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Brexit Press Release 13. December 2016

British confederates

Post-Brexit, the British still want full access to the EU Single Market - and, at the same time, retrieve sovereignty in terms of regulation and restrictions on immigration. This contradicts the principle of giving and taking: London will have to strike a balance of the two with Brussels. The Cologne Institute for Economic Research (IW Köln) has established a framework to objectify the negotiations and shows that Switzerland could be a model.

There are several options for future economic relations between London and Brussels. One is the Turkish option: The country makes little concessions on regulation and freedom of movement of people, does not pay anything into the EU budget and, in return, gets only little access to the EU’s market. Norway, on the other hand, makes major concessions and has almost full access to the single market. Switzerland has opted for a medium solution. From our point-of-view, also the negotiations between the EU and the UK about their future relationship has to maintain the balance between giving and taking.

We develop a new framework that reflects this reciprocity and evaluate the strength of the negotiating positions of the UK and the EU. On this basis, we estimate the possible British concessions and the achievable access to the EU’s market in return:

  • London is likely to make little concessions in the area of the free movement of people - the issue is too delicate at home. Yet, the EU insists on the key role of free movement for its citizens. It could make passporting rules for the British financial industry contingent upon the free movement of people.
  • In recent years, London has paid on average of € 9.4 billion to Brussels. In future, it will be much less. However, the whatsoever arrangement will not work without British contributions. "London will have to pay to achieve access to the EU's market to some extent – and it is prepared to do so," explains Senior Economist Jürgen Matthes.
  • Regarding regulation, London will probably demonstrate more flexibility. It is unlikely that the UK will significantly reduce consumer and environmental protection. We also conclude that the UK will continue to align many product standards with the EU.
  • Moreover, the British deficit in goods trade and the significant role of the UK in security policy have to be taken into account. On the other hand, the fact that the UK is much more reliant on access to the EU than vice versa.

"Overall, the British concessions will be limited to a medium degree at best. Thus, access to the EU’s market will also be restricted to a medium category," says Matthes. Something in the range of the Swiss Model is thus the most likely outcome for Britain, albeit framed in a single agreement.

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