|

Brexit: Drop the backstop and create a customs association, Ifo economists say

This is the press release for the German think-tank Ifo Institute:

The authors of a report released by EconPol Europe have urged the UK and EU to drop the backstop solution for Northern Ireland and instead lift the time limit on the provisional agreement while working on an ambitioned customs union. In the report, released today, the group of prominent European economists have called on the UK government and European Commission to rethink their ‘red lines’ and return to the negotiating table, adding: “A hard Brexit is in no one’s interest and would cause irreparable political and economic damage.”

The authors* -  Gabriel J. Felbermayr (LMU, Ifo Institute), Clemens Fuest (LMU, Ifo Institute), Hans Gersbach (ETH Zurich and chairman of the Board of Academic Advisors to the German BMWi), Albrecht O. Ritschl (LSE), Marcel Thum (TU Dresden, Ifo Institute, and chairman of the Advisory Board to the German BMF) and Martin T. Braml (Ifo Institute) –suggest a minimum three-month extension will be necessary to establish a European Customs Association.

“We propose a model for the relationship between the United Kingdom and the European Union for the post-Brexit era that ensures close economic ties and avoids a hard Irish border,” they say. “Our aim is not to define a first-best solution but rather a politically feasible approach that minimizes economic costs.”

The model proposes: 

  • The backstop provision in the withdrawal agreement is dropped.
  • The United Kingdom permanently delegates all trade policy matters in goods to a newly created European Customs Association (ECA) in which the EU is also a member. Neither the EU nor the UK pursues independent trade policies, and the ECA represents them the World Trade Organization (WTO) in the same way as the EU has done until now for all 28 EU members.
  • The UK has voting rights in the ECA, as do all other member states. Together with the other members of the ECA, it mandates the EU Commission to negotiate trade agreements with third parties.
  • Decisions are taken with a double majority as defined in the Lisbon Treaty, and the European Court of Justice (in an extended form including all participating countries) continues to supervise all law- and policy-making in the field of trade.
  • The ECA covers all  ‘classical‘ areas of trade policy, such as tariffs, quotas, rules of origin, trade defense, etc. On these issues, the EU has exclusive competence.
  • Areas in which the EU has no exclusive competence and in which countries have veto rights (trade in services, intellectual property, direct foreign investment, audiovisual and cultural services, and social, educational and health services), should not fall under the ECA. During a transition period, the pertinent provisions in the EU treaties continue to apply. For the future, arrangements in these areas are made by means of one or several supplementary bilateral agreements.
  • In existing trade agreements with third parties, provisions pertaining to ‘classical‘ areas or areas covered by bilateral agreements continue to apply to the UK, as well as those currently or in future negotiated

Author

More from FXStreet Team
Share:

Editor's Picks

EUR/USD looks apathetic around 1.1770

EUR/USD comes under renewed pressure on Tuesday, deflating below the 1.1800 support and reversing two consecutive days of gains. The pair’s decline follows the persistent move higher in the US Dollar, as trade uncertainty dominates the sentiment ahead of President Trump’s SOTU speech.

GBP/USD regains 1.3500 and above

GBP/USD extends its advance for the third day in a row on Tuesday, this time retesting the area beyond the 1.3500 hurdle. Cable’s uptick comes despite decent gains in the Greenback and the dovish message from the BoE’s Bailey at the UK Parliament.

Gold appears offered around $5,150

Gold is giving back a good portion of the recent multi-day rally, receding to the $5,150 zone per troy ounce amid the decent bounce in the US Dollar and mixed US Treasuty yields. In the meantime, markets’ attention remain on upcoming comments from Fed speakers.

Crypto Today: Bitcoin, Ethereum, XRP come under renewed pressure amid ETF outflows, tariff uncertainty

Bitcoin, Ethereum and Ripple are trading under increasing selling pressure at the time of writing on Tuesday, as market participants navigate renewed tariff uncertainty. The Crypto King holds above $63,000, down 2% intraday from its $64,656 open.

The Citrini report: How a debatable AI narrative can shake Wall Street

That AI-related headline alone was enough to rattle investors.US stocks slid sharply on Monday after a widely circulated Citrini Research memo outlined a hypothetical “2028 Global Intelligence Crisis”, warning that rapid AI adoption could push US unemployment into double digits as early as by mid-2028.

XRP pressured by weak ETF flows and declining retail interest

Ripple (XRP) is edging lower, trading above its intraday low of $1.32 at the time of writing on Tuesday. The decline from its weekly opening of $1.39 reflects heightened volatility in the broader cryptocurrency market, accentuated by tariff-triggered uncertainty.