Covid-19 is pushing us towards the rocks of Brexit delay. Here is how we can stay the course

With the shocking news that Boris Johnson has had to go into intensive care, and our thoughts and prayers are very much with him and his loved ones, it would be tempting to stop considering tricky policy choices. But this is the last thing Boris would want or expect. He would want to get on and get the job done. 

So on policy choices, at first sight it seems so very logical and reasonable doesn’t it given the terrible personal and economic situation we are in with Covid-19, given that the economy will take a very serious hit - worse than the credit crisis or, Heaven forbid, the Great Depression; given too that Government officials and EU institutions are so tied up, that we then should delay leaving the European Union in full on 1st January 2021 by mutually extending the transition period? Only wicked, reckless, wild Brexiteers could object to such a course of action!

But beware the siren voices, luring our ship onto the hidden and extensive rocks below. The Government, like Odysseus, might have to be bound to the mast to resist the temptation to follow their sweetly sung entreaties to interrupt the Brexit journey once again, and honour its genuine and resolute policy not to do so. 

The perils of extending the transition are broadly three:

1) Money

If we stay in the transition, we will have to continue to pay EU membership contributions, and these will be higher than the £19 billion gross (£12 billion net) we pay now, as we will be into a new higher spending 7 year Multiannual Financial Framework budget period (2021-2027), and the EU is taking on more liabilities such as the new EU Army and Border Force. These extra billions could be used for the NHS, to help businesses, or help repay the massive accumulated debts arising from this lockdown.

But the most dangerous liability of all is bailing out the Eurozone, which clearly faces meltdown, and the related EU financial regulation and wide discretionary powers it has, whilst we are merely a ghost member. The old staple of printing Euros - from Christine Lagarde, ex-IMF, now of the European Central Bank (ECB) - is failing to convince: Lagarde had to commit to a Euros 750 billion bond buying package last month just 6 days after the first support package proved abortive. The ECB is not (yet) the bank of a sovereign state, making liabilities shareable across member states. There is a limit to what capital markets will buy, literally and metaphorically. 

As a remaining shareholder of the European Investment Bank (EIB), the UK should now have assets of £11 billion repaid over 12 years, but instead has substantial liabilities. We never were part of the political Euro currency, and we should not have the responsibility for bailing it out. 

Bear in mind whatever current agreements say, we are now in transition and are powerless to stop any creative ‘tweaking’ of the rules in order to make the UK liable. No-one in the EU Council or EU Commission, and no MEPs. 

For example, we would continue to be subject to obligations under EU law to treat financial instruments issued by Eurozone member states as if they are sovereign bonds, when in fact they are subject to a default risk. We would therefore be unable properly to safeguard the City’s financial system against a possible default by Club Med Eurozone states.

On the EIB, we are facing a liability of callable capital of £37 billion, and up to £430 billion (Euros 500 billion) if there is a complete meltdown. With this large rock in mind, we are far better steering well clear of potential financial disaster – equivalent to another Covid economic disaster on top of the existing one. 

I fear the EU – and Germany especially - is well aware of our value in chaining Britain into the EU as a handy emergency rescuer of the Euro. This is why, in my opinion, the largest group in the European Parliament, the federalist and German dominated pro-Euro European Peoples Party (EPP) has moved a motion calling for an extension, saying common sense should “prevail over ideology” - and others in the EU just assume this is “inevitable”. 

2) Legal

On the EU side, as top lawyer Martin Howe QC points out:

“We would remain subject to full control by all EU laws and rulings by the ECJ (European Court of Justice) beyond 31st December 2020, while having no vote or veto on any new or amended laws to which we are subjected and no representation on the institutions. In particular, state aid control by the Commission would continue, under which post-coronavirus recovery subsidies and tax breaks to businesses in this country would continue to be subject to Commission control - and possible veto.”

The EU managed to fine Italy for breaching regulations in the midst of its tragedy whilst ignoring a French block on selling face masks to the UK. 

On the UK domestic side, there is an assumption that is it is easy to extend the transition legally. It isn’t. UK legislation currently spells out that it is illegal for the Government to extend the transition. Not only that, it is illegal for our Government to even ask for an extension. 

So, would the scenario be that the Government, perhaps in May-like league with the new Opposition Leader Sir Keir Starmer, would have to be asked by the EU to extend, and then pass a new bill to amend the Withdrawal Act - relying on Red Wall Conservative MPs elected mainly on the basis of ‘Getting Brexit Done’ and ERG stalwarts who went along with the flawed Withdrawal Agreement on the basis there would be no further delay? Not certain indeed. 

3) Losing the Advantage

The UK is now in a commanding decision to drive a trade deal. We saw how tight deadlines helped achieve “impossible” changes to the Withdrawal Agreement. Both the EU and UK have now laid out fine position papers on their respective asks. Mr Barnier on 18th March published the basis for an “ambitious and comprehensive agreement.” The UK published the excellent and reasonable ‘The Future Relationship with the EU’ paper on 27th February this year, which references existing EU Free Trade Agreements (FTAs) such as Canada particularly (this is indeed ‘SuperCanada’), Japan and South Korea on most pages – we are not seeking to reinvent the wheel. The negotiations have started, much of the preparatory positioning done, and they are continuing on videolink. 

The UK is the second largest export market for the EU after the USA, and if there is an ‘Australian’ style (no-deal like) agreement then the EU will be paying £12 billion a year extra in tariffs on its goods and the UK £5 billion. The EU knows the game is up. But any further delay and the UK could lose the advantage.