NO. 40 OCTOBER 2018 Introduction

Dancing on the Cliff Edge The Key to the Exit Negotiations Lies in British Domestic Policy Nicolai von Ondarza

The negotiations on the Brexit withdrawal agreement are heading for the endgame: An agreement is to be reached in October – at the latest in November 2018 – if the United Kingdom is to leave the EU in an orderly manner in March 2019, as planned. But the EU-27 and the British government are still a long way from reaching this agreement. Above all, British domestic policy is unpredictable: There is neither a majority for any form of Brexit, nor a substantial change of opinion against Brexit, as such. Any outcome of the threatens to trigger a political crisis in the UK, further increasing the risk of a disruptive exit.

The Brexit negotiations are stuck in a tem- live and work in the UK from 30 March, poral paradox – on the one hand, time is and under what conditions they will be running out for the British and the EU-27, able to trade with the UK. while on the other hand, the handling of At the same time, a real clarification of Brexit will continue well into the 2020s. the question concerning the future relation- First, Article 50 of the Treaty on European ship still lies far in the future. The with- Union (TEU) sets a limit of two years to drawal agreement – if it is concluded – regulate the withdrawal of a member state is intended exclusively to regulate the mo- from the (EU). For the dalities of separation (rights of EU citizens United Kingdom (UK), this deadline ends on living in the UK and vice versa, financial 29 March 2019, when the country will leave obligations of the UK, border with Northern the EU without a settlement if there is no Ireland) and to allow a transition phase agreement or extension of the deadline by until the end of 2020. During that tran- then. In order to have time for the neces- sition, the UK is set to formally leave the sary ratification, the negotiators on both EU, but it will remain in the Internal Mar- sides actually wanted to reach an agree- ket and Customs Union, bound by EU law. ment in October 2018; if necessary, a last- A political declaration on the withdrawal minute agreement would still be possible treaty is intended to outline the framework in November or December. for the future relationship. The future rela- For affected citizens and businesses alike, tionship will, however, only be fully nego- this is very late: Nobody knows yet under tiated in detail during the transition until what conditions EU citizens will be able to 2020 – or possibly even beyond. In short, Figure 1

The trilemma

the Brexit negotiations must start in Court of Justice will have. The protection autumn 2018 in a sprint, but only as part of geographical indicators in the UK after of a longer negotiation marathon. Brexit (e.g. Champagne, Nuremberg ginger- bread, etc.) – an important economic factor for the EU worldwide – is also still Northern Ireland in Focus a point of contention. The biggest obstacle, however, is how In this marathon of negotiations, negotia- to deal with the Irish-British border in tors on both sides are already well advanced Northern Ireland. This future EU external on separation issues, despite the difficult border is of enormous importance for EU negotiations. According to joint statements, member Ireland, both because of its impor- about 80 per cent of the withdrawal agree- tance for the Northern Ireland peace pro- ment is politically agreed, for example on cess and because of the close economic ties the basic structure of the agreement, on between the two parts of the island (see safeguarding citizens’ rights (with some SWP Comment 7/2017). With 208 border exceptions), on the financial obligations of crossings, the border also has more cross- the UK, and on the modalities for the tran- ings than the entire EU external border in sition phase. But these agreements are Eastern Europe – de facto it is hardly con- meaningless if no agreement is reached on trollable and therefore of great importance the overall package – including the tran- for the EU as a whole. From the beginning sition phase. of the Brexit negotiations, the EU-27, sup- As in most negotiations, the remaining ported in particular by Germany, have 20 per cent are the most controversial. made keeping this border open a central Technical issues with high political rele- criterion for a withdrawal agreement. vance are still open. These include, for At the same time, the internal contradic- example, the question of the institutional tions of Brexit are in focus with the border mechanisms for implementing the with- in Northern Ireland. The British govern- drawal agreement, .e., what rights the EU ment has set three incompatible targets (see

