Article 50 negotiations: Implications of 'no deal' Contents

2Why ‘no deal’ is a real possibility

The UK Government’s position

16.The Government has asserted repeatedly that it will walk away from the Article 50 negotiations if it does not approve of the terms of the final deal. In her 17 January 2017 speech setting out the Government’s objectives for Brexit, the Prime Minister said:

Britain wants to remain a good friend and neighbour to Europe. Yet I know there are some voices calling for a punitive deal that punishes Britain and discourages other countries from taking the same path.

That would be an act of calamitous self-harm for the countries of Europe. And it would not be the act of a friend. Britain would not—indeed we could not—accept such an approach. And while I am confident that this scenario need never arise—while I am sure a positive agreement can be reached—I am equally clear that no deal for Britain is better than a bad deal for Britain.17

17.This position was reiterated in the 2 February 2017 Government White Paper on exiting the EU, which stated that

We are confident that the UK and the EU can reach a positive deal on our future partnership, as this would be to the mutual benefit of both the UK and the EU, and we will approach the negotiations in this spirit. However, the Government is clear that no deal for the UK is better than a bad deal for the UK.18

The 27

Domestic politics

18.The exit negotiations will be immensely complex, not least because of the number of parties involved. In addition to the Brussels institutions, each of the 27 remaining Member States has its own domestic political concerns to consider in formulating its approach to the negotiations. This task will be made additionally complex by changing political dynamics across the 27. As the Secretary of State for Exiting the EU said on 14 December 2016:

from the beginning of this process to the probable conclusion, there are 17 electoral events. We have had the Italian referendum and the Austrian election, so there are 15 to go, by my best estimate, assuming we go the distance.19

In 2017 alone, that includes elections in France, Germany and the Netherlands. It is difficult to predict, at this stage, how the elections or potential changes in the governments of those key countries might delay or otherwise affect the Article 50 process.

Negotiations inside the EU

19.Although the EU-27 and the EU institutions have been relatively united in their approach to the UK’s exit negotiations thus far, there is no guarantee that this unity will continue. Jonathan Faull, previously the highest-ranking UK national in the European Commission, told the Committee that

It is a complicated process. Each of those 27 countries has its own politics, interests and concerns, and its own elections, in some cases, this year. The Brussels institutions will no doubt play their role to the full as well, so it is a complicated business.20

Similarly, Brussels-based journalists Maïa de la Baume and Ryan Heath recently reported in Politico that

The interplay between the negotiators and national capitals promises to be fraught: once technical agreement has been reached on any point up for negotiation, national leaders may be tempted to re-litigate elements that prove politically contentious, or even to take over the talks directly if their underlings fail to agree.21

20.The Member States all have different priorities and interests, both with respect to their relations with the UK and with respect to the future shape of the EU itself. As Dr Tim Oliver wrote in evidence to this Committee, “Whether the EU can reach a compromise on what to offer a departing Britain will be the focus of a great deal of the negotiations and play a significant part in deciding what form of deal Britain can expect.”22 Divisions within the EU, therefore—whether over the substance of the EU’s negotiating position, or over tactics and sequencing—could conceivably delay or derail the Article 50 process. Once Article 50 is invoked, furthermore, the EU-27 will need to agree on the guidelines mandating the Commission to negotiate on their behalf. If they do not mandate that the negotiations on the withdrawal and future relationship are carried out in parallel, the prospect of no deal significantly increases.

The exit bill

21.Even if the UK is able to realise its goal of holding talks on the withdrawal settlement and the future UK-EU relationship in parallel, the highly contentious question of the exit ‘bill’—the UK’s claimed financial liabilities (for example, pensions and existing commitments to future programmes)—is likely to be among the first issues on the table. Sir Ivan Rogers, head of UKRep until his resignation in January 2017, told the Committee on Exiting the EU that the dispute over a potential exit payment could get “pretty bitter and twisted”.23 This could result in negotiations quickly becoming bogged down amid acrimony from which it could be difficult to recover. As the Economist has noted, “a row over the exit payment could derail the talks in their earliest stages.”24 A recent report for Politico also called the exit bill “the issue with the greatest risk attached” in the negotiations.25 The reported figure of liabilities amounting to €60 billion has already begun a countervailing debate about the UK’s share of EU assets.

