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Business and Brexit – what now?

August 9, 2017

It seems that every time one stops to examine the process of Britain leaving the EU, the matter gets more imponderable. Every statement by ministers is minutely analysed; minute changes in phrasing are dismantled for hidden meanings; every hour seems to bring more analysis, which itself brings further confusion.

Business does not have time to wait. The departure from Europe will happen in March 2019; EU states will need six months for ratification (October 2018). Companies will soon be starting their 2018 budget process with no certainty whatsoever on the results of the negotiations. Business planning is about stability and opportunity; and there is no stability, and no proof of opportunity in the post-Brexit UK.

In the absence of security in the future, businesses are making their own plans: EasyJet is setting up in Vienna, Bank of America and others in Dublin; and Frankfurt is to become an expanded home for Morgan Stanley, Citigroup and Deutsche Bank. The list will keep growing.

Recent lessons from central Europe

In mid-June, I was in Vienna as co-speaker at a series of round table events on Brexit with government, corporate and regulatory bodies; trying both to explain the British decision and chart ways forwards.

A number of conclusions:

  • The referendum result remains incomprehensible to Europeans, and to European business;
  • Europe has moved on. Britain is no longer considered to be part of the “EU28”, which is temporarily the EU27+1; the real concern is with Europe’s future;
  • The British negotiating positions as set out are almost entirely unacceptable to the EU. Not “unacceptable” in a British sense – changeable with reasoned argument – but “unacceptable” in a very Germanic sense – they are simply not acceptable, full stop. The UK has little to offer in return of concessions it is requesting.
  • European business is sanguine about losing access to the UK market post-Brexit, since it is confident of developing other markets both internally and worldwide.
  • The UK has lost its reputation for pragmatic, considered thought; it seems from outside to be a divided nation going through a form of national nervous breakdown, responding to the same distinctive Anglo-Saxon version of nationalist populism which gave rise to Donald Trump.

Brexit modelling

At SAMI, we have posited a range of post-Brexit scenarios for the UK and Europe:

  • Canada model: very relaxed and open relationship, many open border attributes
  • Mexico model: generally friendly, immigration constraints, stricter regulatory requirements
  • Cuba model: formal embargoes and mutual distrust

Joe Ravetz’s blog posts on this site proposed a “28 Months After” range from, essentially, societal collapse to a flourishing EEA relationship in a harmony of nations.

Which of these scenarios, if any, look more likely in the light of our findings from Europe? The local variables are quite daunting enough, but one must also bear in mind the more macro ones – an unpredictable USA setting its face against international institutions, a Russia which is more openly adventurous after its invasion of Ukraine and its involvement in Syria, climate change and its effect on migration patterns, and a rise in cyberwarfare. These larger elements are outside the control of the negotiating parties, but their effect may echo into their respective priorities.

Coupled with a weak UK government surviving on a supply and confidence agreement with a minor party that itself has mutually conflicting aims from the Brexit process, it can seem as if the future is entirely unpredictable. But let us try.

Options for the future

The Labour party has explicitly said that “Labour must evince a positive vision for the future of our country outside the EU. One that is consistent with the leave voters’ objectives…”. Since that is now the position of the government and opposition parties, we can say that remaining in the EU is not going to be possible. We are then faced with a range: from no deal (the Prime Minister has consistently said that “no deal would be better than a bad deal”) to a “soft Brexit” Norway option, with EEA membership and essentially an associate membership of the EU – our Canada model.

It seems to me that the Norway/Canada option is optimistic. It retains too many of the leavers’ red lines. However, (a) the pattern of the negotiations to date has been that the EU has had the upper hand (David Davis’ failure to produce “the row of the summer” over the process of the talks), and (b) the Repeal Bill implies the acceptance of EU law into UK law, so it must be marginally possible that this option carries through. With the time pressure, it may be the only soft Brexit solution that is achievable.

What seems more likely is that the EU remains constant on its requirements. These requirements are unacceptable to the British side. No real negotiation is possible, and it becomes clear that the British will either have to agree to what Europe wants, or not. Britain would need a different government, and a different opposition, to agree to departure on these terms.

Without that change of government, and without an extension of the negotiation period, one option seems more possible: what, using our previous models, we may call Cuba plus – a Britain outside Europe, running under WTO rules, with hard borders. Membership of NATO remains the most significant link to Europe, coupled with some security-sharing protocols. A long and complex free-trade negotiation process begins with Europe, at the same time as UK attempts the same process with other nations.

It is no surprise that business is already making its move.

Written by Jonathan Blanchard Smith, SAMI Associate.

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

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