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Business Last Updated: Feb 23, 2018 - 9:45:33 AM


Why a good Brexit outcome matters
By Maria Demertzis and Nicola Viegi, Breughel, February 22, 2018
Feb 23, 2018 - 9:39:36 AM

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Uncertainty still reigns over the future shape of the EU-UK relationship, as Brexit negotiations rumble on. Though the two parties are parting ways, a more cooperative approach from both would greatly improve the longer-term economic and political prospects for all concerned

At the current stage of Brexit negotiations, the two sides seem to have reached an impasse – a natural consequence of the strategic game the two parties are following. In fact, the process itself is beginning to look like a “prisoners’ dilemma”, where both parties have an incentive to be uncooperative, risking an outcome that would be unfavourable for all.

Like in a prisoners’ dilemma, there is a better outcome for both parties if they recognise their mutual interdependence, evaluate honestly the cost of the options in front of them and, more importantly, take a longer-run view that goes beyond economic partnerships.

As argued in a previous article in December, there are two alternative starting points for Europe’s negotiations with the UK. Firstly, CETA-plus: starting from the template offered by the trade agreement the EU has with Canada, the Comprehensive Economic and Trade Agreement (CETA), but then aiming to add an extra clause to allow for a deal on financial services. Or, secondly, EEA-minus: starting from the template offered by the trade deal the EU has with Norway and others, the Agreement on the European Economic Area (EEA), but then moving backwards to constrain freedom of labour movement.

The UK government would prefer a deal based on what the EU currently has with Canada (CETA), with some additional agreement on services to protect its big financial sector – hence CETA-plus. This is seen as the least costly solution, economically speaking, while allowing the UK to “take back control” in terms of national polices and negotiating international trade agreements.

The EU would instead prefer an “EEA”-type of agreement as it would be very close to the current arrangement, at least in economic terms. This would therefore be the least disruptive solution to Brexit. But to achieve it, the EU needs to maintain a hard stance in the negotiations; the UK does not wish to pursue an option that would subject it to the same obligations as any EU member, but without any internal influence.

The two parties’ prospective choices of negotiating stance – described simply as cooperative-soft, or antagonistic-hard – generate four broad end-points to this process, shown in Figure 1.


Source:Ocnus.net 2017

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