WHAT NO-DEAL BREXIT MEANS, HOW IT MIGHT HAPPEN, AND HOW IT MIGHT AFFECT DAILY LIFE IN THE UK

 The Telegraph 9 September 2020 -by Peter Foster, Daniel Capurro, Anna Isaac, James Crisp, Asa Bennett 

© Britain's Prime Minister Boris Johnson waves as he leaves 10 Downing Street in central London on Sep... Britain's Prime Minister Boris Johnson waves as he leaves 10 Downing Street in central London on September 8, 2020 to walk across to the Foreign, Commonwealth & Development Office (FCDO) to chair the weekly meeting of the cabinet. - Britain demanded "more realism" from the European Union ahead of crucial post-Brexit trade talks on Tuesday, but the mood was soured by reports that London was looking to rewrite an agreement the two sides had already signed. (Photo by Niklas HALLE'N / AFP) (Photo by NIKLAS HALLE'N/AFP via Getty Images)

Is no deal Brexit possible?

Yes, although the precise nature of "no deal" has changed given that the United Kingdom left the European Union on 31 January 2020 under the renegotiated terms of withdrawal agreed by Boris Johnson and ratified by Parliament.

Since then, the United Kingdom has been busy working to agree its future relationship, in line with the guidelines set out under the Political Declaration. With no extension to this period in limbo, which simulates the terms of still being in the EU while legally acknowledging its independence, the UK will be fully out of the EU by the end of 2020. 

That means, unless a future relationship is agreed, the UK will leave the EU after December 31 without any agreed framework in place. The Withdrawal Agreement will still be place, so issues like the Irish border and the so-called "divorce bill" will be settled under its terms, but other matters will not have been so summarily nailed down.7

In other words, the original "no deal" may not be possible, but what is now known is "no deal" might better be viewed as a "no trade deal" exit. 

What would no deal look like?

The European Union is adamant that there is no such thing as a “managed” no deal - fearful that making a no deal look too comfortable risks turning it into a self-fulfilling prophecy.

Michel Barnier, the EU chief negotiator, has insisted there will be no "mini-deals". To ram home the point the EU published a highly confrontational no deal planning document which set out “limited” and one-sided measures defending it from the “significant disruption” of a no deal.

But behind the scenes, member states are questioning whether such a hardline approach is really viable.

© ASSOCIATED PRESS EU Chief negotiator Michel Barnier arrives at St. Pancras international train station in London, Wednesday, Sept. 9, 2020. UK and EU officials begin the eighth round of Brexit negotiations in London. (AP Photo/Alberto Pezzali)Experts believe that, if the UK plays its cards right politically, a managed no deal could emerge.

Charles Grant, the director of the Centre for European Reform, is confident that if the crunch comes EU member states will strike bilateral side-deals with the UK to cushion the blow. “For now the Commission is taking a strong line, but EU member states will have to look after their own interests”, he predicts.

So for all the catastrophist predictions, the reality of a no deal is likely to be disruptive, but not world-ending. Or in the earthy phrasing of a senior diplomat from an EU trading power: “no deal won't be an explosion, it will be a wet fart.”

Finance & the City

The EU is heavily reliant on the UK for financial services and capital, which means that regulators are already in the process of setting up a series of ‘mini-deals’ to avoid the risks posed to the City of London. A deal is already close to offer legal certainty to £41 trillion worth of derivatives contracts.

If the EU Commission moved to support these deals – and in reality it will have little choice – the City will have what Bank of England Governor Mark Carney, has termed a “glass half-full” no deal situation. “It’s cold comfort, but it will be worse in Europe than it is here,” he told MPs.

Still, even allowing stimulus measures such as cutting interest rates, house prices could take a significant hit. Economists believe no deal could shave at least two per cent off GDP by the end of 2020.

It might not be a full-blown catastrophe, says Andrew Goodwin of Oxford Economics, but, no deal would still cause massive economic disruption and shake confidence.

“Markets have only priced in 20-30 per cent chance of no deal. Obviously if no deal actually happened I wouldn’t be surprised if we saw a 10 per cent drop in the value of sterling,” he says.

© Xinhua News Agency LONDON, Sept. 8, 2020-- Photo taken on Sept. 8, 2020 shows the European Parliament Liaison Office in the United Kingdom in London, Britain.Trade & Customs

Without any formal trade deal, the UK would have to rely on WTO rules - in a model described by Brexiteers as an "Australia-style" relationship.

However, the current default EU Commission position is “all relevant” EU legislation will apply to imports and exports, including tariffs, VAT and a total ban on food of animal origin until the UK registers as a ‘third country’. The result would be a virtual blockade.

Already Dutch and French diplomats have clashed with the Commission on this approach, with one French diplomat angrily pointing out that it would require a 40 kilometre (25 mile) customs terminal to comply with necessary checks. The French government is already putting in place laws to give it extraordinary powers to temporarily recognise certifications of UK companies and workers.

The European Union's (EU) recently appointed ambassador to the United Kingdom, Joao Vale de Almeida, arrives by car at Europe House in central London on September 8, 2020. - UK and EU negotiators on Tuesday resumed Brexit talks, after warnings last-minute changes to domestic legislation risked derailing the process, threatened peace in Northern Ireland and even a showcase UK-US trade deal. Prime Minister Boris Johnson has angered EU officials by insisting there was now an "unforeseen" risk that Northern Ireland would be cut off from the rest of the United Kingdom. (Photo by Niklas HALLE'N / AFP) (Photo by NIKLAS HALLE'N/AFP via Getty Images)Similarly, when it comes to hauliers, the Commission is saying the UK must apply to a licence scheme that currently only cover 5 per cent of the volume of traffic. But again, affected member states including Germany, Czech Republic, Poland, Belgium and Ireland are pressing for more.

So in a benign no deal scenario, the EU could introduce temporary measures to keep goods trade flowing, allowing the UK to register as a ‘third country’ in order to create a new legal base for exports. The UK has already said that it will not impose controls in the first instance.

Alex Stojanovic of the Institute for Government says the door is open for the EU to create a fast track equivalence deal, of the kind it has with New Zealand for example, which obviates the need for a large number of checks.

In this scenario there would still be costly frictions, and the UK would be at the mercy of the EU as how serious these would be. “They could do more, but you can’t predict whether they will,” he adds, “and in some areas it might not be in their interest to act.”

Data

UK Services trade with the EU was worth £89bn last year, all of which is heavily reliant on the ability to transfer data across borders. The UK has already put the EU’s General Data Protection Regulation (GDPR) onto its statute book.

For now the EU is refusing to say it will reciprocate the UK’s stated intention of allowing data to flow freely from the EU, but industry experts note that when the US-EU data Safe Harbour data deal collapsed the EU allowed a period of non-enforcement of its rules.

Giles Derrington of Tech UK says the EU and UK are “increasingly looking at something similar” in the event of no-deal but even if a ‘data drawbridge’ did go up, other legal avenues such as ‘standard contract clauses’ are also available. These are not a fail-safe, but already cover some 80 per cent of personal data transfers.

In short, in the right political environment, the data would keep flowing.

President of the European Commission Ursula von der LeyenConclusion

If a point is reached when no deal becomes inevitable, then the interests of both sides would become equally aligned in avoiding a catastrophic outcome.

Even with temporary measures in place, the fundamental question of what future relationship Britain and the EU want – and how this can be squared with a mutual commitment to avoid a hard border in Northern Ireland will remain.

A punishment approach from the European Union, beyond gratifying a short-term desire to demonstrate the bloc’s power, will not advance the search for answers.