Reaching a mutually beneficial Brexit deal has so far been beyond the reach of UK and European Union (EU) negotiators. Now that COVID-19 has struck, can they avoid a damaging split?
COVID-19 has made the world a very different place from when we last wrote about Brexit. Back in January, we argued that the UK was likely to exit its transitional arrangement with the EU at the end of this year on either World Trade Organization (WTO) terms or with only a rudimentary trade deal—an outcome once called a hard Brexit. We thought this would make a recession in the UK more likely, leaving the pound vulnerable.
Several months on, the probability of a disruptive Brexit outcome has increased. Negotiations on the future trading relationship between the UK and EU have made little progress, and the deadline for extending the UK’s transition deal with the EU has passed.
While negotiations seem to be taking place in a more cordial atmosphere, there is little evidence of a meeting of minds on the most contentious issues: level playing field provisions, fishing rights and the role of the European Court of Justice. Moreover, the EU remains concerned about implementation of the Northern Ireland protocol to avoid a hard border on the island of Ireland (without which, there will be no agreement).
More Intense Negotiations in Prospect
We are entering a more intensive period of face-to-face negotiations. The UK would like to conclude matters by the end of the summer so it can continue preparing for the end of the transition phase—including, if necessary, reverting to WTO terms. But unless the negotiations break down altogether, a summer deadline looks wildly optimistic. It’s quite possible discussions will drag on into October, a hard deadline for the EU if it wants to ratify an agreement before the end of the year.
In January, we identified four scenarios for the end of the transition phase: no deal/WTO, limited agreement, close alignment and extension.