Friday, 22 September 2017

Brexit: Theresa May speech a difficult balancing act

It seems that British Prime Minister, has finally decided to endorse a soft Brexit.

Basically, she proposes a future agreement somewhere between the current European Economic Area (EEA) model and the Canadian Trade Agreement (CETA) plus a new security treaty, to be implemented after a two-year transition period, when everything would remain the same, expiring before the UK general election in 2022.

It seems a moderate approach, but it risks being contested by both sides of her party, and leaves open the question of whether she will survive long enough as Prime Minister.

From a European perspective, it is important to ascertain whether the UK wishes to be closer to Norway or Canada, before the EU can accept a pick-and-choose approach to the benefits of the single market.

For instance, will the UK wish to remain in the single market for financial services, but not in other sectors? These and many other issues have to be addressed as soon as possible, and the broader the agreement the better.

However, even if the UK opts for an agreement closer to the EEA, my previous estimate (Mendes 2017) that Brexit may cost the UK a long-term slowdown in GDP growth of approximately 20% is not significantly reduced.

In the end, Brexit is still a bad “deal” for Britain.

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