Brexit is now going to be a very different beast – there’s no time for a proper deal, so here are our temporary options

The politics have become more uncertain – the economics have, curiously, become more certain

Hard or soft? The Conservatives are being urged by David Cameron, among others, to rethink their Brexit strategy
Hard or soft? The Conservatives are being urged by David Cameron, among others, to rethink their Brexit strategy

There have been so many miscalculations on the path to Brexit, mostly in the UK but also on the Continent, that to suggest that the inconclusive general election result has brought more clarity to the outcome might seem almost perverse. But here goes.

The negotiations have yet to begin but it is clear that Brexit will happen. Both major parties supported it at the election and the two main parties favouring a reversal of the referendum result, the SNP and the Lib Dems, lost ground. But two other things are also clear.

One is that the option of walking away without a deal will be strongly and vigorously opposed by the business establishment – and the power of business to shape policy will be much greater than before. The other is that the Government will adopt some form of collegiate approach to the negotiations, with greater input from Scotland and Northern Ireland, as well as from finance.

Theresa May says Brexit timetable still on track

There is something else, something that should have been evident before the election but now is screamingly so. It is that there has to be some sort of interim deal, because there simply isn’t time to do a conclusive one.

I think the best way to look at this is to see what is happening now as part of a 20 or 30-year process of gradual disengagement from Europe, which was happening anyway and now needs to continue in the least disruptive way.

Was happening anyway? Well, yes. If you look at the pattern of British exports, the share taken by Europe has been falling steadily since the early 2000s. In 2002 the EU took 55 per cent of our exports; now it’s about 44 per cent, and on present trends it will fall to 40 per cent by 2020.

This is not an argument for Brexit. The share may be falling but it is still massively important. Nevertheless, it reflects a reality that our trade links with Europe are weakening, not because of any political intent but simply because of economics. Other markets are growing faster.

That is the background against which a deal can be struck – I think will be struck. The interim deal will change as little as possible. There is an off-the-shelf solution in the European Economic Area, the Norway relationship. We leave the EU, as required by the referendum, but follow most of its rules and pitch into its coffers.

It is not ideal, as Norway acknowledges, and there is one big sticking point: freedom of movement of people. But you could envisage a modified version of that, with some restriction of movement for jobs, being saleable to both sides.

If it isn’t, there is the Swiss model. For Switzerland is a member of the European Free Trade Association but not of the EEA. But that is cumbersome, because there would have to be lots of bilateral agreements, and in any case does not solve the freedom of movement issue.

Theresa May should admit result is a rejection of hard Brexit, says EU negotiator

The UK position is that neither of these off-the-shelf solutions is appropriate and it is easy to see why. Quite aside from the immigration issue, signing up to these would mean that we could not sign up free trade deals with the rest of the world – and that is where the growth is. But the events of the past week have shifted the ground towards finding an acceptable short-term solution, even if it is a sub-optimal one for both sides.

Now think longer term. Assume we are members of a slightly modified EEA. We use the next few years to refocus our trading links towards the rest of the world. It is happening anyway; it just happens a bit faster. Then, because EEA membership was always a transitional arrangement, we renegotiate it to enable us to have free trade deals with the US, which is already our largest export market, though smaller than the EU as a whole.

That might make us unpopular with Europe, but frankly we are not very popular anyway.

Of course, what really matters here is not so much what we want but Europe wants. Common sense suggests that an interim deal would make sense for Europe as well as the UK. A little less arrogance on our part – and given the mess of the past week I don’t think we have much cause to be arrogant – would lead to a more acceptable deal for all. Then the longer-term future of the relationship will be determined by economics and not by politics. I am biased, of course, but to me that makes much more sense.

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