Brexit: Talking is good, timing is bad, and agreeing can be ugly

• The UK and the EU decided to hold ongoing negotiations, and that lifted the Euro.
• Time is running short ahead of self-imposed and real deadlines.
• The thorny issues remain unresolved, and the UK government is somewhat paralyzed.

Talking is better than an extended summer vacation

EU Chief Negotiator Michel Barnier and UK Brexit Secretary Dominic Raab agreed to hold non-stop Brexit negotiations to facilitate a deal. The announcement came after long weeks of speculation about a no-deal Brexit. The concerns include a severance of air links, stockpiling of food and medicine, and economic chaos in general. 

The smiles that accompanied the meeting and the pledge to reach a deal joined the early end to the summer holidays and no more breaks from now on. All in all, good news for the Pound.

However, there was no other option but to hold round the clock talks. Time is running out.

Timing is tight with many political hurdles

Unless anything else is agreed upon, Britain will be out of the European Union on March 29th, 2019, seven months and seven days from the time of writing. This deadline is a legally binding one and very real. The uncertainty ahead of the date has already caused some investment delays, caused people to leave the UK or potential candidates to opt for a job elsewhere. 

There are additional dates in the nearer future that complicate matters:

• September 23-26: Labour Party Conference. The opposition Labour Party has moved towards a softer Brexit, but its members and MPs are torn on several Brexit issues. They could agree on a more explicit message in the conference and offer an alternative to May's government. It would be harder for them to do so if the negotiations yield a significant result, the contours of an agreement. In case of a void, their plan, realistic or not for Brussels, could inspire voters and weigh on the government.
• September 30 - October 3: The Conservative Party convenes for its annual conference in Birmingham. Prime Minister Theresa May has been challenged from the camp of hard-Brexiteers and more recently from the pro-Remain camp. She hardly survived some critical votes in parliament. Both sides are unhappy with the Chequers compromise. It would better for her to arrive at the conference with some concessions or achievements from the talks. Otherwise, she is in a perilous situation.
• October 18-19: EU Summit. Mid-October is the official deadline to reach a deal, and it is only two months away. A breakthrough before these dates seems highly unlikely. There is already speculation about an emergency EU Summit in November. Any pushback on the deadline to reach a deal does not push back the Brexit date.

The issues are ugly, and the country is torn

Both sides have reached an agreement about Britain's divorce bill and have committed to defending citizens' rights, albeit the devil may be in the details.

However, there two thorny issues which are related to each other: the Irish border and the custom arrangements. Without an agreement on a customs union or a "common rulebook" as the Chequers compromise suggests, the Irish border will be closed. All sides want to keep borders open between the Republic of Ireland, an EU member, and Northern Ireland, part of the UK. An open frontier is essential for maintaining the peace.

However, a customs union means the UK will remain attached to the EU and will not be able to strike trade deals on goods with third countries. This limitation angers the hard-Brexiteers. Moreover, it may not necessarily be accepted by Brussels. The EU has four freedoms as guiding principles: free movement of goods, services, people, and capital. Choosing only products is seen by the EU as "cherry picking," which is unacceptable. Such an agreement with a soon-to-be external member opens the door to similar demands from EU members.

Another option is the Norwegian Model in which the UK maintains the four freedoms, pays into the EU budget and does not suffer any economic harm. However, this would be even more problematic for the 52% that voted for Brexit as it would result in Britain having no say and having to oblige to all EU rules.

All in all, with a short period of time left to talk and so many divisions within the UK and externally with the EU,  the no-deal option remains valid as ever.