Will Brexit Now Be Hard, Soft or Scrambled?: QuickTake Q&ABy
A year since Britain voted to leave the European Union, the debate over how that will work is again in the air after the June 8 election stripped U.K. Prime Minister Theresa May’s Conservative Party of its overall control of Parliament. Suspicion that voters turned against her original plan -- plus doubt that enough lawmakers would now support it -- is forcing her into a rethink just as already complex negotiations with the EU are to begin.
1. Does Brexit still mean Brexit?
The June 2016 referendum, in which 52 percent of British voters chose to leave the EU, was just the start of a lengthy process. The actual split will occur at midnight in Brussels on March 29, 2019, but much is still to be negotiated. Despite the post-election turmoil, the government maintains talks will begin as scheduled and it will still deliver on the divorce. Polls show most of the public still wants the Brexit vote acted upon, and the two main political parties vow to press ahead. After the referendum, May began to use the "Brexit means Brexit" refrain to show her resolve to carry it out.
2. What does Brexit actually mean?
Britain is exiting the 28-country bloc that it joined in 1973. Initially envisaged as a free-trade zone that now includes 500 million consumers, the EU is, in the eyes of many Britons, too bureaucratic, out of touch, expensive and an obstacle to clamping down on immigration. Free movement of citizens is a basic tenet of EU law.
3. How does the exit process work?
Article 50 of the Lisbon Treaty, the EU’s guiding document, details how a country leaves the bloc. Until the U.K. did so in March it had never been activated and is only about 260 words long. It gives the departing country up to two years to negotiate “its future relationship with the Union.”
4. When did the two-year clock start ticking?
It started on March 29, 2017, when the U.K. delivered a letter to the EU. The delay since the referendum was caused by May’s insistence that she needed time to prepare. Then the U.K. Supreme Court ruled that she didn’t have the authority to trigger Article 50 by herself, forcing her to obtain permission from Parliament. May then called an election saying she needed more Tory lawmakers to strengthen her hand in the talks with the EU.
5. What did May want from the divorce?
Prior to the election, May said she would pull the U.K. out of the single market for goods and services and the EU’s customs union -- a “hard” Brexit that prioritizes securing control of immigration, laws and her budget over economic concerns. May said she wanted the “best possible deal” for trading with the bloc although she sought the liberty she now lacks to negotiate trade deals with non-EU countries such as the U.S. She also warned that “no deal is better than a bad deal” and that she would leave the talks if provoked.
6. What did the election change?
A lot, although how much remains to be seen. May had hoped more Conservatives would win seats in the House of Commons, so that she could pursue what she wanted rather than have to compromise with either euroskeptics or pro-Europeans. Instead, she ended up with fewer Tory lawmakers, a result which drained her of personal authority and threatened to reignite the civil war in her party over Europe. The betting now is that she will have to soften her plan, perhaps by keeping the U.K. 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 some suggestion the U.K. will end up in the European Economic Area like Norway at least for a short period. But if Brexit hardliners turn against her then she could have problems. So the election has increased the likelihood of both a softer Brexit and Britain crashing out without a deal.
7. How will May rule without a parliamentary majority?
She is seeking the support of Northern Ireland’s pro-Brexit Democratic Unionist Party, whose 10 lawmakers would allow her to operate with a majority. If the DUP agrees then that would limit the chances that Brexit negotiations would conclude with no deal, since such an outcome would likely create a hard border between the two Irelands. The DUP wants a "frictionless” border between Northern Ireland and the Republic of Ireland, which will become the only land crossing between the U.K. and the EU.
8. What will Europe demand?
The remaining 27 EU members don’t want the U.K. to “cherry pick” the benefits of membership with none of the responsibilities, for fear it will encourage others to leave as well. They say they don’t want to punish Britain, but at the same time they don’t want it to be better off outside the bloc than inside. Their initial focus is on guaranteeing the rights of their nationals living in the U.K. May wants the same for Britons abroad and says this is an issue to resolve early on. There are differences over when the citizens would need to be living in Britain to get the rights and how far they extend. The Irish border also needs to be addressed and then there’s the question of the bill the U.K. will be asked to pay.
