How to Avoid the Worst Possible Brexit

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(Bloomberg View) -- At a European Union summit this week, the bloc's leaders are expected to formally declare that the Brexit talks can move forward. Not a moment too soon. Britain and the EU have spent 18 months since the U.K.'s decision to quit avoiding the main issues -- namely, their future trading relationship and a plan for getting from here to there.

With Brexit scheduled for March 2019, no further delay is affordable. The topics now confronting the negotiators are more complicated than the ones that have occupied them so far. Last week's supposed "breakthrough" over the divorce settlement shouldn't fool anybody: Even now, avoiding an exit that wounds Europe and cripples the U.K. won't be easy.

Tentative agreement has been reached on the settlement of U.K. liabilities, the status of EU citizens in Britain, and the future of Ireland's border with Northern Ireland. That last question, in particular, is by no means solved, but EU negotiators have rightly decided not to let it hold things up any further.

This suggests a softening of Europe's approach to the talks -- marked up to now by a calculated, and tactically shrewd, lack of flexibility. The U.K. should reciprocate with less vacillation and a new willingness to make specific workable proposals.

The next stage of the talks is likely to concentrate on the transitional arrangements that will come into effect in 2019. These should be kept as simple as possible -- meaning, in effect, that the U.K. should conform in full to EU rules for a minimum of two years, even though it will give up any say in what those rules may be.

Presenting this unpalatable prospect to voters will be a severe political test for Prime Minister Theresa May and her government. May's weakness was underlined this week when members of her own party voted with the opposition on the need for parliamentary approval of an eventual Brexit deal, resulting in her first big legislative defeat. Despite her political frailty, she needs to lead, rallying the country behind a transition that lets U.K. businesses continue to operate as usual, until a long-term arrangement can be concluded.

Therein lies the greatest challenge. Britain would like to establish the closest possible trade relationship with the EU -- covering services (especially financial services) and not just goods -- while separating itself from the EU system of governance. That is not an absurd thing to want, but it will be a very difficult thing to achieve, because the EU has bound its economic and constitutional arrangements closely together.

There's no template for what Britain wants. Its current trade relations with Europe are virtually seamless, going far beyond what even the most ambitious bilateral free-trade deals have achieved. On the most optimistic assessment, any trade deal Britain might reach with the EU will fall short of what it currently has. And working through the details of a new accord is an enormous task.

Nonetheless, an ambitious deal is worth the effort -- for the EU as well as Britain. Europe knows from experience the benefits of unfettered international commerce. And its leaders needn't worry too much that a successful Brexit would encourage other countries to leave the union, because even a relatively successful Brexit is bound to fall short of Leavers' hopes.

Perhaps the declaration of "sufficient progress" on the divorce settlement will lead to a more productive phase in this unfortunate process. If both sides keep in mind the benefits of liberal trade and the importance of close cooperation in defense and other matters of mutual interest, they can avoid the calamity of an angry and disorderly split.

--Editors: Clive Crook, Mary Duenwald

For more columns from Bloomberg View, visit http://www.bloomberg.com/view.

©2017 Bloomberg L.P.

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