Brexit

The Blinking Game

Yet another Brexit deadline was missed last week, as EU and UK negotiators failed to reach an agreement before the European Council summit in Brussels. Political leaders from both sides put the blame on each other, but, as always, negotiations continue. For a deal to be reached before end of the year, major concessions are needed now. But the question is: who blinks first?

The European summit on Thursday (15 October) was expected to open a new chapter in the seemingly never-ending story of Brexit. British Prime Minister Boris Johnson set the summit date as the final deadline for finding an agreement on the future trade relations between the EU and the UK. Without a deal, he said, “we should move on” – a comment that was widely interpreted as a hint at a no-deal scenario.

But, alas, as European leaders gathered in Brussels for the European Council meeting, it became clear that the negotiators had not reached an agreement before the self-imposed deadline.

What are the main obstacles?

The major stumbling blocks for a deal remained unchanged: fisheries, state aid and the governance of a deal. These three issues have dominated the talks from the beginning and will probably continue to do so for the rest of the negotiations.  

Fisheries

On fisheries, the main bone of contention concerns the EU fishing fleet’s access to UK waters. Economically, the value of the fishing industry is negligible, but the protection of coastal communities is an important political priority for both the UK and key EU-player France. It is a highly visible and vocal sector and leaders from both sides are keen to present themselves as the champions of the fishing industry.

State aid

For the UK to keep access to EU markets, it would have to commit to a level playing field in terms of state aid. The application of the EU’s state aid rules, championed by the UK under Margaret Thatcher, would prevent British companies from undercutting their European competitors. The UK currently has one of the lowest levels of subsidies of any country in the Single Market, but it is keen to have a free hand to support national economic interests. More importantly, any agreement that would keep the UK bound to the EU regulatory framework would also be seen as a blow to the UK government’s “Take Back Control” mantra.

Governance of a deal

Another obstacle is the question on how commitments from the future trade deal will be enforced. The EU is pushing for a dispute-settlement mechanism that allows for rapid retaliation if the partnership is violated in any way. The British side is wary of such retaliation measures, and prefers to keep this open.

Strong rhetoric, but negotiations continue

Following the Council meeting, EU and UK leaders were quick to denounce the new situation. The responses followed a by-now familiar playbook: Put the blame on the other side, announce further no-deal preparations, but leave the door ajar for further talks.

Immediately after the summit, European Council President Charles Michel announced, “the EU calls on the UK to make the necessary moves”. Prime Minister Johnson followed suit on Friday, when he announced in a televised statement that there would be no further negotiations, unless the EU adopts a “fundamental change of approach”.

Nonetheless, chief EU negotiator Michel Barnier and his British counterpart David Frost were quick to get back in contact to agree on the next negotiation phase. Following a call between Barnier and Frost on Monday, it is expected that intensified talks will be picked up again in the second half of the week, in a last-minute attempt to still close a deal before 1 January.

In the meantime, possible landing zones are starting to emerge. In a sign of a softening stance on the fisheries issue, President Macron said on Friday that French fishermen already know they will not get the same access to British fishing waters after Brexit. A further hint at compensation for the French fishing industry was immediately picked up as a possible concession from the EU, which could unlock compromises in other areas.

However, apart from occasional hints, both sides are still waiting for a major concession from the other side. The waiting game has turned into a blinking game, where the EU and the UK are trying to see who will budge first. And as the clock is ticking, the stakes are getting higher by the day. With this in mind, several scenarios are now possible.

Three scenarios for a future deal (or no-deal)

1. Basic deal

With possible landing zones in sight, it is still possible for negotiators to conclude a basic deal in the next weeks. From the EU side, there would be flexibility to push back the ratification by national parliaments and to enact certain elements of the deal on a provisional basis. The EU and the UK still have a strong interest in keeping the existing cooperation in place, so the main question is how to communicate the compromises.

This is still the most likely scenario, but given the short timeframe it will be difficult to conclude a fully comprehensive agreement by the end of the year. More likely is a basic agreement to cover the essentials and to agree that the legal details will be concluded at a later stage (2021 and beyond).

2. Short no-deal

Long thought unthinkable, but now considered as a serious back-up scenario on both sides. If no further progress is made, it could become a logical option to have a short period without a deal. From the EU side it could be seen as a short-term hit that can unlock a better long-term deal in the future. On the UK side, it could be a rational calculation if Prime Minister Johnson sees an agreement with the EU as politically too costly. It could also be a way to prove to hard-line Brexiteers in the Conservative Party that the costs of a no-deal Brexit are simply too high and that concessions have to be made.

3. Long no-deal

Closing a Brexit deal, even after a short no-deal period, involves complex trade-offs between the short-term impact, long-term interests, and domestic politics. With this level of complexity, coupled with the deluding effect of the economic impact of COVID-19, a longer deadlock cannot be ruled out altogether.

The good news is that both sides will get back to the negotiating table and still appear to want a deal. But as long as there is no movement on the main obstacles, all options are back on the table again.