Aug 23, 2018

U.K. warns of Brexit crash landing

Brexit Secretary Dominic Raab. Photo: Peter Nicholls/AFP/Getty Images

With the Brexit deadline approaching and breakthroughs proving elusive, U.K. officials today released a contingency plan for crashing out of Europe without an exit deal.

Between the lines: The immediate consequences of a "no-deal Brexit" include possible shortages of medicine and benefits losses for British pensioners living in Europe. A bad breakup between the world's 5th largest economy and a bloc that accounts for nearly half its trade would also have long-lasting consequences that stretch across the continent and beyond.

Sebastian Payne, political editorial writer for the Financial Times, emails from London that negotiations remain deadlocked:

  • "If no withdrawal agreement is struck before 29 March 2019, Britain will spill out of the bloc without formal trading arrangements. It would be forced to move onto basic World Trade Organization terms, which would introduce tariffs and customs checks overnight. Both sides expect it would bring immediate administrative and economic disruption."
  • "The May government is upping preparations for such a scenario — mostly to threaten Brussels that it is prepared to walk away from the talks if it does not broker a good deal. The U.K. can prepare as much as it wants for a no-deal Brexit but critically, it cannot control what the EU would or would not do."

The bottom line: "The chances there will be no deal by March are around 50/50 right now. Ultimately, however, a deal is in everyone’s interests. It would risk so much disruption that nobody — especially Theresa May — is willing to let it happen. Instead, if progress is still lacking throughout the fall, the Brexit negotiations would most likely be extended until a smooth Brexit deal is in sight."

What they're saying: U.K. Foreign Secretary Jeremy Hunt, who campaigned for "remain" during the Brexit battle, has been warning far and wide of the consequences of "no-deal" for European relations.

But when I interviewed him on Tuesday evening, he insisted that the U.K. would be better off outside of Europe even if no deal is reached.

"I think, geostrategically, it could be hugely damaging. But in terms of Britain’s narrow self-interest, our ability to prosper and survive and thrive economically, I’m totally confident we can do it.”

Q: If we're having to talk about survival, surely you'd be better off in Europe?

“If the only variable in your equation is the degree of friction with your neighboring markets... the lower the friction, the faster you’ll grow. But it isn’t the only variable. ... We’d have to make sure we make other reforms to other parts of the economy that meant that we’d more than made up for it."

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