Error or miscalculation

22.As in any complex international negotiation, the possibility of simple error or miscalculation by one side or another cannot be discounted. Both sides may under- or over-estimate the strength of their respective hands, or may inaccurately judge the point at which the other party (or parties, in the case of the multi-faceted EU) would be willing to walk away. As Charles Grant of the Centre for European Reform has pointed out, the UK Government has suggested that it believes it has a strong negotiating hand relative to that of the EU, particularly with respect to foreign and security policy co-operation and financial services.26 Meanwhile, the EU appears to take the opposite view, especially regarding the consequences of ‘no deal’.27 Sir Ivan Rogers, for example, told the European Scrutiny Committee:

I think the view from many will be that the implications for the UK of walking away without any deal on the economic side, without any preferential agreement, and walking into a WTOonly world, are, from their perspective, so unpalatable that we will not do it. That may be a misreading of us, but I think that will become a major question during 2017. [ … ] A unilateral abrogation or desire simply to walk away from the table and say, “If you are sticking liabilities of that sort on the table, we are not playing”, is not a route that they think we will take.28

23.The re-negotiation of the UK’s EU membership, undertaken by the previous UK Government between November 2015 and February 2016, provides a recent example of how time pressure and different negotiating strategies may produce non-optimal results. The package of reforms obtained by the then-Prime Minister, David Cameron, was widely seen by the UK media as insufficiently robust.29 On 5 January 2017, Mats Persson, adviser to the then-Prime Minister during the re-negotiation process, conceded that “played differently and perhaps over a longer period of time, we could have perhaps achieved some more reforms.”30 Lord Hill of Oareford, who served on the European Commission during the re-negotiation period, also suggested that the then-Prime Minister may have relied too heavily on Germany to secure agreement:

Putting all your eggs in one basket is not a very smart strategy. What does not work is what I know is sometimes a sort of shorthand over here, which is, “Well, the Germans are kind of in charge, so all we have to do is square Mrs Merkel and it will be fine.” It does not work like that.31

The parliamentary dimension

The European Parliament

24.Under the terms of Article 50, the European Parliament (EP) must give its consent to the final deal, but no provision is made for its involvement throughout the negotiations. However, it has already made clear that it intends to play a significant role.32 In September 2016, the EP appointed Guy Verhofstadt of the Alliance of Liberals and Democrats group (ALDE) to act as the EP’s “Brexit co-ordinator”. In December, then-EP President Martin Schultz warned that there would be “grave consequences” if the EP is excluded from the Article 50 negotiation process and reminded the European Council President that the EP has the power to reject the final agreement.33 This warning was echoed by Manfred Weber, leader of the centre-right European People’s Party group, in a January 2017 interview.34 The possibility that the European Parliament might reject any agreement—whether on policy grounds, as part of an inter-institutional power play, or due to differences between the political parties represented in the European Parliament and national governments—cannot be excluded.

25.It might be assumed that the political supporters of the national governments in the European Parliament would follow the decisions made by their countries in the Council. However, even this cannot be guaranteed. The political complexion of the European Parliament is based on the results of the elections to it in May 2014. With 15 national elections due to be held before the end of the negotiations, there is the possibility of an increasing disconnect between the party-political makeup of some of the national governments represented in the Council and the Members of the European Parliament from those Member States.

The UK Parliament

26.In the White Paper on exiting the EU, the Government committed to putting the “final deal” that is agreed between the UK and EU “to a vote in both Houses of Parliament”.35 It is the Government’s view that notification under Article 50 is irrevocable. If Parliament sought to require the Government to withdraw notification of Article 50 or to return to the negotiating table, the practical effect of that instruction is wholly unclear. The Government has stated that Parliament will only be given a choice between the terms agreed by the Government and ‘no deal’.36 There is the possibility that either House might choose to reject the terms secured by the Government at a very late stage in the Article 50 process, by which point the Government would have run out of time to secure new terms that would be acceptable to Parliament.

