Game theory in Brexitland



"No deal for Britain is better than a bad deal", says Theresa May. Her Brexit sidekick David Davis appeals to MPs not to "tie her hands". And that master of flannel, trade secretary Liam Fox, says that leaving without a deal would be "not just bad for the UK, it's bad for Europe as a whole".

These three statements sum up the hopes of the Brexiteers. The idea seems to be that if the UK adopts a really strong stance in its forthcoming negotiations with the EU, the Europeans will be so horrified at the prospect of the UK leaving without any agreement that they will cave in and give the UK what it wants. Welcome to the Brexit game of chicken.

On the face of it, the UK government's negotiating principles appear sound: set out your red lines, make it clear that you won't tamely agree to everything the other side wants and that you will walk away rather than give ground on things that really matter. But if you are going to play brinkmanship, you really have to understand your opponent. The EU is well versed in this game - and it knows how to win.

So, how credible is May's threat to walk away from negotiations? Davis's intervention is clearly intended to make it credible. If Parliament can overturn her decision and send her back to the negotiating table, then her position is much weaker. On this occasion, therefore, perhaps they are right. Parliament cannot be allowed to veto a "no deal" exit. To do so would indeed tie Theresa May's hands. She must have the freedom to end negotiations without a deal.

But Parliament is the least of her problems. Theresa May's real difficulty is that she is dealing with a hardened opponent that is not afraid to take pain in order to get what it wants. And to make matters worse, she has a hard deadline. The UK will leave the EU two years after Article 50 is triggered. The deadline can be extended, but it would require agreement from all 27 EU countries. There is no guarantee that in the event of no deal, they would agree to extend the deadline. In fact, there would be a strong incentive for them not to do so. If negotiations ran to the wire, the EU would need to concede virtually nothing. All it would need to do is put its terms on the table and say "take it or leave it".

And if you think the EU would not do this, you have learned nothing from the last few years. In 2015, Greece thought it could negotiate a new deal with the EU. So it set out its red lines, made it clear it would not accept the EU's terms, and threatened to walk away from negotiations - and indeed, from the Euro - if it didn't get what it wanted. For a while, it looked as if it might follow through on its threat: the resounding "NO" to the EU's terms in the Greek referendum should have led to exit from the Euro. But when the European Council explicitly faced Greek prime minister Alexis Tsipras with a choice between accepting their terms or leaving the Euro, he balked. And at that moment, he lost the game. The Greek government's threat to jump over the cliff was exposed as a bluff.

From that moment on, the end was inevitable. In a bruising overnight negotiation, Tsipras conceded almost everything that his government had previously rejected. And since then, further concessions have been made. The "red lines" have been repeatedly crossed. The Greek government is tamely accepting everything the EU demands - because the only alternative is jumping over the cliff edge that they stepped back from in July 2015.

The lesson is clear. If you are going to play the cliff edge game, you must be prepared for the possibility that the other side will push you over. Especially if your opponent is the EU.

Of course, the UK has already decided to jump over the cliff. Indeed, that is what the negotiation is about. It wants to negotiate a soft landing. Clearly, therefore, a European Council "accept our terms or leave" confrontation is not going to happen in this case. But that doesn't mean that the UK has a strong position. It doesn't.

To understand this, we have to consider the nature of the beast. In theory, the negotiations could be limited to the terms of the "divorce" - the status of EU nationals in the UK and UK nationals in the EU, the division of assets, the dismantling of common agreements, the final bill for ongoing responsibilities such as pensions. Leaving the EU without agreement on these would be horrible for everyone.

