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Brexit: come rain or shine?

  • Jeroen Gobbin, Partner |

I was recently invited to speak to a group of committed entrepreneurs in Limburg on a subject that has been keeping me and my team under its spell every week since mid-March 2017: Brexit.

The last outbreak of Brexit fever occurred in the second half of October, in the run-up to the end of the second extension of the Brexit date, foreseen for 31 October 2019.

While a Brexit deal was voted on for the first time in three years in the UK Parliament - namely the last deal Boris Johnson concluded with the European Union - the British government's plan to complete the entire Brexit process in three days was voted down by the same Parliament (308 votes in favor - versus 322 against: "so the nays have it"). The question was raised - after analyzing the positions of various “yes” voters - whether the Brexit deal could, in any case, have achieved a majority in second reading without further amendments. Boris Johnson was thus forced by his Parliament to ask the EU for a postponement of Brexit, after which the EU granted a further extension until 31 January 2020. So, back to the drawing board once again. This latest outbreak of Brexit fever was averted until at least 31 January 2020.

The group of Limburg entrepreneurs had 2 questions: how did we actually get to this point and what’s going to happen next? What has happened in the three years since the Brexit referendum has been so confusing and unpredictable that many a political commentator, EU or UK watcher, or indeed any other attentive observer, seldom dares to make any predictions about the outcome.

While browsing through the literally dozens of slide decks in my digital Brexit archive, I stumbled upon one slide headed "Heresies" – from a 2017 book by Karel De Gucht, whom we invited as keynote speaker for the first KPMG Brexit seminar in the spring of 2017. The book contains a collection of two years of columns on current affairs, in which the former European Commissioner also mentions the Brexit referendum of June 2016.

I was struck by a few bold predictions in a column from June 2016, which I will summarize below. It is, of course, tempting - and a little tongue-in-cheek - to see which of these predictions still make sense and which of them can be classified as 'doomsday' or 'pure fantasy':

  1. "[After the vote on resignation] there will be negotiations about the conditions which can and probably will last two years, maybe there will even be extensions." 
  2. "Scotland doesn’t want to hear about leaving the European Union and decides to go its own way."
  3. "Peace in Northern Ireland is at stake. The now very permeable border between Ireland and Northern Ireland will become an external border of the European Union, which may stir up the battle (...)".
  4. "The Conservative Party is likely to split and not survive its internal civil war."
  5. "The government risks losing its majority in the British Parliament and no party is ready to deplore. In a democracy, there will be elections."
  6. "In the meantime, the economy has been weakened by political uncertainty and Britain's debris is falling to the ground."

Equally intriguing are the references in the column to the insights of American historian Barbara Tuchman in her book the "March of Folly" about historical mistakes made by policymakers, and how these are ultimately the result of a series of - sometimes understandable, sometimes incomprehensible - wrong decisions, wrong strategic choices and ignorance of facts.

This book is of course extremely fascinating in the context of the Brexit saga and is perhaps also a plea for the preservation of the history lessons in the curriculum of the current generation of students and schoolchildren.

After all, the decision to hold a referendum by the then Prime Minister David Cameron, the decision to organize elections by the subsequent Prime Minister May (as a result of which she lost her majority and had to sit with the support of 10 Unionists of the DUP), the de-facto expulsion from the Conservative Party of twenty one moderate Conservatives by the current Prime Minister Boris Johnson (as a result of which he probably lost the last Brexit vote with 322 dissenting votes and 308 in favor), have all led to the situation that we find ourselves in today: new elections on 12 December 2019.

The question now is will the 12 December 2019 elections prove to be yet another example of clouded judgement, or will they clear the fog around the way forward once and for all?

In my opinion, it might reveal the following two scenarios:

  • Boris Johnson and the Conservatives achieve a majority in the House of Commons, manage to get Johnson’s Brexit deal voted on before 31 January 2020 and a transition period starts immediately after the UK’s exit lasting until 1 January 2021. This transition period can be extended by a maximum of two years until 1 January 2023 and may be necessary to conclude a new trade agreement. To allow for the extension beyond 1 January 2021, a request must be made before July 2020.

    So, the next cliffhanger is already in sight: it’s unlikely that the new free trade agreement can be concluded by the end of December 2020.

    When it comes to the final agreement on the Ireland/Northern Ireland Protocol, a number of important points still need to be worked out before the end of December 2020. If an agreement is not concluded on time, the Ireland/Northern Ireland Protocol will enter into force, meaning that Northern Ireland would be part of the customs territory of the UK, but would follow the rules of the EU internal market.

    This would mean that goods coming directly from the UK destined for Northern Ireland would not be subject to customs duties. Goods coming from elsewhere and not immediately destined for Northern Ireland would be subject to EU customs duties, levied by the UK. If the goods finally end up in Northern Ireland, these duties would be recovered. How all this will work is a mystery for the time being and will have to be worked out before the end of December 2020.

  • We end up with a so-called 'hung parliament' again, in which Boris Johnson will have to count on the support of other groups in order to get his Brexit deal approved. It will once again be a source of uncertainty from day one after the elections, and the risk of a 'no deal' scenario by 31 January 2020 will remain. While a number of ‘No Deal’ preparations have already been made, a 'No Deal' will still have serious consequences and could lead to a contraction of the economy both in the UK and in the EU, the effects of which will be particularly noticeable in Belgium and in Flanders.

In other words, whatever happens today, Brexit is not likely to disappear from the agenda in 2020, or in the coming years actually. Perhaps you too will feel the urge to re-read this blog post again in a few months or years to see whether my prediction was right or merely 'doomsday' thinking.

I sincerely hope, by way of early New Year's greetings, the latter is the case.