The short timetable

27.None of the potential issues outlined above are insoluble. However, the tight timetable set out by the Article 50 process leaves almost no room for error, magnifying the potential damage that might be done by any delay or diversion. In December 2016, Michel Barnier said that there would be “less than 18 months” in total to negotiate the deal, because agreement would have to be reached by October 2018 to allow time for ratification by the European Council, European Parliament and UK Parliament.37 In practice, the period in which substantive discussions can be undertaken may be even shorter owing to the political constraints imposed by Germany’s elections in autumn 2017, among other elections.

28.Article 50 permits the extension of the withdrawal period by unanimous agreement, which could solve any potential problems posed by the short timetable if a deal has not yet been struck but there is general willingness to continue talks. Because of the requirement for unanimity on this decision, however, any single Member State could block the extension of talks. As Peter Kellner of Carnegie Europe has explained:

If negotiations get bogged down but don’t break down, any state could veto a proposal to keep the talks going. Suppose that proposal came before the European Council. To take just one example of what might happen, Spain could threaten to veto further talks unless the UK offered concessions in relation to its overseas territory of Gibraltar. Indeed, any of the other 27 Member States could throw a wrench in the works.38

29.The view of the Foreign Affairs Committee in April 2016, before the referendum was held, was that “The Government should recognise the probability of no mutual interest deal being concluded within the two-year notice period [ … ] It is, however, a reasonable assumption that in the medium term a suitable mutual interest deal would be concluded.”39 Lord Kerr of Kinlochard, who was involved in the drafting of Article 50, recently corroborated this assessment, saying “I rate the chances of breakdown at well over 30%.”40

18 HM Government, The United Kingdom’s exit from and new partnership with the European Union, Cm 9417, February 2017, p 9

19 Oral evidence taken before the Exiting the European Union Committee on 14 December 2016, HC (2016–2017) 815, Q513

20 Q369

21 Maïa de la Baume and Ryan Heath, “EU expects home-team advantage in Brexit talks”, Politico, 23 February 2017

22 Dr Tim Oliver (REU0003) para 11

23 Henry Mance, “Former UK top diplomat warns EU will oppose sectoral Brexit deals”, Financial Times, 22 February 2015

25 Maïa de la Baume and Ryan Heath, “EU expects home-team advantage in Brexit talks”, Politico, 23 February 2017

26 Charles Grant, “Mrs May’s emerging deal on Brexit”, Centre for European Reform, February 2017

27 Alex Barker, “Cards stacked in our favour, say Brexit officials”, Financial Times, 28 November 2016

28 Oral evidence taken before the European Scrutiny Committee on 1 February 2017, HC (2016–17) 791, Q10

29 Roy Greenslade, “David Cameron’s EU deal—what the national newspapers said”, The Guardian, 20 February 2016

31 Oral evidence taken on 10 January 2017, HC (2016–17) 900, Q30

32 Agata GostyƄska-Jakubowska, “Parliamentarians in Brexit talks: bulls in a china shop?” Centre for European Reform, February 2017

33 European Parliament, Press Release, 14 December 2016

34 Daniel Boffey, “EU parliament will be ‘very difficult’ in Brexit talks, says leading MEP”, The Guardian, 25 January 2017

35 HM Government, The United Kingdom’s exit from and new partnership with the European Union, Cm 9417, February 2017, p 11

36 Andrew Sparrow, “Politics Live blog”, The Guardian, 6 March 2017

37 Charlie Cooper, Maïa de la Baume and Paul Dallison, “UK caught out by Michel Barnier’s tighter Brexit timetable”, Politico, 6 December 2017

38 Peter Kellner, “Brexit, a game of deal or no deal”, Carnegie Europe, 6 February 2017

39 Foreign Affairs Committee, Fifth Report of Session 2015–16, Implications of the referendum on EU membership for the UK’s role in the world, HC 545, para 19

40 HL Deb, 21 February 2017, col 229

10 March 2017