Brexit: No-deal Panic, “Pre-cooked” Plans

Published on December 18, 2019

On the heels of a historic landslide victory last week for his Conservative Party, Prime Minister Boris Johnson wasted no time in announcing he would seek a parliamentary vote to enshrine the end of 2020 deadline for a final divorce deal with the European Union, which would explicitly ban any further request from the UK for an extension of the transition period beyond that date.

That hardline position again raised the specter of a No-deal Brexit at the end of next year and sent the British pound tumbling from 1.3500 down to its pre-election levels of around 1.3000.

But such a foreboding outlook is likely misplaced, in the minds of EU officials in Brussels:

** The widely held assumption for the reasons behind Johnson seeking a vote that would tie parliament’s hands is that a (final, real) hard deadline will focus the minds of both the EU and UK negotiators to move more expeditiously towards a deal. But EU officials believe there is a different calculus at play from London, as while they grant a cliff-edge Brexit would be “economically uncomfortable” for the EU, they believe it would be an economic disaster for Britain.

** EU officials close to the Brexit negotiations believe that Johnson’s hard December 2020 deadline — which would in effect be narrowing his own negotiating room for maneuver as much as the EU’s – paradoxically indicates he is in fact ready to accept a deal much closer in alignment with EU rules than would appear from his bellicose rhetoric in public.

** The European Commission, these officials note, will re-start negotiations formally with the UK on February 1, but crucially, we understand the Commission already has in its desk drawers a draft trade agreement for Whitehall to weigh and potentially adopt with limited changes, and which could be moved fairly quickly.

** The draft will first be circulated among the EU governments through January for last-minute fine tuning, before turning back to London again for the next round of negotiations with the new Johnson-led government, which now enjoys a substantial majority in the House of Commons.

** The length of subsequent negotiations will depend very much on how many changes to the text London pushes for, but these EU officials note (optimistically) that a deal could if all goes well be agreed to rather quickly. Indeed, they suspect that when Johnson guarantees a deal will be done by the end of the year, by hook or by crook, he may in fact be revealing a willingness to accept the bulk of this “pre-cooked” agreement, without fighting the EU tooth and nail “over every period and comma.”

** As has been widely suggested, the matrix of the agreement will, from what we understand, very much resemble the trade agreement the EU struck with Canada, with the addition of some “geography-specific” items. These, officials indicate, would include additional measures to cover areas including fisheries, air, rail, road transport, and financial services.

** All that said, EU officials are under no illusion the process will be a cake walk, or that the compressed eleven-month window between February and December 2020 for formal negotiations will not prove a challenging time frame for striking such a major, final deal.

** But, importantly, it has also been suggested to us that to reduce the chances of failure, the EU will most likely require a deal with the UK to only be ratified by EU leaders and the European Parliament and will not require that it be ratified by all EU national parliaments.

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