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How the Coronavirus Makes a No-Deal Brexit More Likely

2020-06-05 14:54:52

LONDON — The coronavirus epidemic in Britain has killed more than 40,000 people, sickened hundreds of thousands more, including Prime Minister Boris Johnson, and paralyzed the economy. Now it may claim another casualty: a trade agreement between Britain and the European Union.

On Friday, the two sides announced that they had made little headway in their efforts to strike a post-Brexit trade deal. With a deadline at the end of the year, and the last chance to ask for an extension looming this month, Mr. Johnson’s government argues that it would rather walk away without a deal than prolong the talks.

While that may be posturing and, indeed, Britain now says it wants to step up the pace of negotiations next month, the pandemic has scrambled the government’s economic and political calculations. A no-deal outcome, which once seemed all but impossible, now seems entirely plausible.

Far from pressuring Mr. Johnson to plead for more time, the pandemic is reordering the global economy in ways that have led some to question whether an agreement with Europe even makes sense for Britain anymore. With Mr. Johnson under fire for his chaotic handling of the virus, the compromises he would have to make with Brussels might be too great for his embattled government.

“Covid-19, in the eyes of the government, has further reduced the value of a deal,” said Mujtaba Rahman, a former European Commission economist now at the political risk consulting firm, Eurasia Group. “The economy after the crisis is going to look fundamentally different than before the crisis, and the government wants a freer hand in reshaping that economy.”

Britain formally left the European Union at the end of January, but it is staying under the bloc’s rules until the end of the year, as the two sides try to hammer out permanent arrangements on everything from fisheries to finance.

Mr. Rahman once argued that an extension to this transition period was likely. But he now predicts a slightly better-than-even chance that the negotiators will fail to come to terms, meaning that Britain would default to trading with the European Union on World Trade Organization terms in 2021 — what is commonly called a “no-deal Brexit.”

Such an outcome would shock the British economy — analysts have revived scenarios of trucks lined up for miles at the English Channel that loomed over previous rounds of Brexit brinkmanship — but others argue that the disruption would be washed away in the epochal upheaval of the pandemic.

As high as the economic stakes are, the politics are even more important for Mr. Johnson, after three months in which he has faced a drumbeat of criticism over his handling of the pandemic.

By contrast, Mr. Johnson is back in his comfort zone when rehearsing the arguments that he used to win the referendum on leaving the European Union in 2016 and an election three years later.

Mr. Johnson’s overriding objective, analysts said, is to be seen to take a much tougher negotiating position than his predecessor, Theresa May. Some key differences with the European Union are on points of principle — ones that British officials doubt would be resolved with extra negotiating time. And staying in Europe’s trading regime for longer would mean paying it billions of pounds more, a politically poisonous outcome for Mr. Johnson.

Mr. Johnson’s government escalated tensions with the European Union over the last month through the exchange of antagonistic letters, though on Friday, it took a more modulated tone.

“The U.K.’s ultimate red line is to be able to say ‘We have beaten up the European Union,’ regardless of what is in any trade deal,” said David Henig, director of the U.K. Trade Policy Project at the European Center for International Political Economy, a research institute in Brussels, who added this was achieved by the sharp exchange of letters.

While Mr. Henig said Mr. Johnson would probably prefer a deal — and indeed used similar brinkmanship to retain Brexit hard-liners’ support in the previous phase of negotiations — some around him would be happier without one. The decisions about whether, or how much, to compromise have yet to be made. With crunchtime approaching, political considerations are pulling Mr. Johnson toward obduracy rather than flexibility.

Inside his Conservative Party, Brexit remains a touchstone issue. Some of the critics of Mr. Johnson’s coronavirus response, including his cautious relaxation of lockdown and belated plans to quarantine arriving travelers for 14 days, also happen to be hard-line Brexit supporters. For Mr. Johnson, it makes little sense to alienate them now by compromising over post-Brexit trade arrangements.

Much of the government’s Brexit rhetoric seems directed more at a British audience than a continental European one, said Joachim Fritz-Vannahme, a senior adviser at the Bertelsmann Foundation in Germany. “It is clear that there is infighting among Brexiteers and among the Conservatives in general,” he said.

On the European side, the likelihood of failure has grown, too, simply because the trade talks have fallen down the list of priorities, dwarfed by the ramifications of Europe’s response to the pandemic.

“The focus has completely changed,” Mr. Fritz-Vannahme said. “There are only 24 hours in a day, and leaders are already negotiating almost permanently, so I could imagine them saying, ‘This is a minor problem in comparison to the coming recession and the pandemic.’”

Although the working-level negotiations have proceeded relatively smoothly by teleconference, David Frost, the chief British negotiator, said, “we are close to the limits of what we can achieve” in that format. British officials are seeking face-to-face negotiations in July but say they do not want uncertainty for business to linger into the fall.

The European Union’s chief negotiator, Michel Barnier, said, “I don’t think we can go on like this forever.” If anything, his tone was harsher than Mr. Frost’s. He accused Mr. Johnson of reneging on commitments he made in the political declaration that set the stage for Britain’s exit.

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Moreover, there are tensions over new checks on trade with Northern Ireland, a part of the United Kingdom that shares a border with Ireland, which remains in the European Union.

For now, European political leaders show little sign of wanting to get involved in the talks. The next critical discussion — for which no date has been set yet — will be between Mr. Johnson and Ursula von der Leyen, the president of the European Commission, the European Union’s executive body.

Some analysts argue that the pandemic will drive Britain and other countries to bring manufacturing home to reduce their dependence on global supply chains. That, in turn, will lessen the need for an agreement with Brussels.

But while Brexit supporters argue that the effects of leaving without a trade deal could be buried beneath the economic losses wrought by the coronavirus, analysts think there would be visible damage.

Ports could clog and supply chains may seize up. The Japanese carmaker Nissan said this week that its factory in Sunderland, in the depressed northeast of England, would not be economically viable without a tariff-free trade agreement.

For companies already reeling under a collapse of demand and furloughed employees because of the pandemic, the prospect of another shock in January could be too much to bear, according to business lobbyists.

“If you’re in new levels of debt as a result of coronavirus, you cannot afford to deal with Brexit,” Nicole Sykes, head of European Union negotiations at the Confederation of British Industry, wrote on Twitter. “Just because the house is on fire doesn’t mean also setting fire to the shed is chill.”

Some analysts said the consequences of a disruptive break with the European Union would become more obvious after the summer, and that these arguments about burying Brexit in the pandemic would evaporate.

“It’s quite foolhardy to say that because the economic impact of coronavirus will be large that no one will notice the difference,” said Sam Lowe, a trade expert at the Center for European Reform in London. “It’s a sophistic argument — that because we’ve been thrown to the floor, we won’t feel another kick.”


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