The EU must break the Brexit deadlock


This week, we will finally learn whether a Brexit deal can be agreed. Whatever is decided, it will have significant long-term implications for Europe – affecting not just the terms of trade and common rules, but also the European Union’s place in the world. To be able to stand its ground and defend its interests vis-à-vis China and the United States, the EU must maintain a strong relationship with the United Kingdom and prove that it can adapt to changing global dynamics.

The current Brexit negotiation’s importance is only superficially linked to commercial costs of the UK crashing out of the EU and having to adhere to World Trade Organisation rules (though this will almost certainly create havoc for supply chains in the coming months). The looming political, social, and strategic costs are even more consequential.

After all, a no-deal scenario would deprive Europe of the foundation on which to build a future relationship with the UK. Pretty much everyone agrees that the goal should be to build a strong long-term partnership that respects UK sovereignty and gives each side sufficient space to pursue its interests. This is necessary even if – as many in the EU are wont to point out, nation-states’ sovereignty is inherently limited in a globalised world.

The message that a no-deal Brexit would send to the rest of the world would be devastating for Europe. It would indicate that other leading powers need not worry about respecting Europe’s wishes in key policy areas. In today’s polarised world China is becoming increasingly self-confident and assertive, and the US is looking inward to its own domestic problems (this will likely remain the case under President-elect Joe Biden’s administration). It has never been more important for Europe to pool its resources and influence so that it can speak with one voice.

Moreover, a strong relationship upon which to achieve mutual prosperity is as important for the EU as it is for the UK. Britain has much to offer in areas where Europe is lacking. For example, as the continent’s only global financial centre, the City of London could play an instrumental role in maintaining Europe’s status as an attractive place for international investment and a leader in financial innovation, as well as a platform on which to strengthen the euro’s international role.

Of course, failure to reach a deal would also seriously threaten the UK – whose national integrity depends in no small measure on the 1998 Good Friday Agreement and absence of a physical border between Northern Ireland and the Republic of Ireland. But as the latest internal challenges from Poland and Hungary show, the EU cannot take its own integrity for granted, either. It would be foolish to think that taking a tough line with the UK will discourage these governments from acting as spoilers, let alone make it easier to tackle much-needed EU reforms in the future.

The rational decision, then, is for everyone to agree on a deal this week and move on. The EU is in a position of relative strength in these negotiations. It knows that Brexit will change little with respect to its internal functioning, and that the UK is facing the monumental task of rebuilding its institutions and charting a new policy course outside the EU.

At the same time, given the EU’s strong interest in a prosperous post-Brexit UK, it should take the first step toward breaking the current deadlock by softening its stance on maintaining the equivalent of existing state-aid and dispute-settlement regimes. It is highly unlikely that a relatively large country like the UK would – or even could – free-ride on the EU in the way that some small countries do. Moreover, the EU should drop its insistence on fishing rights, which are economically unimportant but politically potent within the UK as it pursues some degree of demonstrable sovereignty.

The most important task for the remainder of the negotiations is to draw up a blueprint for rebuilding the EU-UK relationship in the months and years ahead. In an increasingly polarised world, both sides need to agree in principle on common goals and objectives so that they can cooperate on climate change, the digital transformation, and other shared challenges.

The details of a future EU-UK relationship will not be decided by the Brexit deal. That process will unfold and evolve for years to come. Nonetheless, terms of the separation that are being decided right now will have profound implications for both the further development of bilateral ties and for Europe’s role in the world.

An amicable agreement that can serve as a solid foundation for the next phase of engagement is thus essential. The European Commission and German and French governments would do well to adopt a longer-term perspective, because this would show them that the only reasonable step now is to break the deadlock.

Marcel Fratzscher, a former senior manager at the European Central Bank, is President of the think-tank DIW Berlin and Professor of Macroeconomics and Finance at Humboldt University of Berlin.

Copyright: Project Syndicate, 2020.

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