SWP Comment 40 October 2018

2 Figure 1): Prime Minister has participate in the Internal Market with all always stressed to her own people and party rights and obligations, as Norway does, as that Britain will leave the EU’s Internal part of the European Economic Area, or Market and Customs Union. Anything else conclude a deepened free trade agreement is dismissed as a betrayal of the referen- with the EU as a third country, such as dum. In December 2017, however, the Canada. The latter would allow tariff-free British government promised the EU-27 to trade but result in significant cuts in mar- keep the border open in any case. To this ket access for workers and (financial) ser- end, the withdrawal agreement is to spell vices, and exclude the UK from the EU’s out a “backstop” option with which the common regulatory area – and thus also border can be kept open, even if this cannot trigger the backstop for Northern Ireland. be guaranteed by the general British-Euro- In July 2018 Theresa May, under intense pean relationship – theoretically, even if political pressure, gathered her government the EU and the UK fail to agree a future behind the strategy named after the loca- trading agreement. Finally, May has prom- tion of the Chequers plan meeting. Accord- ised the Northern Irish Democratic Unionist ing to the strategy, the UK wants to keep a Party (DUP), which supports the govern- “common rule book” with the EU’s Internal ment, not to create controls between North- Market for goods. The country is also to re- ern Ireland and the rest of the UK. main in the Customs Union in the medium Since then, the negotiations on Northern term until new technical possibilities for Ireland have stalled. The British govern- a solution have been found. In contrast, ment categorically rejects the proposal for a May’s strategy proposes removing the backstop presented by the EU Commission remaining freedoms for services, capital, in March 2018 (“No Prime Minister could people, and other EU policy areas from ever sign this”). This saw the creation of a Britain. The EU rules should also not apply common regulatory area between the EU-27 to purely domestic products either, and the and Northern Ireland, with the latter effec- British Parliament would retain a principal tively remaining in the Customs Union and veto right (but with consequences if the UK parts of the Internal Market. This is regarded decides to deviate from EU rules). This strat- in the UK as breaking up the integrity of egy is being sold to the EU-27 by May as the the United Kingdom itself, not least because only acceptable solution in the UK. the Scottish government also wants a spe- The Chequers plan is being rejected by cial status vis-à-vis the EU for Scotland. the hard Brexiteers in the UK as well as However, the British government has not by the EU-27. EU opponents such as con- yet presented its own proposal. The rejec- servative MPs Jacob Rees-Moog and Boris tion of the EU-27 proposal, on the other Johnson see Chequers as a plan to bind the hand, is shared by all parties in the UK. The UK in the long term to a “vassal status” vis- best way to mitigate the backstop would be à-vis the EU in which it (partially) accepts a statement on the future relationship, with EU legislation without having a say. EU the prospect that it would never be needed. negotiator and all national governments of the EU-27, on the other Wide Front against Chequers hand, have made it clear that although parts of the Chequers plan are a good basis But it is precisely this political declaration for negotiations, the central proposal – that is the second major obstacle. For a long partial participation in the Internal Market time, the British government has been without legally binding enforcement – negotiating mainly with itself about the violates the EU’s central red lines. This would future relationship, while the EU-27 have divide the four freedoms, endanger the In- stood firm on a clear position: The UK ternal Market, and at the same time allow should be integrated into the EU’s existing British companies to gain unfair competi- relations with third countries, i.e., either tive advantages over their EU competitors.

SWP Comment 40 October 2018

3 In short, to cushion the backstop in vote in the Conservative Party and Parlia- Northern Ireland, the political declaration ment with threats against the Prime Minis- on the future relationship between the EU ter to vote against the government. This and Britain should be as specific as possible. group also has enough deputies to initiate But the more detailed the statement be- a leadership challenge against Theresa May comes, the more the EU will insist on its red in her party at any time – but not enough lines on the integrity of the Internal Market to make her own candidate Prime Minister. and demand more concessions from the By rejecting the withdrawal agreement, British. This, in turn, increases the risk of however, they could enforce the “WTO the withdrawal agreement failing in the scenario”, which they see as their preferred British Parliament. option. Crucially, at least in public, they play down the costs of a no deal Brexit – despite most economic studies stating A High-risk Political Game otherwise – arguing that after a short-term hiccup, Britain could recover, and even gain, The most critical element in the Brexit by signing free trade deals around the world negotiations in the short term is the vola- and undercutting European regulations. tility of British domestic policy. For internal On the other side of the spectrum, at political reasons, the British government least 12 members of the Conservative Party has already made a legal commitment can be identified who openly advocate the to submit the withdrawal agreement and closest possible ties to the EU. In theory, political declaration to the two houses of they too have the possibility of costing the Parliament. Only after it has gained approv- government the majority if the entire oppo- al from the House of Commons can it sign sition vote against it as well. In the course the withdrawal agreement with the EU. But of the parliamentary process on Brexit, they that approval is more than uncertain: have succeeded, among other things, in First of all, May only has an extremely strengthening the House of Commons’ deci- narrow majority. Since she called snap elec- sion rights on Brexit (“meaningful vote”). In tions in June 2017, she has headed a minor- the past, this group flirted time and again ity government. The current 315 Conserva- with rebellion against the government and tives, backed up by 10 members of the only failed to gain a majority in the House Northern Irish DUP, only achieve a majority of Commons for a Customs Union with the among the 650 seats because the 7 mem- EU against the wishes of the government bers of the Irish Nationalist Sinn Fein from because five Labour MPs voted with the gov- Northern Ireland do not accept their seats. ernment. Although they could cost the gov- Even a handful of dissenters can cost May ernment the majority, they are less likely her majority at any time. The pressure to risk a no deal outcome than the ERG. comes from at least four sides. The Northern Irish DUP is the third Firstly, the hard Brexiteers in the Conser- Achilles’ heel of May’s minority govern- vative Party categorically reject the Chequers ment. The DUP is itself a conflict party in plan, and even more so any further con- Northern Ireland and stands for a clear cessions to the EU. According to their own unionist course. The party is a staunch statements, the Tories assembled in the supporter of Brexit, even though the major- “” (ERG) have up ity of Northern Ireland’s population has to 80 MPs who are willing to vote against voted for remaining in the EU. The party’s the government on Chequers. At least 25 self-image and raison d'être, however, is its have made this public, including former attachment to the United Kingdom of Great ministers David Davis and , who Britain and Northern Ireland. For the DUP, resigned in protest against Chequers. In the this is much more important than Brexit or past, the ERG has repeatedly managed to the survival of the May government. The 10 impose hard interpretations of the Brexit DUP MEPs have therefore openly threatened

