Wolfgang Munchau: Britain and the EU will do a Brexit deal

The debate about Brexit is largely informed by confirmation bias. If you are a Brexiter, you are likely to ignore any information that leaving the EU would be bad for the economy, or that the negotiations are going to be fiendishly difficult. If you are a Remainer, you keep doubling down with exaggerated warnings about economic doom. You may also say the EU will deny Britain a decent exit deal. You will do so because you are angry, or because you are already looking forward to your moment of sweet revenge - when you can say: "I told you so". And there are still some people who hope - or fear - that the whole thing can still be undone. It cannot.

The reality of the great Brexit battles ahead is that they are comparatively boring. After Prime Minister Theresa May triggers Brexit, which is happening on March 29th, the UK will be out of the EU by July 2019 at the latest, possibly a few months earlier. And, contrary to the warnings I keep hearing, I believe that the chances of an exit deal under Article 50 of the Treaty on European Union are not all that bad.

Money

Of course, it is not that hard to think of a scenario in which a British politician walks out of these negotiations huffing and puffing after a provocation. The biggest issue will be money. It always is. Margaret Thatcher wanted her money back during the 1980s. For several years the EU did almost nothing but sort out the British rebate – or “discount”, as the Germans appropriately called it. This was as bitter a conflict as any I can recall. But, eventually, they reached a deal. They always do.

The fight over the UK exit bill should not be as difficult. There is talk, unconfirmed, about € 60 billion. This is financially not in the same league as the great fights of the past. The problem about the exit bill is lack of legal basis and precedent. The treaties are silent; there is no rule book.

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The problems are solvable as long as both sides adhere to a simple principle: that Brexit should be an opportunity neither for the EU to earn a quick buck, nor for the UK to dodge the direct costs to the union that will result from its decision.

While it is only fair for the UK to pay for the costs of Brexit, it would not be fair for the EU to extract a price for market access. Fortunately, there is an ample choice of numbers between zero and 60 billion.

There are 18 months for the two sides to discuss the details of the Article 50 exit procedure. This will not include a trade deal, only the terms of the divorce. Separately, the EU and the UK will negotiate an interim arrangement that would remain in place until a final trade pact is negotiated and ratified. The interim agreement would take effect after Brexit takes legal force.

Reckless

It would be reckless to predict that all will go smoothly. On the contrary; this will be as bitter and hard fought as any of the big battles of the past. What I do see, however, is that both sides have more to lose than to gain.

This is a larger issue than the observation that the UK has relatively more to lose than the EU. That is trivially true, but not critical. Of far greater importance is that the UK is an integral part of the supply chains of the European car industry – especially now, after the sale of Vauxhall and Opel to Peugeot of France. The car industry will find a way to live with Brexit. But it cannot cope with sudden rupture.

So, next time you hear someone say the EU is in a stronger negotiating position, just remember that whoever makes this sort of statement is not mindful of these industrial supply chains and other close linkages between the UK and the EU: in security and defence co-operation, and economic policy co-ordination at the level of the G7 or the G20 groups of the richest and most-developed nations. The UK will not magically disappear after Brexit.

So what about the ultimate argument – that the EU needs to punish the UK to set a disincentive for others to leave? This is complete piffle. I am unable to find a single country that would even come close. The country most isolated in the EU is Poland, but its electorate remains overwhelmingly in favour of EU membership.

The Nordic countries may have lost their erstwhile enthusiasm for European integration, but none is anywhere near considering exit. Last week’s Dutch elections ended any fears, or hopes, of Nexit. A euro exit is another matter. But there is no queue of countries about to leave the EU. The situation may change if France votes for Marine Le Pen, but I somehow do not think that is going to happen.

Every political process is prone to accidents. But I am really struggling to identify a single insurmountable obstacle to a deal. My advice, especially for angry Remain supporters, is to take a deep breath, accept that Brexit will happen and focus on how to reconnect with the EU after Brexit. There is much to play for.

Copyright The Financial Times Limited 2017