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19 December 2017

Why the UK has the weakest hand in the Brexit negotiations

Britain, and Leave regions in particular, are far more economically vulnerable than the EU27. 

By George Eaton

Eighteen months after the EU referendum and nine months after Article 50 was triggered, the British cabinet is finally holding its first discussion on what the UK’s final relationship should be. The Brexiteers have long argued that Britain holds “the best cards” in the forthcoming trade negotiations. “You’ll sell less prosecco,” Boris Johnson warned Carlo Calenda, the Italian economic development minister, last year. The same is said of German cars and French cheese. In short: Europe needs Britain more than Britain needs Europe.

But a new University of Birmingham study efficiently exposes this as the wishful thinking that it is. “The UK and its regions are far more vulnerable to trade-related risks of Brexit than other EU member states and their regions,” it notes. “As such, the UK is far more dependent on a relatively seamless and comprehensive free trade deal than the other EU member states. Mercantilist arguments popular in the UK media, which posit that the UK trade deficit with the rest of Europe implies that on economic grounds other EU member states will be eager to agree a free trade deal with the UK, are not correct.”

Britain is estimated to be 4.6 times more exposed than the rest of the EU – with the majority of member states facing almost no exposure at all (though Ireland is a notable exception). While only 2.64 per cent of EU GDP is at risk because of Brexit trade-related consequences, 12.2 per cent of UK GDP is threatened. And in a cruel irony, the UK regions which voted Leave (such as the Midlands and the North) are significantly more exposed than those which voted Remain. 

It’s for these reasons (as well as the desire to deter other member states from leaving) that the EU can afford to enforce its red lines: that Britain cannot “have its cake and eat it” (retaining the benefits of single market membership while ending free movement), that there will be no bespoke deal for the City of London and that it must follow all EU rules and regulations (including new ones) during the planned two-year transition period.

In Phase One of the Brexit talks, Britain wasted months refusing to accept the EU’s demands before doing precisely that (over the Irish border and the £35-39bn divorce bill). Phase Two is likely to prove little different. 

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