Covid-19 and the need for a longer transition

covid-19

Extending the transition should no longer be a question – it has become a necessity, given the impact of COVID-19. Both Michel Barnier and David Frost – the lead negotiators on each side – are now self-isolating; the former has tested positive for the virus, and the latter is showing symptoms.

The UK government must now recognise that it is in everyone’s interest to prolong the transition period, with the EU being as accommodating as possible.

Disrupted negotiations

The current crisis is already having a major impact on the negotiations. With travel being restricted, it is hard to see when full negotiation rounds can be resumed.

Remote facilities cannot replace the multiple exchanges that take place during a negotiation round, let alone replicate the personal relationships that make a negotiation work.

That is particularly crucial in this case, where the timetable is already tight. The UK government’s hope that it will be clear by June 2020 whether there can be an agreement is no longer ambitious, just plain unrealistic.

There will simply not be any bandwidth to focus on the negotiations, which require a delicate balance of give and take.

In a situation where major healthcare challenges – and the deeper economic problems – are already requiring urgent action, there will not be enough political time and attention to successfully conclude this EU-UK agreement.

It will be extremely difficult for the various legislatures involved to debate and pass any deal, given the constraints imposed on their agenda.

An overwhelming economic rationale

This is not only a technical or practical consideration. Brexit implies an economic shock on both sides of the Channel, potentially as early as in the middle of the year.

It will certainly come before the end of the year if the current timetable is adhered to, which would be extremely reckless.

When faced with such an enormous challenge as the current pandemic and its economic impact, an extension of the transition to delay the inevitable shock is the only acceptable response.

Postponing the end of the transition by a year, to the end of 2021, also implies that the UK would still be part of the European system, with effective cross-border coordination benefiting both the UK and the EU27.

It would mean that the UK could still benefit from any temporary exemptions to current rules and restrictions (on state aid, for example) that the EU decides to implement to deal with the crisis.

Financial implications of remaining in EU programmes

If the transition is extended, the UK will continue to be part of the EU and participate in all relevant EU programmes, such as on research funding. This would provide stability and a positive stimulus to many organisations across the UK. But it would require that the UK accepts EU financial obligations for a further year.

This is potentially complex. 2021 is already part of the Union’s next Multiannual Financial Framework (MFF). However, no agreement has been found on the next MFF, and member states appear to be far from reaching a consensus.

Without a deal, there are no clear financial parameters for the individual EU programmes, making it difficult to determine what the UK’s financial obligations would be. Using a broad estimate could potentially be a political stumbling block for an extension.

While accelerating agreement on the next MFF would be the best solution given the importance of new spending programmes starting as early as possible in 2021, this seems unlikely at this stage.

However, a possible solution in this extraordinary crisis would be if the EU27 were to decide to simply postpone the end of the current MFF by a year. That would facilitate determining the UK’s financial obligation and would also ensure that EU spending is not delayed too far in 2021, helping to address the aftermath of the crisis.

Dealing with second best

All of this relies on Westminster recognising that an extension to transition is necessary. There are currently some encouraging signs that this is the case. But the EU27 must also plan for any contingency.

It is possible that the UK would find it difficult to remove the provision prohibiting further extension from the legislation that has been passed, or that it continues to have no intention to ask for an extension.

This would clearly demonstrate that the UK’s overarching priority is Brexit ‘at any price’, whatever the economic and societal consequences.

Nevertheless, the EU should try to keep the door open for a request for an extension. This would require adjusting the withdrawal agreement to make possible a request for extension after the mid-year deadline.

In addition, the EU should calculate which financial obligations would be associated with an extension to the transition, based either on an agreed MFF or the temporary prolongation of the current MFF, to provide a clear offer to the UK.

Wanting a deal?

The actions of the UK government in the coming weeks will demonstrate whether Boris Johnson is able to act as a statesman, recognising that in the current circumstances an extension to transition is the only way forward, regardless of his long-term intentions for the UK-EU relationship.

To willingly and deliberately cause another economic shock in such a crisis moment would be reckless.

The situation will be even worse if there is no deal, especially if this already happens by mid-June. At that point, the economy will be extremely fragile, and another shock could not only further fuel the downward spiral but also trigger a full-blown financial crisis.

An extension to the transition is thus not only in the EU27’s interest but is also a contribution to the overall stabilisation of the global economy. Given the asymmetric nature of the negative impact of Brexit, delaying it will, of course, also be of disproportionate benefit to the UK itself.

It’s the economy

Brexit has been driven by political and ideological motives and domestic UK politics, overruling the economic rationale that has always shown that being part of the single market provides higher benefits than being outside of it.

But in the current crisis, it is time that – at least temporarily – economics overrules politics for the sake of all sides. The only appropriate answer to this severe challenge both the UK and EU are facing is to delay the negative impact of Brexit by extending the transition period.

By Dr Fabian Zuleeg, chief executive of the European Policy Centre. This piece originally appeared on the European Policy Centre website

Disclaimer:
The views expressed in this analysis post are those of the authors and not necessarily those of the UK in a Changing Europe initiative.

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