Further down below is a list of the six flavours of Brexit Britain can aim for. This has been inspired by The Economist. At this point, it is not at all clear what the British government is aiming for, but given the weakness of Theresa May, I do not think it matters much.

I think/believe/hope that there will be another election soon, and this time there will hopefully be a real debate about whether or not to continue with the Brexit.

One can only hope that this time around politicians will finally tell people the true cost of Brexit and its impact on their lives over the next decades.

Personally, I would prefer one of two extreme options (however unlikely either of them are):

Option 1) Britain withdraws from Brexit (through another referendum or a new clear election mandate). The ongoing debate about the EU in Britain might finally quiet down. Economically, this would be the best medium term solution.

What I do not like about this scenario is that Britain will still have a seat at the table and be able to torpedo any and all deeper integrations of the EU that I am looking forward to (deeper military integration and deeper fiscal integration, just to name the two most important ones). In the past Britain has been strongly opposed to this and given the close vote on Brexit it is very unlikely this will change. In order to be accepted by its citizens, the EU will have to change somewhat drastically over the next few years. With Britain on board, I cannot see how this will happen.

Option 2) Britain leaves the EU with no deal and is properly hurt by Brexit’s impact. No mercy should be shown by European politicians. A) they had it coming and B) this will act as a deterrent to other countries trying to make a similarly bad choice.

Even if we do not get either of the two options above, this would leave Britain with some limited membership/ access, which means it might be paying for the access to the market without having any say in the EU’s future development. And that is a good thing!

There should also finally be a mechanism to expel countries from the EU for various reasons such as being at odds with the EU’s core principals (Poland and Hungary are currently atop that list) or being in strong disagreement of the future course of the Union. There is a lot more to be said in a future post.

Next up are your different flavours of Brexit 🙂

1) Full membership – rejected by referendum
2) Flavour: Norwegian – Membership of EEA
(Norway, Iceland & Lichtenstein)
– integration into the single market for most goods and services ( not agriculture and fisheries
– no customs union (allows to have free trade deals with 3rd parties)
– freedom of movement of goods, services, capital & people
– observe laws which they have no say in making, which are enforced by ECJ
– contributions to EU budget nearly as large as current full membership
3) Flavour: Swiss – Membership of EFTA (European Free Trade Association)
(Swiss, Norway, Iceland & Lichtenstein)
– privileged access for goods (excl. agriculture)
– most services (including financial) are excluded
– outside of customs union
– has to observe free movement of people
– accept most single market laws (enforced by ECJ)
– big contribution to EU budget

Taking back the control of borders rules out these first set of menus.
Some amendments could be made to EEA such as an existing emergency break for movement of people, which has never been used before, or the possibility (similar to Switzerland) to offer most jobs to its own citizens first. Lichtenstein is allowed to enforce quotas, though Switzerland is not.

Britain would probably not get a Swiss-like deal as it is already considered to be too complex for the much smaller Swiss economy.

4) Flavour: Turkish
(Turkey, San Marino and Andorra)
– not part of EEA, EFTA or single market
– customs union for non-agricultural goods
– currently excludes services (Turkey is negotiating this and Britain could do the same)
– common external tariffs set by EU
– no own 3rd party trade deals allowed
– no 4 freedoms
5) Comprehensive free trade agreement
(Ukraine, Canada, Japan – not yet concluded)
– could cover most good and some services (though not usually financial services)
– no 4 freedoms (but some dispute resolution mechanism similar to ECJ will be needed)
– free trade is not the same as frictionless trade (customs controls, rules of origin checks, most services not covered, nontariff barriers because of different regulations)
6) No flavour: WTO rules
– small tariffs on good like cars and pharma
– large tariffs on agriculture
– services not covered
– non-tariff barriers remain
– most favoured nation principle (if no tariff no EU cars, then this applies to all other countries as well!) (trade discrimination only allowed in an approved free trade area)

Only the EEA option would be fast and easy to implement, all other option would take years to negotiate.
All impose losses on the economy.
The hardest Brexit (6-WTO rules) would cut trade by 40% and reduce annual income by 2.6% over 10 years.
The softest option (2- Norwegian) would cut trade by 20-25% and reduce annual income by 1.3%.
These are just static effects, dynamic effects are to come on top of this.