The EU and the UK enter this week’s round of negotiations with a weird, tricky sense of déjà vu. Weird, as the divorcing couple takes part yet again in a dance that they neither enjoy nor seem to want to end.

Andrea Tognoni
Consultant

Tricky, as this time it is different: the music really is about to stop. As we start counting down to the deadline in weeks, the make-or-break pressure is becoming unbearable for an EU that has much more on its plate than playing tactics with its neighbour that it must keep as a close partner.

Groundhog Day

The EU has sharpened its tone ahead of what is seen as a decisive round for Brexit talks, with Chief Negotiator Michel Barnier “worried” about the state of the talks and lamenting that the UK still has not “engaged constructively” in the process. Commission President Ursula von der Leyen and French President Macron have disregarded the grandstanding coming out of London during the week. The European Parliament has also repeatedly reaffirmed that the real deadline for a deal is October, as only then there will be enough time to ratify the agreement. The clock is ticking.

We knew from the beginning that the impact of no-deal would be huge for business. Yet the EU sees no progress in the talks, no ideas from the UK to negotiate on – only insistence on crossing Brussels’ red lines. From the outset, the issues have remained essentially the same: level playing field; governance of the agreement; access to the single market and cherry-picking; fisheries; (im)possibility to apply the Swiss model of bilateral agreements; etc. etc.

Latest intelligence indicates that the UK is fundamentally miscalculating the EU position, believing that a horse-traded midnight deal is possible. German Economic Minister Peter Altmaier has given the UK Government’s view short shrift, warning London not to count on the EU’s caving in, splitting or falling apart. With so little time and deep disagreements persisting, many on the EU side are not only talking about the risk of no-deal but getting used to the notion that the UK will crash out on WTO terms. Regardless, the UK will leave the customs union and single market, and market access issues on both sides will become a headache for businesses operating across the Channel.

This would add unprecedented economic disruption for businesses everywhere, at a time when European GDPs are in freefall due to the introduction of lockdowns after the outbreak of Covid-19. We have yet to see the full economic impact of Covid-19, but the pandemic has perhaps fuelled fatalism. It has showed how institutions and people can face emergencies after all. From this perspective, Brexit seems just one more problem. What really matters now is recovery from the Covid-19 disaster.

The world is not enough

The EU has been watching the UK flirt with countless post-Brexit visions of global Britain and special ties with Commonwealth partners. However, Covid-19 has been a brutal reminder for the EU that proximity is not only the main factor that favours trade, but perhaps even an added value to consider when structuring supply chains. 

Brussels has recently launched an overhaul of its trade strategy, which beyond the usual value-driven and multilateral approach will embrace the concept of “open strategic autonomy”. The EU will keep supporting the WTO system and foster climate policies through trade. But it will also seek to protect and promote strategic internal production and sectors; consolidate a regional position in light of increased instability from East and West; and reduce dependency by making its supply chains shorter, more diversified and more resilient.

So, there is not only the UK on the EU’s mind. Brussels is scrambling to find unity in supporting a single name to lead the WTO (which might be needed to govern trade with the UK) as well as a new Trade Commissioner after Phil Hogan’s resignation. This is no easy task, as there are few trade- and agriculture-savvy politicians that could fill ‘Big Phil’s’ shoes. Dublin’s candidates make it very difficult for Ireland to retain the trade portfolio and foreshadow a delicate Commission reshuffle. European Parliament Vice-President Mairead McGuinness has experience in agriculture and a strong EU political profile, beyond her nationality and party, but not much in terms of trade. European Investment Bank Vice-President Andrew McDowell has more technical experience, but might lack the political weight needed to navigate current tensions – notably with the US. If this was not enough, in what is left of 2020 the EU should muster internal support to ratify its deal with Mercosur and conclude an investment agreement with Beijing. Both are made more necessary by the UK’s departure – as trade destination and hub for Asian investment – but look set to join the UK deal in the “Mission Impossible” category.

We will always have Paris…

As mounting US-China tensions show, trade is not only about trade. Indeed, trade is not the only EU external nuisance. Geopolitics keeps knocking at Europe’s door from all sides and losing the UK as a NATO and UN Security Council permanent member is a big hit for its international clout. Instability in the Mediterranean, increasingly aggressive neighbours like Russia and Turkey and an inward-looking US Administration are all headaches that the UK could help with – but not in current circumstances.

The EU27 rely on France’s leadership and wait for the German economic engine to blossom into hard power. Unlike the post-war era, Brussels is getting used to standing on its own feet, without the US holding its hand. Brexit negotiations are thus even more frustrating for the EU’s leadership and have become a technical obstacle to a strong, vital partnership.

The hope is that the EU and the UK can somehow remain close. We know that this relationship was not one of love at first sight, but let us hope that this breakup, however difficult, is just the beginning of a beautiful friendship.