The UK is likely to end up with a Brexit In Name Only (BRINO) when it ‘leaves’ the European Union, says Robeco Chief Economist Léon Cornelissen.
In a new white paper, he forecasts a Norwegian-style half-in, half-out solution as being the only one currently possible given the limited timeframe available to make a deal. The time needed to solve the complex issue of the border between Northern Ireland and the Republic of Ireland makes it the only workable option of the models available, Cornelissen says.
This would mean the UK exiting the EU as planned on 29 March 2019, but remaining within the Single Market and its tariff-free Customs Union for a transition period of at least two years, and most likely longer. UK Prime Minister Theresa May has already suggested that this would be the most workable option in the short term, though she faces daily rebellions over it from her own Conservative Party MPs, some of whom want a complete exit.
“Two years after the June 2016 referendum result that shocked the world, the UK is still struggling to agree terms that will secure its divorce after a troubled 45-year marriage,” Cornelissen says in an updated white paper discussing the options available.
“Leaving the European Union is proving to be the most difficult thing that the UK has done in peacetime, as the Conservative Party continues to bicker over what it really wants. Meanwhile, the clock is ticking, with less than a year remaining to reach some sort of settlement before the UK legally exits in March 2019.”
“That would make it a kind of vassal state of the EU, but is that such a bad thing? The UK would essentially be following the Norwegian trading model, and few doubt that Norway has proven to be a successful and wealthy country by adopting this more conciliatory half-in, half-out approach.”
What will eventually prevail as the negotiations stumble on remains hard to predict, Cornelissen says. The main problem is that the referendum result simply called for Britain to leave; it did not say how, or on what terms. At the heart of the issue is whether the UK should pursue a ‘soft Brexit’, in which it remains in the Single Market, or a ‘hard Brexit’, in which it leaves the bloc entirely. Both are problematic.
“A soft Brexit would be the solution that is the most economically beneficial to the UK and solves a whole host of issues, including the complex Irish border problem (where Northern Ireland leaves the EU but the Republic stays in it), since the Single Market would remain in place,” he says.
“However, it would mean the UK must continue to accept the free movement of people and also contribute to the EU budget. This would not solve two political problems that lay at the heart of the Leave campaign – immigration levels that were perceived as being too high, and the notion that Britain is being ruled by Brussels.”
“A hard Brexit does not though solve all political problems either. It would mean a hard border with customs checkpoints on the Irish border, which contravenes the 1998 Good Friday Agreement that brought peace to Northern Ireland after decades of the Troubles. It is also seen as being economically disastrous, since the UK would be leaving the largest trading bloc in the world, losing frictionless access to a market of more than 500 million people.”
“And it raises the question over what future trading model the UK would then pursue, since none are without some sort of problem. All the others being considered, from trying to negotiate a Canadian style arrangement to crashing out of the EU completely and resorting to World Trade Organization terms with lots of tariffs, are not as good as a BRINO. Which by the way is of course still inferior to EU membership.”
Cornelissen says it all begs the question of whether Brexit can be canceled, particularly in light of growing opposition to it within the ‘Remain’ camp in the UK. However, both major political parties in the UK are committed to it, public opinion has not changed that much, and even a referendum to approve the final deal would be legally fraught with problems.
So… will it be BRINO, WTO or Don’t Know? The full white paper can be ordered here.
This report is not available for users from countries where the offering of foreign financial services is not permitted, such as US citizens and residents.
Your details are not shared with third parties. This information is exclusively intended for professional investors. All requests are checked.
The content displayed on this website is exclusively directed at qualified investors, as defined in the swiss collective investment schemes act of 23 june 2006 ("cisa") and its implementing ordinance, or at “independent asset managers” which meet additional requirements as set out below. Qualified investors are in particular regulated financial intermediaries such as banks, securities dealers, fund management companies and asset managers of collective investment schemes and central banks, regulated insurance companies, public entities and retirement benefits institutions with professional treasury or companies with professional treasury.
The contents, however, are not intended for non-qualified investors. By clicking "I agree" below, you confirm and acknowledge that you act in your capacity as qualified investor pursuant to CISA or as an “independent asset manager” who meets the additional requirements set out hereafter. In the event that you are an "independent asset manager" who meets all the requirements set out in Art. 3 para. 2 let. c) CISA in conjunction with Art. 3 CISO, by clicking "I Agree" below you confirm that you will use the content of this website only for those of your clients which are qualified investors pursuant to CISA.
Representative in Switzerland of the foreign funds registered with the Swiss Financial Market Supervisory Authority ("FINMA") for distribution in or from Switzerland to non-qualified investors is Robeco Switzerland AG, Josefstrasse 218, 8005 Zürich, and the paying agent is UBS Switzerland AG, Bahnhofstrasse 45, 8001 Zürich. Please consult www.finma.ch for a list of FINMA registered funds.
Neither information nor any opinion expressed on the website constitutes a solicitation, an offer or a recommendation to buy, sell or dispose of any investment, to engage in any other transaction or to provide any investment advice or service. An investment in a Robeco/Robeco Switzerland product should only be made after reading the related legal documents such as management regulations, articles of association, prospectuses, key investor information documents and annual and semi-annual reports, which can be all be obtained free of charge at this website, at the registered seat of the representative in Switzerland, as well as at the Robeco/Robeco Switzerland offices in each country where Robeco has a presence. In respect of the funds distributed in Switzerland, the place of performance and jurisdiction is the registered office of the representative in Switzerland.
This website is not directed to any person in any jurisdiction where, by reason of that person's nationality, residence or otherwise, the publication or availability of this website is prohibited. Persons in respect of whom such prohibitions apply must not access this website.