The UK's attempts to use security, intelligence and the status of EU nationals in the UK as bargaining chips have already been criticised. In all of these, it is hard to see that the "cliff edge" game is remotely credible: unilaterally ending cooperation over security, policing and intelligence would be utter folly, while the humanitarian cost of deporting EU nationals would be appalling. I think it is unlikely that the EU will play brinkmanship over security and intelligence: the EU has as much to lose as the UK, so agreement seems likely early in the negotiation. And the easy way of defusing the "hostages" problem is for the EU to offer UK nationals right-to-remain unilaterally, and then dare the UK to deport EU nationals. The UK government is already facing strong criticism at home for its attitude to EU nationals: international opprobrium as well might be a bridge too far. Nor is the EU likely to go into an exit with no agreement about the 60bn Euros it says it wants from the UK. Once the UK was no longer a member of the EU or under the jurisdiction of the ECJ, the EU would have no power to force it to pay up. No, there will be a deal on all these matters.

But trade is an entirely different matter. The EU and the UK appear to be poles apart. The EU negotiators seem to be intent on keeping the negotiations narrowly focused on the terms of the "divorce" and kicking trade discussions into the long grass. In contrast, the UK government has said it intends to forge a "new customs arrangement" with the EU, though it has not as yet defined what it means by that. And it lays claim to tariff-free trade:
We do not seek to adopt a model already enjoyed by other countries. The UK already has zero tariffs on goods and a common regulatory framework with the EU Single Market. This position is unprecedented in previous trade negotiations. Unlike other trade negotiations, this is not about bringing two divergent systems together. It is about finding the best way for the benefit of the common systems and frameworks, that currently enable UK and EU businesses to trade with and operate in each others’ markets, to continue when we leave the EU through a new comprehensive, bold and ambitious free trade agreement.
Eh, what? The UK government thinks the UK can have the benefits of Single Market membership without actually being a member of it? This is not remotely credible. Zero tariffs on trade and a common regulatory framework are not a side effect of the Single Market, they are its very nature. It would not be in the EU's interests for a non-EU member to have the same benefits as EU members. When the UK leaves the Single Market, therefore, there will no longer be zero tariffs and a common regulatory framework. The costs of doing business with the EU will go up.

How much they will go up depends on what deal the UK government manages to do with the EU. I confess I am not hopeful. The EU drives a very hard bargain. So, what happens if May ends up saying "no deal"?

Leaving the EU with no trade deal would mean that the UK would immediately revert to "most favoured nation" (MFN) status under the World Trade Organisation's rules as far as the EU was concerned. Much nonsense is talked about this, mostly by people who don't know what they are talking about. The "Clean Brexit" economists at the Policy Exchange, for example, blithely say this:
“WTO rules” is often presented as “deeply damaging” and “the hardest of hard Brexits”. We disagree. Tariffs under WTO rules are relatively low and falling. We already conduct around half of all our trade under WTO rules - beyond the Single Market or other formal free trade agreements (FTAs) - with the rest of the world. Both the US and China trade heavily with the EU, under WTO rules and we can do the same. Already, our WTO-rules trade is not only the biggest part - it is also fast-growing and records a surplus.
Aarrggh. There is a world of difference between trading with countries under existing trade tariffs which have been reducing in recent years, and introducing new trade tariffs where currently there are none.

The potential impact on the UK's trade with the EU from introducing new tariffs is considerable. I've reproduced here the WTO's table showing the current EU MFN tariffs:


Remember that the UK currently faces no tariffs on trade with EU countries. Chemicals are one of the UK's principal exports to the EU: after a "no-deal" Brexit, their export price would rise by 4.5%. This might be offset by a further fall in the value of sterling, but that creates problems on the import side. Few manufacturers are immune from import price rises, these days.

These are, of course, goods tariffs. The picture for services is much less clear. The WTO framework for services is at best a work in progress: flawed though it is, the EU's single market in services is far more developed. The "common regulatory framework" mentioned by the UK government is one of the principal benefits of the single market in services. Immediately on exit, this would be unlikely to change much, though the UK government's plans to impose restrictions on the free movement of people will negatively impact services trade right from the start. But over time, as EU and UK law and regulation diverged, services trade would become more and more difficult. The UK is also a major exporter of services to the rest of the world: the US is its largest trade partner in services. Much of this is because it is used as a gateway to the EU by service industries, particularly financial services. Once the UK can no longer perform that function, those service industries might disappear for good. So reverting to WTO rules could cause not only services trade with the EU to decline, but also services trade with the rest of the world.

