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Britain’s game of Brexit chicken will end badly

Boris Johnson won the general election of 2019 on the promise that he would get Brexit done. But it has not been done. Instead of stabilising, post-divorce relations are worsening. Not surprisingly, they are most fraught where the responsibilities remain shared. Fisheries are one such point of contention. But the most dangerous by far is Northern Ireland. Back in October 2019, Johnson declared he had reached a “great new deal”. Now he would like to tear it up. That is characteristic, alas. But it is dangerous not just for the UK, but also for the EU and wider west.

In one sense, Brexit could never have been “done” by now. The ending of a marriage transforms the prospects of the partners into the future. Other things equal, the more economically dependent partner will also suffer more.

In its Economic and Fiscal Outlook last month, the Office for Budget Responsibility concluded that “since . . . November 2016, our forecasts have assumed that total UK imports and exports will eventually both be 15 per cent lower than had we stayed in the EU. This reduction in trade intensity drives the 4 per cent reduction in long-run potential productivity we assume will eventually result from our departure from the EU.” To put this in context, this is twice the estimated long-run costs of Covid and, in today’s value, is £80bn a year.

So far, outcomes are close to the earlier forecasts. The UK’s trade with the EU is shrinking relative to what would otherwise have happened. This will not be offset by other trade. That will impose costs in perpetuity. (See charts.)

Chart showing that UK exports to the EU have slowed sharply since the Brexit referendum

Yet it could be far worse even than this. Suppose traders and investors, foreign and domestic, concluded they could not rely on the negotiated framework for relations between the UK and its most important economic partners. Suppose, even worse, that the credibility of the UK’s government as a partner is destroyed. Then the losses for the UK might substantially exceed those indicated by the OBR. They would also go far beyond merely economic costs.

How realistic are such fears? In a broadcast over the weekend, Simon Coveney, the Irish foreign minister, suggested that the EU might repudiate its post-Brexit trade agreement if the British government went through with its threat to suspend parts of the deal on Northern Ireland. He warned that the UK was pushing for a deal it knew it could not get. The UK is indeed pushing for radical change. In a combative speech in October, Johnson’s bantam cock, Lord David Frost, argued: “For the EU now to say that the protocol — drawn up in extreme haste in a time of great uncertainty — can never be improved upon, when it is so self-evidently causing such significant problems, would be a historic misjudgment.”

Chart showing that UK imports from the EU have also slowed sharplysince the Brexit referendum

This is the language of repudiation. Particularly striking is the implication that this protocol — consciously and, one must assume, knowingly agreed by Johnson himself two years ago — was somehow “uncertain” and drawn up in “extreme haste”. In fact, its consequences were quite foreseeable. That is why Theresa May, his predecessor, rejected the idea of splitting Northern Ireland from the rest of the UK in this way. If Johnson did not understand what he was signing he was incompetent. If he did, but had no intention of abiding by the deal he signed, he was dishonest.

This is not to argue that the administration of this protocol could not be improved. The European Commission has made significant proposals on this. But the UK’s insistence on being able to deviate from EU standards in foodstuffs was sure to create problems in its trade with Northern Ireland. It duly did.

Chart showing that UK forecast for export markets remains in linewith the OBR’s post-referendum forecasts

Now, in pursuit of a radical change in the agreement it knowingly signed, the UK government is proposing to take “safeguard” measures. Such measures are permitted under Article 16 of the protocol. But, the latter explains, such “measures shall be restricted with regard to their scope and duration to what is strictly necessary in order to remedy the situation”. The UK’s desire to remove the role of the European Court of Justice in settling the EU law that governs the single market is far from “strictly necessary”. Moreover, the EU would be entitled to take its own rebalancing measures in response to such an action by the UK. Where such a cycle of retaliation between these neighbours would finish nobody knows.

The optimistic view is that this “game of chicken” will end, as it has done before, with a patched-up agreement: the EU will give a bit and the UK will fail to get all it wants. Yet there are obvious difficulties with this cheerful view. The first is that the endless attempts to renegotiate the most contentious part of the withdrawal have soured relations and, still worse, will continue to do so: after all, Ireland, Northern Ireland, the EU and the UK are not going away. The second is that such finagling fatally undermines the trust in its commitments that any government needs. The UK can no longer hope to get away with a reputation for being “perfidious Albion”. The last is that the game of chicken might end up in a crash of just the sort suggested by Coveney. Maybe that will not happen this time. But it looks increasingly as though the UK government will keep on at this until the EU folds totally or the crash happens. In the long run, the latter seems far more likely.

Chart showing that the forecast for import penetration also remainsin line with the OBR’s post-referendum forecasts

So, what happens if core parts of the deals between the UK and the EU collapsed? The economic effects would certainly be damaging. But far worse would be the breakdown of trust among leading democracies and eternal neighbours at a time of enormous challenges for such countries. These are risks nobody sane would dare to run. This dangerous “game” must stop. We have to move on.

martin.wolf@ft.com

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