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Morgan Stanley: Britain edging towards soft Brexit


Protesters wave the EU and Union flags outside the Palace of Westminster, London, Britain, December 20, 2017
Protesters
wave the EU and Union flags outside the Palace of Westminster,
London, December 20, 2017

Reuters /
Peter Nicholls


  • Britain is increasingly likely to secure a last-minute
    “soft” Brexit deal which keeps it in the single market and
    customs union.
  • That’s according to Morgan Stanley’s UK economics team
    of Jacob Nell and Melanie Baker.
  • They pair argue that the fact the UK and EU are now
    discussing a deal which involves issues including a role for
    the European Court of Justice, and foreign policy, indicates
    the UK is softening its stance.

LONDON — Britain is increasingly likely to secure a last-minute
soft Brexit deal which keeps it in the single market and customs
union, according to Morgan Stanley.

Economists for the US bank said in a research note on Thursday
that the first-round agreement struck between the EU and UK in
December set a “constructive precedent” after reaching
preliminary agreement on exit issues.

It said the fact parties are now discussing a deal which involves
issues including a role for the European Court of Justice, and
foreign policy, indicates the UK is softening its stance and is,
therefore, more likely to succeed in negotiating a deal
which includes access to the single market.

The UK’s move to consider a role for the ECJ after Brexit —
something Theresa May previously ruled out as a “red line” in
negotiations — is particularly important, because the EU
considers ECJ co-operation compulsory for countries that have
access to the EU single market.

It also said the UK’s new commitment to regulatory alignment
between the Irish Republic and Northern Ireland — which is part
of the UK — decreases the chance of a hard Brexit, because
leaving the EU’s customs union would create a problem with the
Irish border in the form of expensive tariffs and delays.

Chart: Britain edges towards a “soft Brexit”


Screen Shot 2018 01 11 at 16.15.08Morgan
Stanley

The note, written by economists Jacob Nell and Melanie Baker,
said the chance of a “soft Out” deal had increased from around
50% to around 70%, due to the “the pragmatic compromises made by
the UK on the exit issues, and the problems of the Irish border
in a hard Brexit.”

It said:

“We now see a significantly higher chance of a “soft Out” option
in which the UK accepts some EU rules and a role for the ECJ, as
it has in protecting the rights of EU citizens resident in the UK
in the preliminary withdrawal agreement, in UK proposals for
post-Brexit opt-ins to European regulation in aviation, chemicals
and medicine and in UK proposals for shared regulation of
financial services. This scenario would likely involve some
bespoke EU-UK institutional machinery – represented by the half
UK/half EU flag – in a variant of the EEA arrangements.


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