Hard, soft or scrambled? That is the question hanging over the ultimate outcome of the Brexit talks that began on Monday.
Almost a year since 52% of British voters chose to leave the European Union - the 28-country bloc it joined in 1973 - there is raging confusion in Europe over what exactly the UK government wants from the divorce.
Prime Minister Theresa May’s government is already on the back foot. An attempt to firm up her footing by calling an election has backfired, while the 27 other EU members have started out with more leverage.
The mounting domestic crisis for May deteriorated further last week following a deadly high-rise fire in West London. The public mood had already been shaken by a wave of terror attacks in recent weeks; the latest involved a van that rammed pedestrians near a mosque in North London on Monday morning, killing one and injuring ten.
Prior to the election fiasco, May said she would pull the UK out of the single market for goods and services and the EU’s customs union - a “hard” Brexit that prioritises securing control over immigration, laws and the budget over economic concerns. But the remaining 27 EU members don’t want the UK to “cherry pick” the benefits of membership with none of the responsibilities.
The Brexit imbroglio is also undermining London’s coveted status as the global financial hub.
The “City,” home to over 250 foreign banks and the Lloyd’s of London insurance market, now faces a crisis as firms debate whether to shift jobs to continental Europe to keep serving customers there after Britain leaves the EU. Amid many a doomsday prediction, an Ernst & Young report forecasts a loss of 232,000 jobs financial jobs in Britain as result of Brexit.
For sure, London’s allure is not going to fade that soon, that easily. But a central theme of the grant Brexit narrative is the “passporting rights,” that entitles companies authorised in one country of the European Economic Area – currently comprising the 28 EU states plus Iceland, Liechtenstein and Norway - to sell their products and services throughout the bloc, accessing a $19tn integrated economy with more than 500mn citizens.
A hard Brexit deal with the loss of passporting rights will tempt cities such as Frankfurt, Dublin and Paris - after decades of falling behind - to challenge each other for the City’s business.
The trending Brexit betting now is that May will have to soften her plan, perhaps by keeping the UK in the customs union, allowing a continued role for the EU’s court or weakening immigration controls to keep ties to the single market. There is also some suggestion the UK will end up in the EEA like Norway, at least for a short period.
Britain will automatically leave the EU in almost two years. But the failure to strike a deal before March 29, 2019, risks inflicting sweeping tariffs and uncertainty on both the EU and the UK.
Make no mistake, such a “cliff edge” scenario doesn’t bode well for Europe’s economic future.