The EU's MFN tariffs are also currently applied by the UK on its trade with non-EU countries with which the EU has no separate free trade agreement. The UK enjoys WTO membership by virtue of its EU membership, so as part of the Brexit process it will have to negotiate separate membership of the WTO, including setting up its own tariff schedules. Although there are calls for the UK to unilaterally abandon import tariffs, it seems much more likely that the EU's current WTO tariff schedule will form the basis for the UK's own tariff schedule post-Brexit.

After a no-deal Brexit, the UK would have to impose on imports from the EU the same MFN tariffs as it imposes on imports from non-EU countries. If the UK's new WTO schedules were based on the existing EU ones, then the impact on some agricultural imports, in particular, could be rather high, according to a study produced for the National Farmers' Union in April 2016:
.....a tariff of 30-40% would be applied on wine and cheese - two items for which the UK runs a significant deficit with the EU (net-imports of about 2,200 million and 1,250 million euro respectively, see Figure 3.1). In addition, imports of several meat product items would become subject to tariffs that could exceed 30% and might be even close to 70% or 90%, depending on the type of meat. All in all, the UK consumer will face higher prices for many items that are imported, which will only alter, if the UK government negotiates preferential access with the EU when leaving the Union. 
Goodbye to cheap Prosecco, then. And that's without considering the impact of the UK's exclusion from the EU's "tariff-reduced quotas" - see the top RH corner of the table above for the likely excluded rate on agricultural products
.
There would also be WTO tariffs on trade with countries such as South Korea with which the EU has free trade agreements, since it is highly unlikely that these countries would allow grandfathering of EU free trade agreements. 

None of this is good news for the UK. They are not great for the EU either, but EU countries could be forgiven for thinking that the loss of one country from the trading bloc would not make a great deal of difference - after all, there are still 27 of them and they can all trade freely with each other, as well as with the rest of the world under existing tariff arrangements. The UK, however, would be facing new tariffs on at least 45% of its exports, and it also would be obliged to impose MFN tariffs on over 50% of its imports.

The truth is that May's threat to leave the EU on WTO rules is no more credible than Alexis Tsipras's threat to leave the Euro. Leading the UK over the cliff edge onto a pile of jagged rocks is not delivering the best outcome for the UK. She would pay the price for that folly at the ballot box in 2020, or earlier if she lost the support of her (already restive) back-bench MPs. She has no choice but to try to negotiate some kind of soft landing. So the attempt to stifle Parliament is, once again, wrong. She must be chained to the negotiating table, even if it takes a Parliamentary veto to do it.

But the EU can walk away. After all, if it does nothing, the UK leaves on WTO rules that are a lot more damaging for the UK than they are for the EU. So the EU holds the upper hand. And the EU likes to play brinkmanship, especially when invited to do so by a foolhardy government. So my guess is that there will be a transitional deal. It will be hashed out in a brutal all-nighter just before the Article 50 notice expires. And in that meeting, May will agree to every single one of the EU's terms - because although they will fall a long way short of the benefits the UK currently enjoys, they will be better than the alternative.

The game will play out for the UK just as it did for Greece and Cyprus. And if any other governments are thinking of playing chicken with the EU - be warned. You will end up as roadkill.

Related reading:

Greece: The Game Is On Again - Forbes
Greece, the EU and the IMF are dancing with death - Forbes
Tsipras in the crucible
Sowing the wind
UK Perspectives 2016: Trade with the EU and beyond - ONS

Image by Gerald Scarfe. 




Comments

  1. Many years ago I was a pro Euro federalist. However the Euro crisis has shown that the EU is a project of the European elites which has little regard for the people of Europe.

    It seems that your argument for remaining in amounts to little more than saying we should pay up or else - is the EU anything more than a protection racket?

