tie our fortunes to the US president. His planned state visit could crystallise these views.

There is even a chance that the EU will change its attitude to free movement of people as a result of rising populism on the continent. If so, it might be able to offer Britain a concession to stay in the bloc.

In a such a situation, people could start changing their minds about Brexit. Parliament might then have the guts to say enough is enough and insist on a new referendum to see if the public really wants to leave.

Of course,  the prime minister might then call a snap general election. But if she’d lost the support of parliament and the people, she might not be able to pull off such a gambit.

At the moment, many pro-Europeans are downcast and can’t see any way forward. One hears phrases like the ship has left the port. But, if the weather is stormy, ships can turn around and head back to port. They certainly should.

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    This column previously appeared in the New European

    The end of the paragraph on the WTO was amended on Feb. 28 to say other countries could frustrate the process and cause delays rather than exercise a veto.

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    Edited by Luke Lythgoe

    5 Responses to “Good, bad and ugly – the three possible Brexit outcomes”

    • Your publication should be called ‘In-Opinions’ only. Your contemplation regarding Brexit does make sense in many regards. However, your opinion of Jeremy Corbyn is right out of the mouths of Murdoch, May, Blair, Mandleson, et al, all of whom are dedicated Hayekian Neoliberals, lock stock and barrel. Jeremy Corbyn is offering a Democratic Socialist government that makes great sense to me, and the half million others that have joined Labour since he was elected, then twice!

      Our society is currently being ripped from its moorings now, with the poor, sick and disabled being left to shrivel, and sadly for some, die! We are entering a profoundly in humane era. Jeremy Corbyn is not anti-business, as you and the mainstream media would have us all believe. Unfortunately, with this view being pushed so hard, many abject subjects of the Queen do believe this to be true. Jeremy Corbyn has compassion, intellect and integrity, all words that have no place in a sentence relating to any Neoliberal unthinker.

      I am deeply affronted by your writing, and, if you do not change, I call on you to cease your vile publications!

      • Whilst I agree that policies put forward by Jeremy Corbyn are an attractive alternative to neo liberal capitalism the article is about the potential effects on the economy of crashing out of Europe and Jeremy Corbyn is supporting doing just that by refusing to oppose the Government. His imposition of the three line whip on the commons vote effectively muzzled any credible coherent debate in the House of Commons about the effects of leaving the EU, and his stance since 24 June has helped frame the way this issue is viewed by the majority as ‘a done deal’. Effectively, even if he wins the 2020 General Election and anything is possible in politics the economy after a bad or very bad Brexit will be in such a bad position he will not be able to implement any of his laudable socialist policies.

        • Your concerns, Catherine, ring true to me. Many of them relate to the effective, thus far, vilification of the Remain side within the UK mainstream media, even to the extent, as we all know, of attacks on our senior judiciary – with, at best, halfhearted protection from our morally weak Lord Chancellor. From Jeremy Corbyn’s view, including mine and many others, how to respond to this debacle is a matter of establishing a clear strategy and enabling hard tactics. The aim, given a Curate’s Egg 75%’ish acceptance of the value of the EU, is to maximise the options for returning to the EU in time, somehow. The tactics offered by the zeitgeist make any ‘metaphorical footsteps’ taken, to be on a knife edge of acceptability to one group or another. Add to that, deliberate misreporting of his statements, and the field is muddied well beyond comfort!

          I voted to Remain, whilst biting my lip, give that my own support for the EU is philosophically 100%, but practically at only about 66%, give or take. However, my view on Leave was that doing so would lay the UK population to ridiculous reductions in important safety, ecological and equality legislation. With that, I was, and ‘remain(!)’ wholeheartedly again their aims, views and lies. That view of mine persists, and has been strengthened still further by unfolding events!

          With almost all actors/politicians in this field being of a NeoLiberal (ultra-individualism, grab all you can, greed is good, trample on those who get in the way, don’t care for the poor-sick-disabled) persuasion, my only real choice is to support a Democratic Socialist Labour. This is a return for me, after many decades supporting sub-Democratic Socialist parties, all without my membership.

          Do you, Catherine, have any practical angles on these hoary issues?