The Brexit Deal Is Just Too Good for Europe
(Bloomberg Opinion) -- If the British parliament throws out the deal that Prime Minister Theresa May’s government has negotiated with the European Union, it will be most regretted in Brussels, because the deal in its existing form essentially insulates Europe from most of the Brexit fallout.
There’s a reason Donald Tusk, the European Council president, hurried on Thursday to call a meeting of EU leaders for Nov. 25 before there was any clarity on whether the deal will survive attacks from all sides in the U.K. As Tusk said, it’s always been the position of the EU that Brexit is a lose-lose proposition and any negotiations can only be about damage control. But the draft agreement isn’t at all bad for Europe.
The deal is built to make sure European companies, notably German carmakers, don’t lose an important market and don’t need to revamp their supply chains. According to the documents released on Thursday night, business gets a triple guarantee.
First, there’s the transition period until the end of 2020, which can be extended indefinitely and which essentially keeps the U.K. in the EU for all purposes except decision-making.
Second, there’s the backstop to avoid a hard border in Ireland, to which U.K.-EU relations revert if the transition period isn’t extended. It’s almost the same deal as the one Turkey has with the EU, imposing on the U.K. pretty much all the bloc’s goods trade rules plus some 25 pages of “level playing field” regulations that make sure Britain doesn’t try to out-compete its former partners by setting lower environmental, labor, state aid, antitrust and other standards.
Third, there’s the future economic relationship that’s supposed to “build on the single customs territory” between the EU and the U.K. No version of a customs union is dangerous to goods producers.
Brussels’ losses from the deal are limited. Unless the transition period is extended, it stands to lose some 13 billion euros ($14.7 billion) a year in U.K. contributions and save about 7 billion euros a year it’s been investing in the U.K. Other than that, it’s not so terrible. For example, fishing fleets from EU countries will have less opportunity to fish in U.K. waters (although they probably won’t be kept out entirely). Equal access to U.K. public procurement will be lost to EU firms, although that might be temporary. Europe also stands to lose some of the close law enforcement and security cooperation with the U.K., although new arrangements will almost certainly be made.
There are gains, too. More precarious access for U.K. finance firms to the EU will force them to build strong continental bases. The end of the free movement of people between the EU and U.K. can also benefit Europe. With less opportunity to emigrate, eastern European nations could get a respite from debilitating population outflows. Latvia would like to lose fewer people to the U.K., and so would Poland. Germany, with unemployment at historic lows and a shortage of qualified workers, could benefit if migrants go there instead.
But perhaps the best thing about the deal for the EU is that any member country can look at the Brexit documents and not find a single reason why it might be worth the trouble to quit the bloc. Europe’s chief negotiator, Michel Barnier, has crafted an effective deterrent to copycats.
The problem, of course, with the documents being so good for Europe is that they’re so bad for the Brits. Guenter Verheugen, who served as a European Commissioner for more than a decade, wrote on Friday that playing to win every point in the Brexit negotiations wasn’t necessarily the best strategy. “Anyone who presses the British into an EU corset that is too tight today will lose any chance of their coming back voluntarily,” he wrote.
So tight is the corset that there’s an extremely high chance of May’s deal being shot down by U.K. lawmakers. Yet her deal would be nigh on impossible to renegotiate for any other British prime minister, given the EU’s position. As such, there’s still a real danger of no deal at all (unless the advocates of a second referendum score an unlikely victory). In a no-deal scenario, losses for European businesses would be immediate and brutal.
Should that happen, Barnier will have to shoulder his share of the blame, along with the EU leaders who gave him such a rigid set of instructions. There’s an old wisdom about playing poker with a fixed group of partners: If you win all the time, eventually no one will want to play with you. That’s the trap EU negotiators have set for themselves.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Leonid Bershidsky is a Bloomberg Opinion columnist covering European politics and business. He was the founding editor of the Russian business daily Vedomosti and founded the opinion website Slon.ru.
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