Brexit: Towards a deep and comprehensive partnership?

5 December 2017
Fabian Zuleeg (Chief Executive and Chief Economist)

Following significant movements of the UK position in response to EU demands, despite the current impasse on Northern Ireland agreement on sufficient progress seems close. Ahead of the 14-15 December European Summit, Fabian Zuleeg explores the likely scenarios that could be considered during the second phase of the negotiations. 

  1. There is no guarantee that any agreement reached with the UK government will hold up in domestic politics, immediately or some time in future. For instance, if there was no progress in the trade talks, the UK Government would most likely question the payment of its financial obligations and the Phase 1 deal.
  2. The second phase of the negotiations will not be any easier: the UK government is caught between economic and political impossibilities regarding the long-term EU-UK relationship.
  3. In reality, the scenarios for the future relationship are limited. An exit from Brexit is not impossible but unlikely. The have-your-cake-and-eat-it-too scenario – having the benefits of economic integration without the obligations and the transfer of sovereignty that it implies – has been categorically ruled out by the EU27; a determination that is highly unlikely to waver, given the political costs such a scenario would impose on them.
  4. The bespoke deal that Theresa May called for in her Florence speech remains rather illusive: there are no details on what such a deal would involve. The negotiations may be running out of time to design something completely bespoke even if there is a two-year transition period. A degree of using off-the-shelf solutions will be necessary.
  5. There are only a few choices left on the table. One option is some form of European Economic Area (EEA) membership, modelled loosely on Norway, implying participation in the Single Market (and most likely in the Customs Union too to address the issue of the Northern Ireland border).
  6. Alternatively, there could be a negotiated Free Trade Agreement (FTA) modelled on the comprehensive deal the EU has recently signed with Canada or a broader partnership modelled on the EU’s association agreements, such as the one with Ukraine. The latter requires, however, some concessions from the EU that have so far been reserved for aspiring members.
  7. The trade negotiations will be unlike we know them: the negotiators will be trying to construct a deal that distributes the costs of disintegration rather than gains from trade; a deal that makes everyone worse off in the end.
  8. The EU should start preparing blueprints of a potential long-term settlement to help the negotiations progress quickly past Phase 1. This should include both the Canada/Ukraine and the Norway scenarios. While the latter is less likely, a political change in the UK should not be precluded.
  9. A Norway-style deal is politically costly for the UK as it implies breaking the Brexiteers’ red lines. But a Canada-style deal is economically much inferior to the current status quo. For this reason, the UK might end up with no deal at all, driving over the cliff edge by default rather than design.
Discussion Paper
Brexit Infographic