UK and EU are unprepared for a no deal – Standard Chartered

“The UK and EU-27 are close to agreeing a Brexit deal. With most aspects already agreed (UK payments, EU citizens’ rights, a transition arrangement), the stumbling block has been the Irish ‘backstop’,” note Standard Chartered economists.

 Key quotes

“How to avoid a post-Brexit hard border between Northern Ireland (NI) and the Irish Republic, a key provision of the Good Friday peace accord? The solution: after the transition period (absent an alternative), the UK will stay in the EU customs union and NI will stay in the EU single market, with regulatory checks between NI and Great Britain (GB).”

“Time is short before Brexit day (29 March 2019), and this is by no means a done deal. Push-back is likely to come from two sources, in particular: first, NI Unionist (DUP) politicians, who view any checks between NI and GB as threatening the constitutional integrity of the UK. Second, pro-Brexit MPs, who oppose the UK staying in the EU customs union, as it will prevent trade deals with third countries.”

“Ultimately, the test will come with the UK parliamentary vote, likely in December or January. Some government MPs may reject the deal if they prefer a ‘no deal’ Brexit to staying in the customs union, even temporarily. Opposition MPs may reject the deal if they believe that the government will fall as a result, bringing new elections. Our calculations show it will be very close (Figures 1 and 2), but we believe that enough MPs (on both sides) will support the deal. UK and EU preparations for the alternative are thin, so if the deal is rejected, there will be broad economic consequences for the region’s economies and markets.”