    ReplyDelete
    Replies
    1. This is a silly comparison, a protection racket implies that the UK is currently paying in order to enjoy benefits to which it already has some kind of natural right.

      The foundation for the single market is the regulatory framework that ensures cross border standards and the associated mechanisms for dispute resolution. It is not possible to have one without the other.

      Delete
    2. It is perfectly possible to harmonise regulatory standards in a different way, which does not require an undemocratic European government with a Commission, Courts etc

      Delete
    3. @ Frank: Just the usual Brexit dribble. Accusing the EU of blackmail when the truth is that the UK behaves like a petulant child. For the 1000th time: You can't have the cake and eat it. As to the lack of regard the EU has ostensibly shown towards the people of Europe, how about the way the 3 million EU citizens living in the UK are treated these days?

      Delete
    4. "It is perfectly possible to harmonise regulatory standards in a different way, which does not require an undemocratic European government with a Commission, Courts etc"

      Quite right. But it's not on offer.

      Delete
    5. Arguably any state is a protection racket. You pay them taxes, they protect you.

      When you decide to step outside their protection you are on your own and have to accept the consequences.

      Delete
  2. The UK is physically incapable of imposing customs duties on goods from the EU - it lacks the computer systems, physical infrastructure etc. You'd have trucks backed up for miles from Dover, food wouldn't be able to get to supermarket shelves and factories would run out of stock to keep operating.

    Post-Brexit, it could have no choice under WTO nondiscrimination rules but to adapt a Unilateral Free Trade policy since that's the only way it can guarantee the exact same level of barriers for all the other WTO members. So Patrick Minford's ideas would be in operation until 202X, this will give other WTO members less of an incentive to want conclude an FTA quickly.

    Furthermore, without the EU, the UK,would lack mutual standards and conformity recognition with other WTO members, so consignments of goods from the UK could be subjected to enhanced surveillance and inspection in places like Canada, the exact same as if the shipping container had come from Afghanistan.

    British farmers would have to provide veterinary certs and so on for exporting food. British airplanes might not be able to use other countries' airports without the Single European Sky agreement. British Banks would lose whatever privileges they had.

    http://www.eureferendum.com/blogview.aspx?blogno=86403
    http://www.eureferendum.com/blogview.aspx?blogno=86399
    http://www.eureferendum.com/blogview.aspx?blogno=86376
    http://www.eureferendum.com/blogview.aspx?blogno=86369

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    Replies
    1. I've read this and clearly a lot of work to be done. But to quote a man I bumped into in the street, I voted to leave because although it may be worse in the short term I expect it to be better in the long term.

      One "benefit" of our being in the EU only became clear when I read an article about Ireland and the EU. apparently a large amount of Irish exports go across the Irish Sea to a port on the west of Great Britain, are driven across GB to a port on the East coast and then ferried to the continent. There is concern about this still being possible with customs requirements etc.

      I admit I was unaware that when I paid my taxes to build roads this was so Ireland could get a cheap route to the continent. Next time I am crawling along on The Road of Death (AKA the A14) choking on diesel fumes and worrying about lorries crashing into me I will think with fondness of the EU and its many benefits.

      Delete
  3. Hi Francis,

    very insightful. Thanks for publishing it. There is indeed a lot of hubris running around in the UK.

    The UK has taken an almighty fall in one hundred years or so. From controlling a large percentage of world trade to staring at the possibility of having trading terms dictated to it.

    Oh dear, what happened?

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    Replies
    1. Germany and the US happened

      Delete
    2. Hi Torus,

      From being the dominant power to a small island with seemingly few friends, I think we have to look internally rather than trying to put the blame externally.

      I would say that a century of maladministration have got us here, with absolutely no signs of any improvement.

      Germany is united with a common goal of efficiency, improvement and long term progress.

      The US has a common "We're the great US of A and anybody can make it through hard work".

      The UK is the only country where I have met a culture of being "proud to know nuffin".

