Britain would be mad to call Barnier’s bluff – Philippe Legrain for CapX – 4th September 2017

Michel Barnier and David Davis looked jovial as they left their joint press conference last Thursday. But while the Brexit negotiations haven’t yet broken down in acrimony, they have reached an impasse, notably over money. Hotheads are now suggesting that Britain should “call Barnier’s bluff” and prepare for a no-deal Brexit. But that would be a catastrophic blunder.

The current standoff over money is about both substance and sequencing. The Government thinks the EU is asking for too big a divorce settlement – informally, a net figure of up to €60 billion (£55 billion) is bandied about – and is unwilling even to say how much it might pay until it has a good idea of the future trading relationship between Britain and the EU. But the EU refuses to discuss trade until, among other things, it has a good sense of how much the UK is prepared to cough up. Hence the deadlock.

Meanwhile, the clock is ticking. If, at their European Council meeting on 19-20 October, EU leaders deem that “sufficient progress” has not yet been made on the exit deal to move on to trade talks, the next opportunity won’t be until 14-15 December. That would push discussions on trade into 2018, forcing businesses to prepare for the worst and leaving less than a year to finalise a deal, given that several months are also needed to ratify it.

With or without an exit deal, Britain is set to leave the EU on 29 March 2019. So unless the deadlock is broken well before then, the UK would ultimately face a stark choice: crash out of the EU without an exit deal – or, at the last minute, accept whatever deal the EU is offering.

The reckless response would be to insist that “no deal is better than a bad deal”, run down the clock and gamble that the EU would blink first. That is the miscalculation that the Greek government made in 2015; remember how that turned out? Granted, Britain is not Greece – but, as I know first-hand, from having worked as economic adviser to the previous European Commission president, EU leaders are extremely unlikely to back down.Rightly, they believe that the costs of no-deal would be greater for the UK than for the EU, so they calculate that the UK would ultimately fold. Moreover, they view the costs to the EU of backing down as much greater than simply writing off a payment from the UK of up to €60 billion. While the Brexit negotiations are an all-consuming one-off “game” for the UK, for the EU they have much wider future ramifications.

How the EU acts now will shape how others think it might act in future showdowns – with, say, Greece, a future anti-euro Italian government or a putative President Marine Le Pen. So even if the UK Mini bloody-mindedly refuses to swerve at the last minute, the EU juggernaut is willing to bear the collision damage.

For sure, a credible plan B would strengthen the UK’s negotiating hand. But a chaotic no-deal Brexit is no such thing, especially since the Government has made no preparations for it. Not only would the UK fall out of the single market and customs union overnight in a cliff-edge shift to trading with the EU according to World Trade Organisation rules, an abrupt change that would require new customs IT systems and infrastructure that do not yet exist and are unlikely to be ready in time.

There would also be crippling legal uncertainty as to whether goods, services and agricultural produce from the UK – from an EU perspective, suddenly a third country in breach of its legal obligations – could be sold in the EU, whether airlines (which are not covered by WTO rules) could fly, whether nuclear materials could be transported, and much else, as a recent report by the UK in a Changing Europe pointed out. The legal status of EU citizens in the UK and UK ones in the EU would also be uncertain. A hard border would suddenly be reintroduced between Northern Ireland and Irish Republic in the most destabilising way. And so on.

Make no mistake: if a legal fog disrupts cross-Channel connections, the UK will be the one that feels cut off, not the Continent. Yes, the UK buys more from the EU than vice versa. But trade with the EU matters far more to the UK than vice-versa and – crucially – while a no-deal Brexit would cast the UK into legal turmoil, EU law would be unaffected. Are ministers really prepared for the chaos of flights to Europe being disrupted, cancer patients being deprived treatment, lorries piling up at Dover and perhaps even a full-blown financial crisis?Such a calamity would shred the Conservatives’ already shaky reputation for economic competence for a generation. It would open the door of No 10 to Comrade Corbyn and his Caracas economics. Indeed, if the fear of a chaotic no-deal Brexit provoked a crisis before the UK were to leave – a recession, a run on the pound, a property crash – it could even swing public opinion against Brexit and thus derail it at the last minute. Is that what Brexiteers want?

The stakes for Britain could scarcely be higher. Cool heads and sober judgement are needed. There is a much better way forward, which I will outline tomorrow.

Philippe Legrain is a senior visiting fellow at the London School of Economics’ European Institute and the founder of OPEN, an international think-tank on openness issues.

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