SWP Comment 40 October 2018

4 to withdraw support from the May adminis- for the medium term. Two factors are im- tration if it enters into an agreement with portant for the evaluation of these sce- the EU that would in some way lead to a narios. On the one hand, the default option differentiation between Northern Ireland in Article 50 negotiations is not a return to and the rest of the United Kingdom. This is the status quo, but rather the UK dropping true, according to the party’s public state- out of the EU on 29 March 2019 without ment, even if it is only an option of last any transition or rules governing future co- resort, as with the “backstop”. operation. On the other hand, not all open The fourth crucial factor is Labour as the questions need to be clarified before with- main opposition party, which, with its 257 drawal, but rather “only” the withdrawal MEPs, could help May gain a majority at agreement and the political declaration on any time. Indeed, the Labour leadership the framework of future relations. around has clearly accepted the Brexit vote. Labour has therefore in the Scenario 1: Orderly Brexit past voted with the government in favour of triggering Article 50. However, the party The scenario that the negotiators on both has submitted six tests for the withdrawal sides are working towards is an orderly treaty – formulated in such a way that no Brexit on 29 March 2019. This requires the form of Brexit will ever fulfil them – and EU-27 and the UK to have agreed by then has already announced its intention to vote the withdrawal agreement and the political against the withdrawal agreement. declaration for future cooperation. From The rejections by the Liberal Democrats the standpoint of the EU-27, this has to in- and the Scottish National Party are even clude a legally binding backstop for Northern clearer. Politically, none of the opposition Ireland, the remaining separation modali- parties have an interest in taking respon- ties, and the transition. In order to have sibility for the Brexit result. Furthermore, sufficient time for parliamentary approval particularly Labour is speculating on early and the implementation processes, an agree- elections in the event of May’s failure. ment in autumn 2018 is necessary. Further- Although Labour is also divided on Brexit more, the British Parliament has set a dead- issues, in the past only five pro-Brexit line of 21 January 2019 for its government Labour MPs voted with the government. to conclude the withdrawal negotiations. In a nutshell: There is currently no Otherwise, the government will have to majority in the British Parliament for any obtain approval for a new mandate from Brexit variant. While Theresa May has to Parliament – which is likely to be difficult, fight for every vote for approval of the with- given the majority situation outlined above. drawal agreement and political declaration, If an agreement between the British gov- the opposition cannot be expected to help. ernment and the EU-27 is reached, a num- If both the DUP and even some of the 25 ber of steps will still have to be taken. The MPs who form the core of the ERG vote most critical step is the vote in the British against her, she has hardly any chance to House of Commons. Looking at May’s recent get an agreement through Parliament. If speeches, the strategy of the May govern- only one of these groups rebels, she would ment to get its own parliamentarians to vote still have to fight for every single MP to get in favour is already taking shape: To give over the line. them the choice of either accepting the agreement May negotiated with the EU, or take personal political responsibility for the The Clock Is Ticking consequences of a “no deal” scenario and – addressed particularly at the Brexiteers – ac- In light of these differences, the outcome cepting the risk that new elections, a Labour of the Brexit negotiations is still completely government, and a second referendum could unknown. Five scenarios are on the agenda follow. If May succeeds in this, final approval