      Delete
  4. Some points:

    I think it's a mistake to draw parallels with Greek negotiations too eagerly, the UK quite frankly is a different animal - it's the financial heart of Europe, it pays larger contributions and it has more levers. It's different type of negotiation.

    Furthermore, if Greece had exited it it had no prospects of a medium term recovery. If the UK exits with no deal, it will be incredibly damaging but the UK Gov believes it can exploit the advantages and thrive. (whether that is becomes true or not is beside the point)

    > So my guess is that there will be a transitional deal. It will be hashed out in a brutal all-nighter just before the Article 50 notice expires.

    I think we can safely rule this scenario out. A transitional deal can't be banged out under duress and in a short time frame, it's too difficult and complicated. If a transitional deal was on the table, the approach would at the very least have to be determined at the very early stages of the negotiations for it to even have a chance. And that's definitely not going to be the case unless there is a magical u-turn.

    I think there are only 3 likely scenarios based on current posturing.

    1) As negotiations break down and a no deal scenario seems completely inevitable UK Parliament steps in and prevents Brexit to avoid an economic disaster.

    2) As negotiations break down and the UK governments is forced to call a GE delaying the Brexit timeline. Whether or not Brexit is reattempted after such an election depends on evolving economic conditions and public mood.

    3) Talks fail, there's no deal at the end of the 2 year window for one of many possible reasons and chaos simply unfolds. Extreme brexiteers rejoice and await the completion of new trade deals, the culling of 'red tape', the reshaping of the country and the disassembling of the welfare state.

    Scenario 1 & 2 assume the revokable nature of A50. And it's probably worth contemplating why the UK can't withdraw A50 and notify again at a later date, starting a new negotiation at a later date.

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    1. I, also, think it is different than Greece and Cyprus.

      Mainly because the UK has the pound while they needed more euro currency.
      Banks are more solvent.

      Delete
    2. «Extreme brexiteers rejoice and await the completion of new trade deals, the culling of 'red tape', the reshaping of the country and the disassembling of the welfare state.»


      I reckon that this is the goal of "negotiations" on the english side: both T May and P Hammond have publicly promised that the UK government, if they can blame "no deal" on the EU, will scratch the european style social insurance and regulatory system and adopt the Texas or Dubai model instead.

      This is a promise that many in the Conservative party, especially those of the "Britannia Unchained" tendency, are enthusiastic about as it would complete M Thatcher's programme of gradually turning the UK economy to the Pinochet/Dubai model:

      www.margaretthatcher.org/document/117179
      «I was aware of the remarkable success of the Chilean economy in reducing the share of Government expenditure substantially over the decade of the 70s. The progression from Allende's Socialism to the free enterprise capitalist economy of the 1980s is a striking example of economic reform from which we can learn many lessons.
      However, I am sure you will agree that, in Britain with our democratic institutions and the need for a high degree of consent, some of the measures adopted in Chile are quite unacceptable. Our reform must be in line with our traditions and our Constitution.
      At times the process may seem painfully slow. But I am certain we shall achieve our reforms in our own way and in our own time. Then they will endure.
      »

      As a big investor recently said:

      www.ibtimes.co.uk/buyout-boss-says-brexit-will-be-good-his-business-will-mean-30-cut-uk-wages-1602631
      «One of the biggest names in European private equity said that Brexit will be good for his business, but will mean a 30% wage reduction for UK workers.
      ... He added that EU immigration will be replaced with workers from the Indian subcontinent and Africa, willing to accept "substantially" lower pay.
      »

      Some people have already mentioned that after exit England should create "Free Enterprise Zones" with no business taxes, no welfare, no customs duties, no immigration restrictions, staffed by indentured workers from third world countries on £2-3 per hour, with the transparent goal of eventually turning the whole of England into a "Free Enterprise Zone".

      Delete
  5. This blog post assumes no trouble for the EU other than Brexit till 2019.

