Hard Brexit and Soft Power

In her Tuesday 17 January speech, after six months of calculated discretion, Britain's Prime Minister went public with major indications regarding her government's strategy on Brexit and the United Kingdom's future economic relations with the EU. She said that Britain's goals will be the following:

• Complete exit from the European single market (meaning that the UK would no longer be subject to the European Court of Justice and immigration rules and would contribute a lot less to the European budget).

• Entry into a free-trade agreement with the EU but without full customs union, leaving the UK free to sign trade agreements with other countries. This accord must be signed by 2019, will be submitted to the British Parliament, and will have a “phased process of implementation” (remember that the deadline set out by European law for the exit of a Member State is two years, and that gen-eral elections will be held in the UK in 2020).

Theresa May also warned Europeans against any desire to "punish the UK", asserting that "no deal for Britain is better than a bad deal for Britain," and that the UK could, in such a case, leverage its taxation and regulation levels to im-prove its competitiveness.

Announcing the choice of a "hard Brexit" (clean break with the single market), at least in terms of the initial British negotiating stance, undeniably provides a much expected clarification, against a backdrop where many observers were wondering until recently whether, by dint of a few mutual concessions, it might be possible to maintain a quasi status quo (if not to cancel the Brexit process altogether).

The road to an agreement will be no less riddled with major obstacles, and made even trickier by the uncertain political environment:

• Today, the most recent events apparently strengthen the British hand: there’s been no massive flight of investors from the UK, and the new US President has said loud and clear that he supports Brexit and a bilateral trade agreement. However, these things can change, as can the very situation in the eurozone (in view of the crowded 2017 electoral calendar) and the geopolitical environment (new shocks could make security a topic at the economic negotiating table, in a context where other messages by the US President are raising questions about the future of NATO).

• Fears of Brexit contagion will not disappear. Despite May's warning on the subject, any agreement giving the impression that a country can gain more benefits outside the EU than inside it will meet with strong continental resistance.
• A free-trade treaty within such a short time seems a very ambitious goal. There will probably be less difficulty with the trade of goods than of high-added-value services, given the role the City of London plays in the latter. For Europeans, whatever their prob-lems in coming up with a shared stance on this subject, leaving a large portion of decision-making, standard-producing processes outside EU territory (those generated by the “ecosystem”, or “soft power” of finance and legal/consulting firms, among others) does raise significant issues of sovereignty in practice, if not in law. On the British side, meanwhile,even if May has not stressed this topic, it is unlikely the government will easily sacrifice the City's interests. Negotiations will therefore be tough an complex.

Once the UK invokes Article 50 of the Treaty of Lisbon (by late March, according to May), the ball will be in the Europeans’ court, as they will have to state their own initial position (a task that will not be made easier by the ongoing electoral cam-paign in France and Germany). No matter how the negotiations start, however, we should expect to see the Brexit question stay open – rather than resolved – for quite some time.