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If the UK and EU can do a deal is everything now fine?

Summary:
In case you hadn’t seen it, hereis my article that was published in the Guardian yesterday. It was my luck that on the evening of publication, and after it appeared that Johnson had put a hopeless deal to the EU, his talkswith Varadkar suddenly sounded positive. But is everything as it seems? The obvious point is that one set of bilateral talks do not make a deal. Both parties had reason to sound positive. The EU does not want to be blamed for obstructing a deal, and Johnson wants grounds for going into the forthcoming election with the prospect of a deal. Cummings rhetoric is quite consistent with that, as they want to make No Dealers believe that will be what eventually happens and they also want Dealers (not least MPs in his party and cabinet) to think a deal is possible. He also wants

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In case you hadn’t seen it, hereis my article that was published in the Guardian yesterday. It was my luck that on the evening of publication, and after it appeared that Johnson had put a hopeless deal to the EU, his talkswith Varadkar suddenly sounded positive. But is everything as it seems?

The obvious point is that one set of bilateral talks do not make a deal. Both parties had reason to sound positive. The EU does not want to be blamed for obstructing a deal, and Johnson wants grounds for going into the forthcoming election with the prospect of a deal. Cummings rhetoric is quite consistent with that, as they want to make No Dealers believe that will be what eventually happens and they also want Dealers (not least MPs in his party and cabinet) to think a deal is possible. He also wants to have grounds for boycotting any Public Vote in the unlikely event parliament tries to vote for that before an election.

But let’s suppose there is substance behind what happened yesterday. What would that substance have to be? It is highly likely it avoids any kind of hard border on the island of Ireland, which in turn means a completely different set of trading arrangements in Northern Ireland compared to the rest of the UK. Or in other words, all customs checks shift to between Northern Ireland and the rest of the UK.

I suggested around the time Johnson became PM that this would be an option he might take. The almost universal reaction to my suggestion was that it would not get past parliament, because the DUP and other MPs would vote against. But of course Johnson wants a General Election. He is a Prime Minister with little power at present. So he might hope that if he got a larger majority than May had after 2017, and with the help of Labour leavers, he could get such a deal through.

Speculating about that when we don’t know the details of the deal are pointless. The key issue I want to address is whether such a deal would make my Guardian article look stupid. As it talked about no deal, of course. But in substantive terms, you could write something similar about a Johnson deal that solves the Irish border problem in this way. Obviously concerns about peace in Northern Ireland disappear. Whether Scotland will get independence is also more problematic. But the UK would still have to spend a lot of political time negotiating a free trade deal with the EU, and that would be more difficult than it would have been with May’s deal.

The reason is that currently Johnson’s proposals for a free trade deal abandon regulatory alignment. They want to reduce workers rights and consumer protection and environmental protections, and that will mean a far less extensive trade deal with the EU than under the backstop. That in turn means that the long term economic costs of any deal will still be large, although obviously not so large and we avoid the short term disruption.

But the core of the article, that this is going to be something imposed on a majority by a minority, still applies. And it remains true that only a few thousand people will benefit for a deal of this kind, and everyone else will lose. So in that sense the core message of the article applies whether Johnson gets a deal or not.


Simon Wren-lewis
Professor of Economic Policy at the Blavatnik School of Government, Oxford University, and a fellow of Merton College. This blog is written for both economists and non-economists.

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