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[...] The two years prescribed by Article 50 will weaken the British hand. The clock will be ticking when Britain seeks to complete not only the exit talks, but also an interim agreement covering the period between when it leaves the union and the entry into force (probably many years later) of a free trade agreement (FTA) between the UK and the EU. The UK will also have just two years to become a normal member of the World Trade Organisation (WTO), and to negotiate bilateral deals with the 53 countries with which the EU has FTAs, which will cease to apply to Britain on the day of Brexit [...]. If these talks break down or Britain leaves the EU without having completed these agreements, the British economy would take a very big hit.
[...]the largely united approach of the 27 to the Brexit negotiations. They assert that if Britain restricts free movement after it has left the EU, it cannot be part of the single market. Instead, they suggest, it should negotiate a free trade agreement with the EU, along the lines of that between the EU and Canada. This could be very damaging to Britain’s services industries, including those in the City of London, since FTAs do not normally cover many services. [...]
There is a real worry that if the British achieve some special status, with their own institutional arrangements, other countries – inside or outside the EU – might ask for equivalent deals. And that could undermine existing institutional structures, to which the Commission and the European Parliament are especially attached, and possibly even lead to an unravelling of the EU.
The biggest reason why most governments take a tough line on the four freedoms is their fear of populism. [...] So the British must be seen to pay a price for leaving. They cannot be allowed to enjoy the benefits of membership, like participation in the single market, without accepting the responsibilities, like paying into the EU budget and accepting free movement (which both Switzerland and Norway do).
So the extraordinarily harsh reaction in most EU capitals to the recent and much-discussed Bruegel paper is not surprising. Written by a group of respected thinkers – including Jean Pisani-Ferry, head of policy planning in the French government, and Norbert Röttgen, chairman of the Bundestag foreign affairs committee – the paper proposes a ‘continental partnership’ that would give Britain (and potentially others) membership of the single market, the right to be consulted on its rules, and the ability to limit EU migration. In return Britain would have to accept rulings of the European Court of Justice (ECJ) and pay into the EU budget.
One principle underpinning the Bruegel paper is that it is in the interests of the 27 to have as close as possible an economic relationship with the UK; another is that, in economic terms, absolute free movement of people is not necessary for the good functioning of the single market. But EU governments do not necessarily accept either premise. [...]
Rather more Britons assume that, in the end, Angela Merkel will look after the UK. One French official told me that he worried that the Germans could go soft on the British. The Chancellor certainly laments Brexit and wishes Britain well. But her main responsibility, as the EU’s unofficial leader, is to keep the 27 together, and that means working closely with the French to do so. For Merkel, the interests of the EU come first. She believes that maintaining the institutional integrity of the EU, and the link between the four freedoms, is in Europe’s interest and therefore Germany’s. [...]
Furthermore, British politicians should not assume that German policy is driven only by economic rationality. German industry would like a very close relationship with a post-Brexit UK, but does not necessarily determine policy. [...]In any case, an FTA between the EU and the UK, removing tariffs on goods, would suit German industry. It would not be so good for the service-dependent UK economy. [...]
One reason why British politicians may be over-optimistic about the kind of deal they can achieve is that many of them misread continental debates on migration. In the UK, everybody agrees that EU migration is a big political issue. British politicians tend to assume that people in other EU countries must think the same way; therefore, argue both Conservative and Labour MPs, the 27 will in time come round to Britain’s viewpoint and wish to restrict free movement. And that could, they hope, allow the British to achieve some sort of single market membership combined with limits on free movement.
It is true that migration is a big issue in many EU countries. But in most of them the salient problem is inflows of refugees and economic migrants from outside the EU.[...] So British politicians should not count on their EU peers adopting their own views on migration. [...]
On migration, the British should not rush into a new system for restricting free movement without consulting partners (once Article 50 is invoked). [...]
More generally, the British need to sort out their priorities and not have too many of them. And if they really wish to pursue a hard-to-obtain objective like ‘passporting’ for the City of London, they will need to offer a substantial trade-off, such as payments into the EU budget [...]
Finally, the British should be polite. Because Article 50 puts them in a weak position, they cannot hope for a good deal without the goodwill of their partners. An acrimonious divorce would damage both parties but be worse for the UK, since much more of the UK’s trade is with the EU than vice versa. [...]