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Why the UK Needs the EU and the EU Needs the UK

British lawmakers are split over Brexit plans, but the country needs a deal.

Jacob L. Shapiro |July 10, 2018

The United Kingdom is facing its “most profound political crisis since World War II” – at least according to one BBC reporter – after three key Cabinet officials resigned over Prime Minister Theresa May’s Brexit plan. But this kind of hyperbole from the usually understated BBC misses the point. The U.K. has faced more serious challenges in the past: the 1956 Suez crisis, the 1976 International Monetary Fund crisis and the Troubles, just to name a few. Despite the political storm Brexit has kicked off, the fact remains that the U.K. and the EU need each other and will (eventually) find their way to some kind of arrangement.

Since invoking Article 50 of the Maastricht Treaty, which begins the withdrawal process, May has been performing a balancing act, trying to hold together a fractured Conservative Party. One faction wants a “soft Brexit,” in which the U.K. would still have access to the European Union’s common market. Another faction wants a “hard Brexit,” in which the U.K. would use its leverage as a major consumer of European goods and services to negotiate either a broader free trade deal with the EU or bilateral deals with select European countries. Ironically, the opposition Labour Party is also divided, between those who support Brexit and those who don’t, not to mention those with different ideas about how Brexit should proceed. Since May doesn’t have enough support for her plan within her own party, she will need support from Labour lawmakers if her plan is to survive.

Until this weekend, May had balanced the two factions within her own party by essentially not taking a position. But with time running out to negotiate with the EU, May had to take a stand. After a Cabinet meeting on Friday, she unveiled a compromise agreement, whereby the U.K. would seek a soft Brexit on goods and a hard Brexit on services. In the moment, May seemed almost Solomonic – the Cabinet summit ended with audible grumbles but no resignation letters. But over the weekend, her powers of persuasion failed, and hard Brexiteers within her Cabinet decided they could no longer remain in the government.

The positions May has outlined are not even close to a final status agreement with the European Union. Indeed, May’s plan is the starting point for negotiations with the EU, which is even more divided than the United Kingdom. Just this past week, in the midst of political turmoil in Germany, the German interior minister advocated a tight security relationship with the U.K. after Brexit – only to be dismissed by the German government as a diplomat gone rogue.

Germany is not only the most important player in the EU but the most dependent on a productive trading relationship with the U.K. going forward. Some 6.5 percent of German exports went to the U.K. last year. Germany has an export-based economy that cannot handle losing access to its fourth-largest market right now. And it’s not alone. Eastern European countries are a key part of the German supply chain, so they too would be affected by a downturn in German exports. Many EU countries need access to markets, and the idea of replacing Europe’s second-largest economy with Macedonia or Albania doesn’t add up.

The EU has every reason to drive a hard bargain. European Council President Donald Tusk’s public response to the ordeal was that he hoped Britain might change its mind and stay in the EU. And the EU’s negotiators have spun every meeting with the U.K. as dealing with an ill-prepared and ambiguous negotiating partner. But the EU can’t afford not to make a deal. Its goal is not to make the U.K. suffer by refusing to sign an agreement but to get the best deal possible for the remaining members – a difficult task indeed for a bloc of 27 states that are themselves often at odds.

The U.K. needs the EU too. It’s no shock that May went for a soft Brexit on goods – 47.6 percent of British exports went to EU-27 countries last year. Brexit supporters have argued that pulling the U.K. out of its most important trading relationship would be damaging politically and economically, especially given the state of the manufacturing sector in the country since the 1990s. Northern Ireland, which voted against Brexit, has strong ties to another EU member, the Republic of Ireland, and Scotland’s continued opposition to Brexit is dredging up old questions over devolution of powers. The strongest and most resilient part of the U.K. economy is its financial sector headquartered in London. The British government is betting London can withstand a hard Brexit because of its dominance in foreign-exchange markets and insurance, and the global respect for English common law.

The biggest concern in both the U.K. and the EU is that both sides are hurtling toward the Brexit deadline without a plan for what happens after. And a veritable cottage industry of economic studies penned by authorities from all political affiliations has emerged supporting every which position: that Brexit will mean catastrophe for Britain, or catastrophe for the EU, or the exact opposite. As the chancellor of the Exchequer showed with his predictions of economic crisis in the U.K., the simple fact is no one really knows what the effect of Brexit will be for either side because no country has done this before. Europhiles and euroskeptics alike view the U.K. as the guinea pig – a successful Brexit could open Pandora’s box, while a disastrous Brexit could keep the EU’s demons at bay (assuming it doesn’t also send Germany’s export industry into a tailspin).

May could fall, or she could pull another rabbit out of her hat. She’s already shown herself to be more resilient than most expected after her election gambit backfired last year. But when it comes to Brexit, it doesn’t really matter who resides at No. 10 Downing St. Any British prime minister would be facing a tough battle at this point: The middle ground has become very thin, and British politics has become a long tightrope. As entertaining as the circus is, the bigger picture is that both Britain and the EU are divided on Brexit, and Britain needs a relationship with the EU just as much as the EU needs a relationship with Britain.