9. Wait -- there’s a bill?
The EU says there is. EU negotiator Michel Barnier has indicated he wants the British to cover the cost of budget commitments they agreed to, pensions promised to EU officials from the U.K., guarantees on loans such as the bailout of Ireland and pending infrastructure projects. There are estimates that the sum could run as high as a gross 100 billion euros ($111 billion). Brexit Secretary David Davis said the amount will be "nothing like" that. May has indicated the U.K. will ask for a share of EU assets. Still, EU officials say they won’t discuss a future trade deal until “sufficient progress” is made on the matter. That means May might agree to contribute something, although a big check would draw ire at home.
10. How will the talks be structured?
Barnier wants to focus first on the separation and only then turn to trade when that’s resolved toward the end of this year. The British would prefer to discuss the split and the future arrangement at the same time to win trade-offs, grant certainty to businesses and maintain support back home for Brexit. The EU wants talks every four weeks with the rest of the time spent preparing and reporting back to capitals, while the U.K. has indicated it wants more frequent face time.
11. How long will the talks take?
Article 50 allows two years, which could be extended if all members of the EU agree. Both sides estimate that they really have until the end of 2018 to reach an accord, because the resulting deal would need to obtain the consent of the European and British parliaments. But the election eroded the time available and Barnier has warned the U.K. against wasting more of it in case the two parties aren’t able to find common ground.
12. What happens if no deal is reached?
Britain will leave the EU in two years regardless of whether it’s secured a new trade deal. In that case, disagreements may end up in the courts and U.K.-EU commerce will revert to World Trade Organization tariffs. That could mean a levy of about 10 percent on cars alone. Davis says this is an “unlikely scenario” and not “frightening.” Businesses worry about a “cliff edge” in which the U.K. falls or walks out of the EU with tariffs and without certainty over the future.
13. What could help avert a ‘cliff edge’?
The U.K. and EU could agree to a transitional phase in which the existing relationship remains in effect either until a new deal takes hold or to create more time to negotiate one. Businesses would get time to adjust to any new rules, which May says should be phased in. Barnier wants to wait to discuss the stopgap until the outlook is clearer. The question is whether the two sides can agree before businesses, especially banks based in the U.K., shift jobs and services to elsewhere in the EU. Another concern for May is whether the EU might try to force the U.K. to remain under the oversight of the European Court of Justice.
14. Does May have any leverage?
She has less than before the election. During the campaign she tried to drive up votes by complaining about EU officials, saying they had made "threats" against Britain. She is also now weaker at home and the EU knows it. That aside, Britain lost some power after invoking Article 50 because it started the countdown clock, limiting the time available to strike a deal. May has argued it would be “economically rational” for the EU to sign up to a free-trade accord since Britons buy so many of its goods. She has warned that the U.K. could provide less security to the region or transform Britain into a low-tax, light-regulation haven for business. She could also try to exploit differences between European capitals.
15. Is Article 50 irrevocable?
French President Emmanuel Macron and German Finance Minister Wolfgang Schaeuble both say the U.K. would be welcomed back if it wanted to dump Brexit. As for the legalities, once Article 50 is triggered, there’s no chance of Britain staying in the EU, according to the U.K.’s Justice Department. But John Kerr, the diplomat who wrote the treaty, said a country can change its mind “while the process is going on.” Regardless, in order to reverse the Brexit vote the U.K. would likely need to hold another referendum or elect a government led by a party that campaigned on a promise not to carry it out. A chance to reverse Brexit was the central pledge of the Liberal Democrats in the June 8 election. The party performed disappointingly.
The Reference Shelf
- The case for Brexit talks being tense and difficult and a timeline of events.
- A graphic shows which parts of the U.K. will see the biggest pain or promise.
- How the U.K. might maximize its negotiating position.
- Britain’s bar tab shouldn’t delay Brexit talks, Bloomberg View’s Mark Gilbert writes.
- A QuickTake explainer of why the U.K. voted for Brexit.
- Sign up for Bloomberg’s Brexit Bulletin newsletter.
- Follow @Brexit on Twitter for full coverage of Britain’s exit from the EU.