SWP Comment 40 October 2018

5 is necessary on the European side from the tions. In this context, it would also have to European Parliament (EP) and the European hold EP elections next May, which could Council. The EP has also set clear conditions easily turn into a vote on the Brexit process. for the Brexit negotiations – in particular What is most critical, however, is that the protection of civil rights and the open the supporters of Brexit have already legally border with Northern Ireland. However, anchored the exit date as part of the parlia- since this is largely congruent with the prior- mentary process on Brexit. The British gov- ities adopted by the EU-27, simultaneous ernment can therefore only request or approval by the member states and rejec- agree to an extension if it has obtained par- tion by the EP can be regarded as unlikely. liamentary approval. Since some of the sup- The UK could then leave the EU on 29 porters of Brexit within the UK Cabinet, March next year in an orderly manner and such as Michael Gove, only support the gov- remain in the Internal Market and Customs ernment’s current strategy because they Union until at least the end of 2020 as part want to “cross the line”, such an extension of the transition phase. Nevertheless, even would be at least as difficult to get through an orderly Brexit does not mean the end of as a negotiated result. Brexit uncertainty. Because the political declaration can only outline future rela- Scenario 3: “Managed No Deal” tions – legally non-binding – these have to be negotiated during the transitional If there is neither agreement nor an exten- period, with another cliff edge looming in sion of the deadline, the UK will leave the January 2021. EU without any settlement, by automatic operation of law. In trade, this leaves WTO Scenario 2: Extension rules as a fallback, including the obligatory reintroduction of tariffs, while other areas If the House of Commons rejects the out- – including citizen’s rights, the EU budget, come of the negotiations, or if the negotia- justice and home affairs cooperation, and tors are unable to reach an agreement, a participation in EU regulatory schemes – politically and economically very volatile have no such fallback options. The eco- situation threatens to emerge. A govern- nomic, political, and personal consequences ment crisis in London is then almost inevi- would be very grave for the UK, but (to a table, as are new negotiations among the lesser extent) also the EU-27. EU-27 on how to proceed. A fall of Theresa The British government is therefore May and either a new Prime Minister from working in its preparations for non-agree- the Conservative Party or new elections are ment on the assumption that it can at least, the logical domestic consequences. to some extent, mitigate these consequences The simplest way legally to defuse the through a series of individual agreements situation between the EU-27 and the UK – with the EU as a whole or bilaterally during this intra-British crisis would be to with its member states. In the spirit of such extend the negotiations in accordance with a “managed no deal”, the British govern- Article 50 TEU. This allows the parties to ment has already written to all 27 EU mem- extend the negotiation period through a ber states, for example to negotiate bilater- unanimous decision of the European Coun- ally about access to their airspace for British cil of 27 in agreement with the UK. Legally, airlines in case of no deal. Representatives there are no limits to how long or how of the citizens concerned are also constantly often the deadline can be extended. For calling for their rights to be safeguarded by example, an extension to the end of 2020, means of a separate individual agreement, i.e., the currently planned transition phase, even if the overall talks fail. is conceivable. During the extended nego- The conditions for a “managed no deal” tiation period, the UK would continue to be are, however, extremely poor: a volatile po- an EU member with all rights and obliga- litical environment in the UK, a negotiating

