Two-step deal isn’t silver bullet

by Hugo Dixon | 09.08.2016

If we trigger Article 50 and quit the EU two years later, the economy could suffer a trauma. Hence, an idea gaining currency that we should spend several years in a half-way house post Brexit. During that period, we would figure out our long-term trade deal with the EU.

It’s a beguiling idea. But to secure such a transitional deal, we’d need to swallow some bitter pills.

A half-way house is appealing because we will not be able to negotiate a comprehensive free trade agreement with the EU in the two years provided under Article 50. It is just too complicated. Without a back-up plan, we would have to rely on membership of the World Trade Organisation, which would give us much reduced access to the single market.

Theresa May must be worried about such an outcome. After all, if we trigger Article 50 early next year, we will be out of the EU in early 2019. We won’t just suffer an economic slowdown now in response to the referendum. The full force of a hard Brexit would hit the economy a year before the next general election. Who knows, the Conservatives might even lose it.

A transitional deal would put off the evil day. Say Britain was able to stay in the single market for a further five years, on a deal similar to Norway’s, and during that time negotiated a long-term trade agreement similar to Canada’s. The immediate knock wouldn’t be nearly as bad as relying on the WTO. There would, of course, still be a further hit in, say, 2024 because Canada doesn’t have nearly as good access to the EU market as Norway does but we’d have a long time to adjust. In any case, politicians love postponing pain.

The snag is that before the other EU countries agreed a half-way house  – if they were amenable at all – they would almost certainly attach three conditions: that we allow free movement for their citizens, follow the rules of the single market and pay into their budget during the transitional period.

In effect, we would have to do things many people voted against during the referendum. And we wouldn’t even have a vote on how the EU was run because we would have lost our seat at the European Council, our European Commissioner and our members of the European Parliament. We would be submitting to rule and taxation without representation.

But couldn’t we cut a better transitional deal than this? It’s hard to see how. The other EU countries wouldn’t have much incentive to give us something Norway, which has been a cooperative partner for decades, doesn’t get.

So we’re likely to be faced with a choice between hard Brexit in 2019 or accepting the EU’s demands for a half-way house – unless, of course, we change our minds and conclude we are better off staying in after all.

Edited by Rachel Franklin

Tags: Categories: Post-Brexit

One Response to “Two-step deal isn’t silver bullet”

  • I completely agree with you. However, it should be pointed out that for most Brexiteers I know, hard Brexit is precisely what they want. A lot of people who voted to leave the EU do not want Single Market access. They can see, just as we can, that having to follow the rules and pay our dues while being demoted to lobbyists in Brussels is demonstrably worse than being in the EU-proper. These people would consider any such deal, even on a temporary basis, as a betrayal by the political class. This whole things is such a quagmire.