Both sides of the channel fret that a no deal Brexit would cause a serious shock that would worsen economic weakness.
It is thus a concern that they aren’t considering a proposal from the Ifo Institute, a leading German economic think-tank. The plan could open the door to a flexible Brexit deal that is acceptable to both the UK Parliament and the European Union (EU).
The model would scrap the contentious “backstop provision” in the current withdrawal agreement. Instead, the UK would delegate all trade policy in goods to a newly-created European Customs Association (ECA).
The EU would also be a member of the ECA. Crucially, the UK would have the same voting rights in the ECA as the 27-member states of the EU.
The ECA would cover trade policy, such as tariffs, quotas and rules of origin.
Since both the UK and Ireland would be members of the ECA, there would be no need for customs barriers on the Irish border.
The ECA would not cover trade in services- notably intellectual property, direct foreign investment, audiovisual, cultural and social educational and health services.
Gabriel Felbermayr and Clemens Fuest of the Ifo Institute are the lead authors of the plan which is backed by other German and European academic institutions.
They suggested a minimum three-month extension to the March 29 UK withdrawal date from the EU to establish the ECA.
Appeal for both sides to be more flexible
In particular, they appealed to EU leaders and negotiators to be far more flexible with British Prime Minister Theresa May, who is struggling to get Parliament to accept her Brexit deal.
“The nearer the deadline, the better the chances for a last-minute compromise. Yet this is a very dangerous game, both for the UK and for EU,” the proponents of the ECA plan warn.
“Recognising that a hard Brexit is in no one’s interest and that it would cause irreparable political as well as economic damage, we call both on the UK government and the EU Commission to rethink their ‘red lines’.”
The German economists issued a veiled criticism against EU inflexibility.
“Since 2000, the United Kingdom paid a net contribution to the EU budget of £76 billion,” they noted. “One may argue that this fact alone merits a fair treatment of the second-largest European economy.
“Under the proposed new arrangement there would be no passive rule-taking but instead a continuing active involvement of the UK in European trade policy, with high mutual benefits.”
Weakness in the European economies should concentrate minds.
Italy is officially in recession as its economy contracted in the final
In the three months ended September, Germany’s economy contracted. The government has downgraded growth forecasts to only one per cent in 2019, but some independent forecasters expect a recession.
The euro zone’s economy grew by only 0.2 per cent in the final quarter of 2018, down from 0.4 per cent in the previous three months. This is the lowest growth in four years for eurozone indebted nations that have high unemployment.
There are worries on both sides of the channel that if Brexit takes place with no deal, there could be a serious shock that would worsen economic weakness.
© Copyright Neil Behrmann
This article was first published in The Business Times, Singapore Neil Behrmann is London correspondent of The Business Times. Jack of Diamonds his thriller on global diamond mining and smuggling, has recently been published. It is the sequel to the thriller, Trader Jack, The Story of Jack Miner.
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