For months now, Brexit has dominated much of the news coming out of Europe. This past week saw a more troubling statement from the EU Chief Negotiator Michel Barnier when he told French newspaper Le Journal du Dimanche that a critical Brexit meeting which is set for December 14th may be postponed into next year. This became more significant as he proceeded to warn that all parties need to begin preparing for a Brexit with no deal.
The United Kingdom is facing a quickly approaching March 2019 deadline for all arrangements to be completed. This is why they need the EU to begin preparing negotiations for the trade deal between them by year’s end. One summit already failed back in October. It is now this mid-December gathering that has to succeed or talks may break down with no deal being agreed, causing financial chaos.
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Prime Minister May Is In Trouble and With Her Brexit
Outside observers could easily have trouble understanding what is holding up progress towards a deal between Britain and the EU. If both parties want to avoid massive disruption to trade and continental finance, you would think they could hammer out the terms within the two year time frame that article 50 of the Lisbon Treaty allows for members who choose to leave. Yet now Britain faces a critical five weeks.
A big part of the problems come from the fact that the British Prime Minister Theresa May has been badly weakened domestically. This is hindering the British side from articulating a clear position on key issues. In only the last few weeks, May has seen scandals envelop and bring down two of her cabinet level ministers. Earlier she lost her parliamentary majority in a disastrous snap election she called this year. Now her government is propped up by an understanding with the DUP of Northern Ireland whose 10 member votes give her just enough to pass legislation.
May is also threatened by rivals and challenges to her position as prime minister. The Daily Mail reported Sunday that that she had a letter from pro-Brexit Foreign Secretary Boris Johnson in which he demanded a stronger approach on the negotiations. The Sunday Times revealed that fully 40 different Conservative parliament members are in favor of challenging her leadership of the party. This is only eight less than the number required for a vote of no confidence to be held.
Different Positions Within May’s Own Party and from the Opposition Are Hurting Negotiations
Prime Minister May is also struggling against two different factions within her own Conservative Party. On the one hand, many of them want her to make a hard break with Europe that involves little to no transition time and divorce payments for the European Union. At the same time other Conservatives seek to soften the hard-line stance on departing from the EU.
Over the weekend, the opposition Labour Party waded into the political fray by declaring that the prime minister does not have sufficient support in her own party to provide a Brexit arrangement which will safeguard jobs. They proposed a joint deal which May cannot accept without offending key members of her own party. The opposition’s spokesman for Brexit Keir Starmer wrote her today with these words of warning:
“Over recent weeks, it has become increasingly clear that you alone do not have the authority to deliver a transitional deal with Europe and to take the necessary steps to protect jobs and the economy.”
Starmer argued that a two year transitional deal where Britain remains within the EU customs union and single market is necessary for the country to have enough time to complete difficult trade negotiations. He pointed out that it is members of her own party that are opposed to this type of deal.
The next showdown for May’s efforts to forge ahead comes Tuesday. Her signature legislation on Brexit called the EU Withdrawal Bill will face literally hundreds of recommended amendments for an eight day long debate. In order for this critical legislation to move forward, almost all of May’s own party members (as well as her Northern Irish DUP allies) will have to vote for it.
Yet many Conservative members have signed off on the amendments which complicate the bill getting passed. It likely means that if her government will not back down on the original bill then it will face defeat. These are all reasons why negotiations can not cleanly move forward with the necessary urgency.
Meanwhile Negotiations in Brussels Are Barely Moving Ahead
While the political deadlock amounting to chaos plays out in London, the alarm bells are sounding in Brussels. This weekend the EU’s Brexit Negotiator Barnier warned French weekly Le Journal du Dimache:
“The absence of a deal is more and more openly evoked in London.” Everyone should begin preparing for the real possibility of “no deal” Brexit.
Yet the European side is also not helping the talks to advance, but is stubbornly dug in on conditions being met on the amount of the Brexit settlement and the Irish border question before they will allow them to move forward. The EU side has been pushing for a clear and high settlement figure from Britain for months now. Britain’s Brexit Negotiator David Davis has tried to play down the idea that Barnier requires significant progress on this in two weeks or less for the December deadline to be met, with:
“In every negotiation, each side tries to control the timetable. The real deadline on this, of course, is December.”
December 14-15 is the critical point when the EU will sit down to discuss if Britain made enough progress on these key issues to advance to the trade talks. The Irish will have something to say about this approval as the border between the U.K.’s Northern Ireland and Ireland keeps being raised. Irish Prime Minister Leo Varadkar declared over the weekend:
“The one thing we’ve managed to do in the 18 months since the referendum is to totally align ourselves with all 27 member states. From Berlin to Bucharest, they’re all behind us, and that puts us in a very strong position.”
A No Deal Brexit Threatens British and EU Economies
A Brexit deal coming together is critical for the regional and world economy because of the trade and investment ties between them. Any no-deal Brexit means that not only Ireland and Britain, but the entire EU block, will face massive barriers and tariffs to trade.
The trade between the British and the EU is significant as a percentage of totals. Approximately 43 percent of United Kingdom exports for both goods and services were to EU member states last year in 2016. This amounted to 240 billion pounds of 550 billion pounds in aggregate exports. On the U.K. side, 54 percent of British imports were from EU nations that year. This graph shows how significant it is:
European countries will be affected dramatically too. They sell 80 billion pounds more in goods and services to Britain than it does to them. The chart below reveals the countries which will be the most negatively impacted if trade is significantly impaired:
Impacts on the EU and British Economies Will Affect Everyone
Germany, Spain, and the Netherlands stand to lose the most in exports to the United Kingdom out of the EU Nations. Yet the effects of a no-deal Brexit will reverberate around the world. By some measurements, the EU is the largest economic block on the globe and the largest single trading group. When the EU sneezes the world catches a cold.
Britain itself is the fifth largest economy in the world. Its capital London is one of the two main financial centers on earth. A significant economic setback for the United Kingdom substantially impacts the world economy as well.
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