    It assumes

    No President Marine Le Pen in France
    No Italian exit from the Euro.
    No Greek exit from the Euro.
    No substantial electoral progress of the European far right.

    Sadly the only hope for the UK maybe the opening of second front somewhere else in the EU which makes Brexit look trivial.






    ReplyDelete
  6. I fully agree that the EU has the upper hand in these negotiations, and that it will be almost impossible for the UK to get a very favourable deal. However, I'm not as sure that this means that the UK will in the end accept a poor deal. I basically disagree with the premise that "She would pay the price for that folly at the ballot box in 2020, or earlier if she lost the support of her (already restive) back-bench MPs". I could very well imagine her being even more popular if she walks away from the talks. The media and most of her party will cheer her on in such a situation, and put all the blame on the EU. There will certainly be negative economic consequences, but at least in the short term I don't think this will negatively affect May, especially when there seems to be no credible opposition.

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  7. My view is that Mrs May is pitching her tactics just about right. All negotiations are approached by a certain amount of chest thumping on each side; it’s the nature of the game, but to compare the Greek situation with Brexit smacks of nit picking. The EU has acted towards Greece in the manner of a playground bully; and we all know that playground bullies will never dare use the same tactics with bigger boys.
    It is far too early to posit the EU’s stance on the Brexit negotiations, as this will undoubtedly change in the light of upcoming events. The Dutch, French and German elections are due shortly as well as simmering discontent in Italy (all big boys). Add to this the unpredictable nature of the Trump presidency, Russian interference and an array of geopolitical crises such as the spat in South China Sea and we are faced with a mess of contradictions. The outcome from all or any of these events could profoundly affect the attitude of those negotiating on both sides of a Brexit deal. Given this complexity, no one can be sure of what will happen next week, let alone in two years’ time.
    Under these current strains, the EU’s primary aim must be to stop the bloc disintegrating, so the initial sentiment will be, quite understandably, to press for a hard landing for the UK in order to deter others from jumping ship. But in the long term, it is more likely than not that the scaremongering will give way to a deal that is acceptable to both sides.

    David Hardy

    ReplyDelete
  8. Yes. All very good. And your recommendation is what?

    If we cave in now it is not as though the EU will reward us. The problems of the EU are many and deep but don't include making the UK better off. We are just a resource - a place to take the excess demand and labour that result from the policy of deflation in the euro zone, and a place to pay the enormous running costs of the EU. If we cave in we will just have a lot more of the same. We saw how much the European Parliament cares about the UK when Cameron made it clear he did now want Juncker to be elected president and they elected him anyway. Furthermore, if leaving now is hard, it will only get harder the longer we stay in.

    If a friend of yours was in an abusive relationship and had said they were walking out what would your advice be? Go back to him because if you leave he will punish you?

    ReplyDelete
  9. The running costs of the EU are trivial. Why should the EU parliament have listened to Cameron not wanting Juncker elected? There are 28 countries in the EU why should the UK's wishes take precedence? Is that your vision of democracy?

    In a way is being a member of the EU similar to being in an abusive relationship?

    ReplyDelete
    Replies
    1. 1. If the running costs of the EU are trivial, how come the EU wants to land us with a €50 billion bill?
      2. There was a convention that the EC president was agreed by the council of ministers but the parliament decided to replace this with a majority vote. There's no reason at all why they should listen to the country projected by their own commission to become the most populous and by a long way the biggest net contributor after Germany, except that country may then choose to leave.

      3. for the "abusive relationship" bit just see the comment from Patata Caliente above. Germany gets to not implement the Free Market in services, we are told the four freedoms come as a package. The UK in the EU is a bit like Bill Wyman in the Rolling Stones. You're a member, but no-one cares what you think.

      Delete
    2. "If the running costs of the EU are trivial, how come the EU wants to land us with a €50 billion bill?"

      It's a Brexit trope that all EU contributions are pure costs.

      The "bill" includes development funds - actually one of the better parts of the EU, where the idea of levelling up standards of living, part of the original EU ethos, still exists.

