Breaking up is never easy but can be revealing about your partner – a guide to the future EU-UK relationship

WHAT BREXIT REVEALS ABOUT THE EU-UK RELATIONSHIP

By Carmen Bell, Account Director at GPLUS

Last week’s UK general election secured a comfortable majority for Prime Minister Boris Johnson and his Conservative Party, surprising sceptics of Johnson’s obstinate “get Brexit done” campaign and dashing Remainers’ hopes for a hung Parliament. For the EU, it brings a welcome end to years of uncertainty with the likelihood that Brexit will go forward. As the 31 January deadline nears, Johnson should contemplate what UK withdrawal means for an EU faced with a geopolitically challenging environment. How will concerns about European autonomy and integration shape Brussels’ approach and how should the UK address them?

The EU’s dilemma in a less multilateral and more isolated global context

Immediately following the election, Brussels leapt into “take charge” mode. Last Friday’s European Council summit promised coherence, unity and transparency for the negotiations, accompanied by a splashy “multimedia story” to market the EU27’s preparedness. There are also attempts to replicate the discipline from phase one of the negotiations on withdrawal – Michel Barnier will return as EU negotiator, the European Commission will draft up a mandate and a dedicated Working Party will facilitate Council decision-making.

For all this glossy preparation, the subtext is apprehension about preserving  Member State solidarity. Diverging national priorities will feature this time around, exacerbated by the political climate around the EU budget, eurozone reform and rule of law, not to mention debates on EU federalism versus a multi-speed Europe. Tensions with East and West further expose vulnerabilities. The US uses trade to test whether “core” States like France and Germany will put national interests above European, while China gains influence over “peripheral” States such as Poland, Hungary and Greece through investment in technology and infrastructure, security concerns notwithstanding.

The UK’s transition to strategic competitor or privileged partner

It is here where the UK makes its choice. It can try to exploit these divisions, a tactic destined to fail so long as the EU’s survival remains on the line. Or it can insert itself into the EU27’s mission to emerge from Brexit as a strong and reliable partner, aiding in the prevention of other “exits”. After all, a stable and robust EU provides far more opportunities than one suffering an economic downturn.

One way to do this is to identify areas of mutual benefit in the EU-UK partnership – security and defence, capital and investment, digitalisation and innovation – and adopt a strategy that serves the global competitiveness of both without sacrificing Single Market integrity. This means the UK accepting certain truths, namely that alignment with the EU in these identified areas is key.

When it comes to goods, the EU will scrutinise willingness to maintain social, environmental and consumer standards, as well as tax and state aid rules, tricky if the UK seeks an equally ambitious deal with the more deregulatory US. Rules of origin to address the national source of a product will also accompany any “Canada-style” deal supporting tariff- and quota-free market access to avoid opening the EU up to third countries with whom it has no such agreement. The UK’s global trading status and proximity to the Continent will be the very incentive for Brussels to enforce such rules.

Then there is the issue of services. Projects like the EU’s Capital Markets Union could profit greatly from the City of London’s liquidity, but opening up the EU’s financial markets will require some form of prudential and supervisory cooperation to ensure an equivalent regime deemed sufficient to prevent the next financial crisis. Professional, telecom and scientific services will also hit barriers without the mutual recognition standards currently afforded under EU Directives on services and professional qualifications.

The Brexit date will be just the beginning of this compromise

At the end of the day, there is value in fudging the red lines pre-emptively drawn in this poker game. Johnson’s win may encourage him to support trade-offs to avoid the dreaded cliff-edge scenario that could tarnish his legacy, though he will have to convince harder elements of his party seeking sovereignty to explore new markets and broker trade deals. In parallel, the EU will look to the UK for combatting trade and security threats from the US, China and Russia. But a level playing field and strong governance – potentially involving the European Court of Justice – will remain top priority.

What this means is that the preferred route of “soft” Brexit will be anything but. Free trade does not eliminate the need for customs documentation or reduce checks at the border. Rather, “soft” takes on new meaning as both sides try to minimise new barriers between their economies as opposed to dismantling existing ones. Prioritising certain areas would help. If Brexit has shown us anything, it’s that deep red lines can turn pink when deadlines are near, meaning there may yet be room for stakeholders to give these negotiating parties a dose of strategic clarity.