The significance of UK’s departure from the EU should not be underestimated.
For Brussels the very underpinning of peace and prosperity in Europe for the last decades is being put into play. Failure in Brexit Phase 2.0 is not an option.
Yet the stakes are stacked equally as high for the UK government. The promised fruits of Brexit must be delivered, and delivered fast.
So while diplomatic language will couch the public narrative on both sides with calls for a deep and ambitious UK-EU relationship, the harsh reality for business and citizens will be the start of 11 new months of uncertainty.
Finding the new equilibrium in the UK-EU relationship is unlikely to be a smooth or rapid process. Negotiations this year will determine on what basis a rolling set of negotiations will continue for years to come.
Both sides are entering an unprecedented post-divorce negotiation across a complex web of trade in goods, agri-foods and services, security and defence, transport, energy fish and data.
Painful strategic choices and unpalatable compromises will be needed from both sides – many of which will create path dependency for future choices. This will be complicated further by the compressed timeframe within which talks will take place.
Does leaving open the possibility of divergence inevitably lead to divergence? Does divergence in one sector necessarily lead to counter measures being taken across all sectors? And once divergence has occurred is there a path back to alignment?
The voice of business will be crucial, but must recognize that this is a process where raw politics will weigh alongside pure economics.
As a case in point, the political consequences from the potential height and breadth of a future Irish Sea border within the UK may end up being as crucial as the economics consequences in shaping what is deemed an acceptable level of friction in the future UK-EU trading relationship.
The ultimate risks of a no-deal Brexit cliff-edge on 31 December 2020 remain real.
Deal or no deal, a full-blown UK-EU political crisis in the second half of 2020 looks a near certainty, and the outcome will determine Europe’s economic and political balance for years to come.
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July 13, 2023