No-deal Brexit is the most likely outcome of the Salzburg summit
The leaders of the EU have concluded that the UK will never accept a no-deal Brexit. That conclusion informs their negotiating position. The judgment may turn out to be right in the end. But as the dust settles after last week’s Salzburg summit, this looks like a recklessly risky bet.
What makes the Brexit process so dangerous is that both sides keep on misreading each others’ intentions. Theresa May, like her predecessor, was wrong to think that she could exploit differences between EU leaders. They, meanwhile, misread her political constraints.
The concerns that Brussels and the EU27 have about Mrs May’s Chequers proposals are justified. But they were wrong to kill them off. In doing so, they inadvertently increased the probability of no-deal Brexit.
There is still a small chance of a fudge — an Irish backstop in the withdrawal agreement plus a non-binding political declaration on the future relationship. But Mrs May’s statement on Friday has reduced the chances of any agreement that might imply a customs border inside the UK’s own territory.
I see no chance of any Brexit agreement unless and until the EU starts to attach at least some positive probability to a no-deal Brexit. We are not there yet. Several EU leaders chose this week to ramble on about a Brexit reversal. A popular German news website was leading with a story about a British minister ruling out a second referendum. This seemed a genuine surprise to them.
For as long as the expectation of a Brexit reversal or a UK climbdown persists, there can be no deal. It is possible that the EU’s position will shift as we approach a no-deal Brexit. UK voters, having voted for Brexit, may be prepared to pay an economic price to leave. Continental voters and companies are not similarly primed to make a sacrifice and many EU jobs are at stake. Germany and the Netherlands have massive bilateral trade surpluses with the UK.
Economists persist in pointing out that a no-deal would be worse for the UK than the EU. This is trivially true but fails to recognise a more important point: the EU has a much lower political pain threshold for a hard Brexit.
The best negotiating tactic for the British prime minister is the one she signalled in her televised address on Friday: do nothing until the EU moves, stick to her proposal in substance, perhaps making some technical improvements, maybe give it another title, let the deadlines pass all the way into 2019.
By rejecting the Chequers plan outright, the EU also missed a trick: they could have offered the UK’s pro-Europeans a robust path back towards full EU membership in the future. One of the reasons why the hard Remainers in the UK are so desperate to reverse Brexit (and reluctant to endorse a withdrawal deal) is the wish to maintain the UK’s current opt-outs. The EU could have offered assurances about future EU membership, including a pledge that the UK will not need to join the euro.
Remainers consider a future return to EU membership as a distinctly second-best option. But consider the alternative: the hard Brexit which would follow voting down a withdrawal deal. Article 50 of the Lisbon treaty is very clear on this point. If the UK were to crash out of the EU, I doubt its leaders would even sit down with the UK to negotiate a simple trade deal.
Co-operation on security policy would end. And as the economic systems diverge over time, the barriers to re-entry will increase. The possibility of rejoining the EU would be lost for a generation while agreeing to leave would keep the option of future membership open. That prospect alone should have some value both to the EU and to Remain supporters in the UK.
There is now no alternative for Mrs May other than to take the negotiations to the very brink. In the meantime, we should all prepare for a no-deal Brexit. In the absence of further developments such as a change of political leadership, a general election in the UK or a change of position by EU leaders, we should consider it to be the single most probable scenario.