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 Persons.
Your details are not shared with third parties. This information is exclusively intended for professional investors. All requests are checked.
Robeco Institutional Asset Management B.V. (Dubai office) is regulated by the Dubai Financial Services Authority (“DFSA”) and only deals with Professional Clients and does not deal with Retail Clients as defined by the DFSA.
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 product should only be made after reading the related legal documents such as management regulations, prospectuses, annual and semi-annual reports, which can be all be obtained free of charge at this website and at the Robeco offices in each country where Robeco has a presence.