Brexit: The EU’s Gordian Knot Strangles May’s Government

When Rory Broomfield and I were examining the prospects for Britain leaving the European Union in 2014-16, we recognized that there was no easy way out. No off-the-shelf solution existed apart from the “Norway model,” which suffered from much the same problems that full membership of the EU inflicted upon Britain. Britain had become so entangled in the EU system that it amounted to a Gordian Knot incapable of being unraveled. That’s why we suggested that the only way to solve the problem was to cut the knot, and cleanly exit from the EU entirely.

However, our report also recognized potentially very high costs as a result of such a move, which is why we suggested that Her Majesty’s Government should spend the intervening period—between the referendum and leaving—putting the right institutional framework in place so that British businesses and workers could adjust quickly and efficiently to the new status quo. This has not been done. Indeed, everything the May government has done appears to have been to try to ensure as little change as possible, to the extent of remaining within virtually every EU institutional framework except for the governing institutions and the free movement of people. Because that desire was apparent, the Prime Minister allowed herself to be bullied into a sub-optimal deal by the EU, over the objections of two Brexit Secretaries who had to resign when their advice was ignored.

Now the UK Parliament has spoken. The Prime Minister’s deal succumbed to a historic defeat in the House of Commons. A motion of “no confidence” was brought before the House but the Prime Minister narrowly survived to save her government.

The fundamental problem with the current situation is that there remains no proposal for what to do next that is likely to carry a majority in the House. The instruction from the British people in 2016 to leave remains in effect. A second referendum has been proposed, but the anger that will cause, particularly in the opposition Labour party’s Northern heartlands, may rule that out. Labour lost its Scottish stongholds fairly recently because it ignored its voters’ desire for independence. Repeating the same mistake in the North of England could destroy the party there, something that Labour leader Jeremy Corbyn, to his credit, appears to recognize.

A new general election has also been floated to provide the next government with a new mandate. However, given the timescales involved, this seems ill-advised. A new government will be in place just weeks before the Article 50 deadline of March 29 for the UK to leave the EU. Moreover, it puts the Labour party in a very hard place—do they campaign as supporting Brexit or opposing it (see above)? They are unlikely to relish the prospect, while those Conservatives who support the “remain” position are likely to find themselves in a similar predicament. Ideally, the election should be fought between a Leave Party and a Remain Party, but the reality is that both main parties are hopelessly split. A general election would solve little, and wind down the clock faster.

That leaves three options. First is something like the Norway model that its supporters have termed “Norway Plus.” This is a strange hybrid of the Norway model and the Prime Minister’s deal that would satisfy no-one except the politicians. Particularly, it would not satisfy the members of the European Free Trade Area (EFTA), which is the lynchpin of the Norway model. If the Norway model was to have been used, the time to negotiate those terms was two years ago (at least). It is unreasonable to presume negotiations could begin and be concluded by the Article 50 deadline of March 29.

This suggests the second option may prove attractive—postpone Article 50. This requires the approval of the EU, which the EU has suggested is possible. It would however be regarded as a betrayal by many of those who voted for Brexit. The question is for how long and to what end? An indefinite postponement is tantamount to staying within the EU. If the idea is to renegotiate the May deal, then that ignores what the EU has been saying—that there is no other deal on the table. Nor can it just be assumed that EFTA re-entry (the UK was a member of EFTA in the distant past) will be easy.

So the third option, that of no deal, may be the most likely. There will need to be frantic negotiations on a variety of areas such as customs inspections at Dover/Calais, air travel agreements, rights for migrants, and the like to serve as sticking plasters to cover up the absence of a deal. These are the things that should have been the focus of the negotiations two years ago. Not all of them may be achievable. In addition, the government would need to consider emergency supply-side changes such as tax cuts. However, the UK Parliament has essentially ruled that out by forbidding changes in taxation in the event of no deal. The sheer folly of that decision cannot be overstated.

Which suggests that there are actually only two realistic options in play:

• A Brexit “betrayal,” perhaps dressed up as a postponement, which results in a de facto repudiation of the largest positive vote in British history. The consequences for British democracy could be cataclysmic.
• The second is a disastrous no-deal Brexit, with a huge economic shock followed by a prolonged recession as the UK clings to suffocating EU regulation for the sake of “certainty,” while cut off from the main benefit of EU membership, the single market. In all probability, a government will then be elected after a few years that promises to re-enter the EU, this time including all the features of EU membership (such as adoption of the Euro) that Brexit voters wanted to distance themselves from.

Either of these results would please the EU in some ways. As I wrote when this process was beginning, the EU has every incentive to make the process of leaving its club extremely painful. Such is the prisoners’ dilemma the two parties have been involved in.

The Prime Minister has a few scant weeks to solve this problem. It is likely that she—and Britain—will end up strangled by the EU’s Gordian Knot.