A painful separation | Brunswick Group

A painful separation

Brexit remains messy at best and its costs unclear

We’re approaching the two-year anniversary of the Brexit vote.

And still the mechanics of how the UK will leave the EU, and at what cost, are unclear and hotly debated. I expect we’ll see more talk than progress for a long while.

I’ve compared the UK trying to leave the EU to a chef trying to remove an egg from an omelette that’s been stirred since 1973 – difficult, frustrating and almost certainly messy.

As someone who has been in trade negotiations for more than three decades, it is difficult to overstate the technical and regulatory challenges that Brexit poses – challenges that are further complicated by political calculations.

Take financial services. How they’ll be regulated between the UK and EU is a key part of the Brexit discussion, but I doubt will be part of any trade negotiation. So even if a trade negotiation is reached – an ambitious goal in and of itself – how banks can operate and firms will be regulated remains a separate issue to be resolved and then implemented.

Depending on the manner of its departure, Britain faces an economic or a political price. The more the UK leaves the EU, the steeper the economic price tag. A softer withdrawal reduces economic costs, but increases political ones. Britain can, of course, leave and negotiate new trade agreements. But can they do better with a market of 60 million consumers than they did in a market of 500 million consumers? I’m not so sure. In trade negotiations, you gauge the weight of a market – making more concessions for a large market than a small one.

Exiting enough to satisfy Brexit supporters, but not so much that it damages the British economy – that’s a delicate compromise, and one that doesn’t appear to be on the table in London. It might take something akin to a political spasm in the UK before such a compromise gains real traction.

Rather than a decades-old omelette, a German professor equated the complexity of the UK leaving the EU with the first Moon landing – only Brexit was “more complicated,” he said. Neither metaphor is perfect, but at least the professor’s offers the hope of a smooth landing.

A hard one, which unfortunately cannot be totally excluded at this stage, is the scenario that should keep CEOs awake at night on both sides of the Channel.

 

Pascal Lamy is a Principal at Brunswick Geopolitical, and former Director General of the World Trade Organization.

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