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Hard Brexit ahead: breaking the deadlock

Author

Listed:
  • Gabriel J. Felbermayr
  • Clemens Fuest
  • Hans Gersbach
  • Albrecht O. Ritschl
  • Marcel Thum
  • Martin T. Braml

Abstract

Negotiations between the EU and the UK have reached deadlock, with the positions of the UK (no backstop, no single market, no customs union, no dependence on the ECJ), Ireland (backstop, no hard border) and the EU (backstop, indivisibility of the four freedoms, no cherry-picking) all being mutually exclusive. In the current stage of negotiations (or lack of, as the EU insists there will be no re-opening of talks) a hard Brexit is the only possible equilibrium. From a game theoretical perspective, the backstop is inacceptable for any British government as it permanently manifests only one sub-game perfect equilibrium, which is the backstop itself. Conversely, a time limitation on the backstop is unacceptable for the EU, as it risks manifesting another sub-game perfect equilibrium, which is hard Brexit. There­fore, neither renegotiation of the backstop nor elections or the extension of the withdrawal period of Article 50 TFEU can break the deadlock. A first-best solution, which from a trade perspective would be the continuation of UK membership in a reformed EU, is beyond the scope of this analysis. We instead take Brexit as given and discuss terms that limit its political and economic damage. We focus on the contentious issues only; we do not elaborate on the provisions of the Withdrawal Agreement itself, for which a settlement has been reached that appears to be satisfactory for both sides. Because the core debate revolves around the backstop and the issue of a possible border between the Northern Ireland and the Republic of Ireland, we mostly deal with trade policy arrangements.

Suggested Citation

  • Gabriel J. Felbermayr & Clemens Fuest & Hans Gersbach & Albrecht O. Ritschl & Marcel Thum & Martin T. Braml, 2019. "Hard Brexit ahead: breaking the deadlock," EconPol Policy Brief 12, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
  • Handle: RePEc:ces:econpb:_12
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    File URL: https://www.ifo.de/DocDL/EconPol_Policy_Brief_12_Brexit.pdf
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    References listed on IDEAS

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    1. Gabriel Felbermayr & Jasmin Gröschl & Marina Steininger, 2022. "Quantifying Brexit: from ex post to ex ante using structural gravity," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 158(2), pages 401-465, May.
    2. Sascha Becker & Thiemo Fetzer & Dennis Novy & Sascha O. Becker, 2017. "Who Voted for Brexit?," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 15(04), pages 03-05, December.
    3. Sascha O Becker & Thiemo Fetzer & Dennis Novy, 2017. "Who voted for Brexit? A comprehensive district-level analysis," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 32(92), pages 601-650.
    4. Gabriel Felbermayr & Feodora Teti & Erdal Yalcin & Gabriel J. Felbermayr, 2018. "On the Profitability of Trade Deflection and the Need for Rules of Origin," CESifo Working Paper Series 6929, CESifo.
    5. Maria Demertzis & Jean Pisani-Ferry & André Sapir & Thomas Wieser & Guntram B. Wolff, 2018. "One size does not fit all- European integration by differentiation," Policy Briefs 27473, Bruegel.
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    Cited by:

    1. Boysen-Hogrefe, Jens & Fiedler, Salomon & Groll, Dominik & Kooths, Stefan & Stolzenburg, Ulrich, 2019. "Konjunktur im Euroraum im Herbst 2019 - Euroraum: Robuste Expansion, aber wenig Schwung [Euro Area Economy Autumn 2019 - Euro area economy robust, but with low momentum]," Kieler Konjunkturberichte 58, Kiel Institute for the World Economy (IfW Kiel).
    2. Catherine Mathieu, 2020. "Brexit: what economic impacts does the literature anticipate?," Post-Print hal-03403036, HAL.
    3. Gabriel Felbermayr, 2019. "Brexit: Eine “Hard-but-Smart”–Strategie und ihre Folgen," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 72(04), pages 27-33, February.

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