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Hard Brexit – Evolving Scenarios for Brexit

November 30, 2016

In developing scenarios, it pays to plan for the unexpected. Back in the run-up to the Brexit referendum, SAMI published a set of foresight articles on different ways in which Brexit might pan out. In order to make clear that we were not trying to “predict” the future of Brexit, we did this by way of drawing analogies with three of the USA’s neighbours, each of whom have a different relationship with their giant neighbour. We took as our models Cuba, Mexico and Canada.

Calling the Shots

Since then, there has been much discussion about whether Brexit will be “hard” or “soft”. Journalists have spent a great deal of time trying to read the auguries within the Conservative Party, as the Brexiteers in the Government contend with the “remainers”. This has created the impression that the hardness or softness of Brexit will be largely determined by the way that the UK Government decides to approach the negotiations with its EU neighbours, once it has invoked Article 50 of the Lisbon Treaty.

That has always been an insular fallacy. Open Europe, in their analysis of the lead-up to the referendum, “wargamed” Brexit, using a panel of ex-Ministers from the UK and other major EU countries, and senior Commission officials. The wargame showed how the EU members would be likely to drive a hard bargain, not least because of concern about the impact of Brexit on their own domestic politics. To give too generous a deal to the UK would be potentially to encourage Eurosceptic and nationalist movements elsewhere in the EU, and potentially to empower opposition parties within member states.

This tends to support the view that a hard Brexit is more likely than a soft one.

The results of November’s Presidential and Congressional elections in the USA is a useful reminder that any Brexit scenarios need to build in multiple risks and uncertainties. And the elections may be a game-changer. The election of Donald Trump seems likely to lead to a significant recalibration of US foreign policy, with a degree of rapprochement with Russia, and a reduced commitment to NATO appearing possible.

More immediately, a Trump presidency could lead to a significant change in the assumptions underlying global trade. Whereas previously there has been a clear, if slow, progression towards global free trade, the rhetoric of President-elect Trump’s campaign indicated a return to protectionism. This could make it a hard world for the UK to seek to make bilateral trade deals – although, to be fair, President-elect Trump has made friendly noises towards Brexit.

This serves to illustrate two key points. Firstly, events beyond Europe could influence the climate in which Brexit needs to be considered. If the US is indeed losing enthusiasm for free trade, and/or playing such a leading role in NATO, then Europe will need to recalibrate its own trade and defence strategies. If that is the case, will it still make sense for a fractious UK exit from the EU, or will the case become stronger for a more amicable settlement, and some sort of continuing security and defence relationship at least?

The election of President Trump may convince a critical mass of European opinion formers that the UK and the EU need to work together, not fall out.

Secondly, future events within the EU will significantly affect the outcome. If the Italian referendum sees the Government defeated; if the forthcoming elections in Germany and France see changes of Government, then the attitude of the key European players to Brexit can be expected to change. And such events – event the prospect of a US-style entry fee for UK citizens holidaying on Europe post-Brexit, may influence opinion in the UK itself.

If there is a renewed fiscal or financial crisis in Europe, or the UK economy falters, again, the attitudes to Brexit will change. This could play either way – ie bolster the hard or soft Brexit options, depending on the particular events themselves.

Building Brexit Scenarios

So, in looking at possible Brexit scenarios, we need to model at least three distinct key drivers of uncertainty:

  1. The way events play out in the UK – the debates between “hard” and “soft” Brexiteers, and the outcome of litigation over the role of Parliament in invoking Article 50, and the state of the UK economy and economic confidence
  2. Events in Europe – debates between those in favour of compromise and those unwilling to make concessions, influenced by political and economic developments within the EU
  3. External events – in the USA, Russia and elsewhere, and in the global economy and global trade

Beyond Brexit

Looking beyond Brexit is difficult – as trade talks might continue for many years beyond the formal negotiations around Article 50. But it is also important. As events unfold, SAMI Consulting will continue to revisit its own scenarios and continue to blog on the unfolding future.

Written by David Lye, SAMI Fellow

The views expressed are those of the author and not necessarily of SAMI Consulting.

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