The economic realities are harsh

It was a brave effort to try to hold it in August, but when that decision was taken we had no idea how much the world was going to change around us, because of coronavirus.

In some ways there are parallels between that initially bullish approach and what is happening over Brexit. The government is continuing to insist that come the end of the year the UK will be gone from the EU, with or without a trade deal. It is sticking to that position despite the looming economic Armageddon it is facing because of coronavirus. The autumn and well into 2021 and beyond will break all records for grim economic times, whether measured by investment, growth rates or unemployment. It is a moot point whether the UK or EU-27 will be worse off. Countries will all suffer, but the economic realities are as harsh for the UK as for any other country, with the possible exception of the United States.

The economic cost of the lock down is likely to be worse in Spain, Italy and France than the UK. But as members of the EU and the eurozone, they will see some of the impact offset by the collective action of the EU. Some are going to have to dig deeper financially to support these countries. Ironically, given what is unfolding for the UK, if it had remained a member of the EU it may for the first time have become a net recipient rather than a net contributor. What is unclear is whether the UK departure deal will include having to contribute to the one trillion euro support fund the EU has put in place to help member states hit by the economic fallout from the coronavirus crisis. That would certainly be the worst of all worlds, with the UK then paying to support a fund from which it may well have been eligible to seek support.

Time will tell where that argument goes. A more immediate priority is that it is now, by most people’s reckoning, just eight weeks until the UK will have to decide whether to delay its decision to end the EU transition period in December. The government insists this is written into law and cannot be changed. But in the coronavirus crisis the law around many other things, most notably consumer rights, is being ignored. Talks are taking place on the Brexit deal between officials, but reading between the lines there is not a lot of enthusiasm to reach a deal. There is a sense, certainly on the EU side, that an extension of the transition period is inevitable.

If that is to happen the end of June is the date by which the UK would have to make a formal request. To date it has rejected all suggestions that this should happen, but some sources are saying this is just political posturing and that in the end the government may have to admit this is the only option that makes economic sense. Strip away the politics, which is always hard over Brexit, and it is hard to see how a deal could be reached on trade when no-one knows that shape markets will

be in the future. Those trying to reach a deal are seeking to plan for the unknown and that does not make a lot of sense. The only certainty is that economic chaos is looming and we are facing into a new normality rather than what we had. That applies as much to business and markets as it does to our social lives.

That means any deal reached today is likely to be based around the old norms rather than the unknown situation every country around the world is facing. One of the big attractions for the UK of Brexit was the freedom to make trade deals beyond that EU. The US was its big target, but it is facing an even more catastrophic economic situation than most countries in Europe. New trade deals will be so far down the agenda of most countries that they will not even be on their political radar.

That is a reality the government urgently needs to factor into its discussions with Brussels, on the basis that a deal to maintain the status quo may now look a lot more attractive.