'No-deal' Brexit becomes a worrisome possibility

August 13, 2018 10:15
Bank of England Governor Mark Carney said earlier this month that Britain faces an ‘uncomfortably high’ risk of leaving the EU without a deal. Photo: Reuters

At 2300 GMT on March 29 next year, Britain will leave the European Union, ending a membership of 46 years. Right now, the possibility is increasing that, despite 26 months having passed since the referendum, there may be no agreement by then between the two sides – a "no-deal" Brexit.

On August 3, Mark Carney, governor of the Bank of England, said that there is an "uncomfortably high" risk of a no-deal. David Davis, Brexit Minister for two years until July 8 this year, said on August 6 that the British government was willing to walk away from the negotiations without a deal.

This possibility has sent shivers down the spine of business and commerce world.

Tens of thousands of British factories run on the ‘Just in Time’ system; parts and components from EU countries arrive shortly before they go onto the assembly line. Last year the EU accounted for 44 percent of British exports. Manufacturers fear that delays of their lorries entering and leaving Britain for customs and immigration clearance will cost millions of pounds and lead to lost EU customers.

Each day 16,000 lorries pass through the tunnel below the English channel. Each minute of delay would create a traffic jam of 16 kilometers.

There would also be no mutual recognition of drugs; these would have to be tested before entering the other side. Fearing a shortage of supply, major pharmaceutical companies like Novartis. Sanofi and AstraZeneca have decided to increase their stocks on both sides of the frontier. But this cannot be done for fresh food.

The Confederation of British Industries said on August 9 that many sectors, such as software engineering, were facing shortages of labor because the employees they need could not obtain visas.

"The UK risks having too few people to run the National Health Service, pick fruit and deliver products to stores around the country. There is a risk of a shortfall of thousands of foreign doctors and other essential workers,” it said.

Without a deal covering aviation, aircraft in Britain would not be able to land in airports in the European Union.

Carney said a no-deal would certainly mean disruption to trade as we know it and disruption to the level of economic activity and high prices for a period of time.

On August 6, HSBC announced that it was moving control of seven divisions from London to Paris in the first quarter of 2019. These are operations in the Czech Republic, Ireland, Italy, Luxembourg, the Netherlands and Spain. “This is what we had planned from the beginning more than two years," said group chief executive John Flint. "It is based on the worst-case scenario."

The referendum on Brexit was held on June 23, 2016; but official negotiations with the EU only began in June 2017, with the aim of reaching agreement in October this year. August is the summer holiday for both British and EU negotiators.

The ruling British Conservative Party is handicapped by a sharp division between those who want to leave the EU, even without a deal, and those, especially representing business, who would prefer to remain and want a deal close to the existing arrangements. The party is further weakened by the fact that it does not have a majority of votes in the British Parliament; it relies on 10 members of the Democratic Unionist Party of Northern Ireland – and therefore has to heed the views, sometimes extreme, of this small party on the EU.

And any agreement must be accepted by the European Union, which does not want Britain to have a better deal than it currently has, as a disincentive to other countries to follow its example and leave.

"For years, the British have not stopped making propaganda against Europe,” said an angry editorial on August 7 in Les Echos, the main French business paper. “They want the benefits of cooperation without paying the price or accepting the constraints. A large part of the press and many political leaders have made Brussels responsible for everything that has gone wrong, using arguments that are often false. On the basis of this, the British voted by a small majority to leave. The UK cannot turn its back on Europe and hope to keep a foot in the single market.”

For its part, the opposition Labour Party in Britain is also divided over Brexit. While a majority of its members in Parliament support remaining in the EU, the party is nervous of upsetting the majority of the public who voted to leave.

In October, Theresa May has to present to Parliament her Withdrawal Bill. It cannot satisfy all the members of her party. It will only pass if a substantial number of them swallow their convictions and support her. If everyone votes according to their own beliefs and the Labour Party votes against, the bill will fail – and there will be no deal with the EU.

– Contact us at [email protected]


A Hong Kong-based writer, teacher and speaker.