      So, for example, if you go to Spain, you will see mile after mile of EU funded roads. This has brought better communications to vast swathes of rural Spain that were neglected through the Franco years, and has brought a degree of prosperity. But this is a double-edged sword. The local joke says that the roads have been very effective at bringing German imports to remote villages. Germany will have made a substantial contribution to the building of those roads. Were they a bad investment?

      Delete
  10. The real red lines won't be publicly revealed. The brutal realities of rupture will be discretely discussed and it is in these discussions that the unmentionable is finally mentioned. An attempt to damage the UK's economy as retribution for a free democratic vote will have to be countered by a plausible (and asymmetric) counter threat - a full scale trade war.

    The complete termination of EU access to the UK market is also the termination of the EU's largest surplus market - the costs to all parties of so drastic an outcome are very severe - but significantly less severe to the deficit trade partner (UK) than to the surplus trade partner (EU). The temporary suspension of tariffs with the rest of the world accompanied by a complete embargo on European trade will provide a real schedule of costs of trying to hold trade hostage to appease the wounded feelings of what is already an unpopular political/ administrative superstructure.

    The assumption that key national decision makers (particularly those of Germany) will bear any cost in order to punish the UK on behalf of the EU is highly questionable. I don't think the events and outcomes of the protracted eurozone crisis demonstrate a willingness on behalf of the key players to make real sacrifices on behalf of the key euro project. The impulse to punish a British defection is a lower order objective than that of sustaining the euro project. What they wouldn't do to put the euro project on a sound footing is make expensive sacrifices. What they won't do to the UK is make expensive sacrifices.

    If it is true that the EU needs to control Europe's trade in order build it's political project it doesn't follow that European trade requires the EU. This gap between the EU's political prerogatives and underlying trade realities will increasingly open up - and not just because of Brexit...

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    1. "The assumption that key national decision makers (particularly those of Germany) will bear any cost ... is highly questionable."

      Don't forget the cost of German unification. If the will is there, the cost is secondary.

      Delete
    2. UK exports to the EU are several times larger as a percentage of GDP than EU imports to the UK. Any trade war would therefore damage the UK far more than the EU. A UK threat to start a trade war would therefore be totally unconvincing. The bluff would be called immediately.

      And that is without any business relocating to the EU to assure access to the single market.

      Delete
  11. «An attempt to damage the UK's economy as retribution for a free democratic vote [ ... ] The complete termination of EU access to the UK market»

    But that's what the democratic vote was for: complete termination of EU-UK reciprocal preferential market access and any other reciprocal preferential ties between EU and UK.
    The democratic vote of June 2016 was for ending membership in the EU, terminating all (worthless?) benefits and (huge?) costs of that membership.
    The EU simply cannot do anything to damage the economy of a nuclear armed UK that also has the "bravest armed forces" and the "finest intelligence services", it can only fully respect the UK democratic vote, it has no other options.

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    Replies
    1. So what latitude does the EU have here? Is it simply a case that the UK is now the equivalent of Ecuador to the EU; there are tariffs and regulations and customs compliances, these are established, and it is simply a matter of us both complying with those? In which case why aren't we out of the EU the day after article 50 is declared? If the EU has no other option what is the purpose of the two-year negotiation period? And given our courts say we don't need to pay them a penny, were we to pay them some money in lieu of future contributions what could they give us in return?

      Delete
    2. A Free Trade Agreement?

      Ecuador is a good choice here, because they have recently joined the Andean Community Free Trade Agreement with the EU, which I presume gives them better terms of trade than the WTO default, which is our fate if we don't negotiate a decent FTA.

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    3. Dipper: "our courts say we don't need to pay them a penny".
      That is not correct, what you are referring to is the legal opinion of UK lawyers, but no court has yet made a judgement on whether the UK has a financial liability and for how much. The EU also has a legal opinion that differs from the UK's. Any payment would be for commitments already made, so there would be nothing additional in return, at least formally.

      Delete

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