SWP Comment 40 October 2018

6 situation in which negotiations conducted rejection of the withdrawal agreement in for two years would have failed, a potential the House of Commons negotiations – is a withholding of British budget payments to second referendum. In principle, European the EU, a European Parliament in the mid- politicians such as the President of the Euro- dle of an election campaign, and an enor- pean Council, , and French mous flood of areas to be regulated give rise President have again to doubts that amicable management with- and again kept the possibility open for Brit- out a withdrawal agreement is possible in ain to remain in the EU. At least until Brexit the short term. is formally implemented next March, the prevailing legal opinion is that it is legally Scenario 4: “Disruptive No Deal” possible for the UK to remain in the EU. Politically, however, a second referen- The transition to the most negative sce- dum is a long way off. First, there has been nario – a disruptive Brexit without any no substantial change in opinion against common rules – is therefore fluid. Legally, Brexit in the UK. Apart from a few outliers, this remains the default option if there is surveys since 2016 show across the board no agreement: The UK leaves the EU with- that the country is still largely divided 50- out a transition phase, without any rules 50 on the question of EU membership, with for EU citizens, and without any agree- only a marginal advantage for remaining. ments for future cooperation. Second, a second referendum requires a However, even in this case, the adminis- parliamentary vote, which is hardly likely trations on both sides should, and will, to take place, given the current majority work to avoid complete chaos. The EU Com- situation. Added to this is the time factor – mission’s “Brexit Preparedness” communi- the parliamentary procedure for the 2016 cations therefore assume that, at least in referendum took more than six months. A the short term, only unilateral measures by second referendum would therefore require both sides are able to limit the worst con- new elections in the UK, the electoral vic- sequences. But even if planes still fly across tory of a party or coalition in favour of a the English Channel, the reintroduction of second referendum, and, finally, an exten- tariffs and the abrupt expulsion of the EU’s sion of Article 50 to hold that referendum. second largest economy from the EU’s This chain of events has become possible single market alone will lead to consider- since Labour, at its party conference in Sep- able disruptions. tember 2018, voted in principle for a sec- Even then, it will be necessary to main- ond referendum as a fallback option. At the tain dialogue. Britain remains one of the same time, the Labour leadership has sent EU’s most important neighbours in any conflicting signals whether “remain” should Brexit scenario. Even if the cooperation of actually be on offer in such a referendum, both sides would be impaired for years if or whether it should just be between no no agreement were reached, in the medium deal and a negotiated result of Brexit. and long terms, both sides will have to re- In short: A second referendum could turn to the negotiating table – even, and not be organised by March 2019 and would especially, after a chaotic Brexit – in order only be possible after a political crisis in to pick up the pieces and make future the UK, new elections, a Labour election vic- cooperation possible. tory, and a full commitment to revisiting the referendum. Fringe Scenario: Second Referendum

One conceivable outcome of a failure of the negotiations – especially in the event of a

SWP Comment 40 October 2018

7 Figure 2

Medium-term scenarios for the Brexit negotiations

© Stiftung Wissenschaft und Politik, 2018 All rights reserved

This Comment reflects the author’s views.

The online version of this publication contains functioning links to other SWP texts and other relevant sources.

SWP Comments are subject to internal peer review, fact- checking and copy-editing. For further information on our quality control pro- cedures, please visit the SWP website: https://www.swp- Outlook that an agreement without loss of face on at berlin.org/en/about-swp/ least one side seems almost impossible. In quality-management-for- The Brexit negotiations are a “dance on the terms of power politics, the EU is undoubt- swp-publications/ cliff edge”. Analysis of the negotiations has edly in a stronger position, as the UK would shown that falling off the cliff into one of the be more affected by any of the scenarios in SWP Stiftung Wissenschaft und “no deal” scenarios remains a realistic op- the event of a disagreement. Nor can, or Politik tion, despite both sides having a fundamen- should, the EU resolve the self-inflicted block- German Institute for tal interest in reaching an agreement. Po- ade of British domestic politics by letting International and litical and economic decision-makers should Britain pick the cherries from the single Security Affairs therefore prepare for the no deal scenarios. market or sacrifice the interests of its mem- The biggest challenges on the road to an ber Ireland to an agreement with London. Ludwigkirchplatz 3–4 10719 Berlin agreement are inextricably linked: securing Nevertheless, the EU-27, and Germany in Telephone +49 30 880 07-0 an open border in Northern Ireland, the po- particular, should not lose sight of its long- Fax +49 30 880 07-100 litical declaration on future relations, and term strategic goals in the sometimes heated www.swp-berlin.org obtaining parliamentary approval in Brit- negotiations: Yes, protect the single market, [email protected] ain. Theresa May’s majority here is more but also find a sustainable partnership with

ISSN 1861-1761 than uncertain. Given the fragile situation their future geostrategic neighbour, the UK. in the British House of Commons, where no Beyond its red lines, the EU should there- (English version of form of Brexit has a majority, any of the fore be ready to find a creative special solu- SWP-Aktuell 55/2018) possible scenarios seems to lead to a politi- tion for Northern Ireland. Finally, if talks cal crisis in Britain. break down, decision-makers on both sides Furthermore, the EU-27 and the UK gov- should be open to accepting an extension ernment have made their red lines so clear rather than one of the no deal scenarios.

Dr. Nicolai von Ondarza is Head (a.i.) of the EU / Europe Division.

SWP Comment 40 October 2018

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