Senior Fellow, Europe, Council on Foreign Relations; Associate Professor, International Political Economy, School of Advanced International Studies, Johns Hopkins University
Vice President, National Program and Outreach, Council on Foreign Relations
Matthias Matthijs, senior fellow for Europe at CFR and associate professor of international political economy at Johns Hopkins University’s School of Advanced International Studies, discusses European integration and Brexit negotiations in the lead-up to the December 31, 2020, deadline.
FASKIANOS: Welcome to the CFR Fall 2020 Academic Webinar series. I'm Irina Faskianos, vice president of the National Program and Outreach here at CFR. Today's webinar is on the record and the video and transcript will be available on our website, CFR.org/academic. As always, CFR takes no institutional positions on matters of policy. We are delighted to have Matthias Matthijs with us to talk about European integration and Brexit. He is a senior fellow for Europe at CFR and an associate professor of international political economy at Johns Hopkins University's School of Advanced International Studies, where he teaches graduate courses in international relations, comparative politics, and international economics. Dr. Matthijs is an award-winning author and teacher and an expert on European political economy, the politics of economic ideas, and regional integration. Since May 2019, he has also served as the chair of the executive committee of the European Union Studies Association. He is currently working on a book-length manuscript that examines the collapse of national consensus around European integration. So welcome Matthias. It is great to have you with us. We are coming up on the December 31, 2020, Brexit deadline. So I thought you could begin by talking about where negotiations currently stand, and what no deal means for the European Union.
MATTHIJS: First of all, thank you, Irina, for inviting me to do this seminar. And of course, welcome to everybody joining. There is a kind of short-term pressure point here where we have reached the point in the negotiations between the European Union and the United Kingdom where it's basically the beginning of the end, if you want, that's now kind of in place. There's all kinds of deadlines being thrown around. Boris Johnson wants there to be a deal by October 15. Well, that's in a week, it seems unrealistic. And it looks like the European leaders are a little more comfortable pushing it into the second half of October, maybe even early November, because everybody knows the real deadline is December 31. Maybe it's worth standing still for a minute at how far we've come in these negotiations. And how many things have had to happen to get us to this point. And so I think Brexit is an event that will be analyzed by academics and scholars and think tankers for years to come. But it is kind of striking from a kind of historical institutionalist point of view, how many things have to happen for us to get us there.
So first of all, of course, the vote. That was very divisive in the United Kingdom, because obviously the Scots and the Northern Irish voted to remain in the European Union, while the Irish and a solid majority of England voted to leave. That's seeing Cameron resign, Theresa May take over, Theresa May trying to make a kind of deal that would keep the United Kingdom very close to the European Union. And basically, that exposed the contradictions of Brexit. And so in many ways, a lot was settled when Boris Johnson took over, then couldn't make a deal at first then made a deal on the withdrawal agreement, and then won a big general election that basically said this is what the British people want, they will leave the European Union and they did leave the European Union—there's often confusion about this—on January 31 of this year. And then Boris Johnson campaigned in December on a platform of what you can call a Canada-style deal with the European Union.
So a free trade agreement, that's maybe a little bit more generous than your kind of bare bones free trade agreement. What we've seen since then, is little has happened, right? I mean, there's been a global pandemic, and that's pushed the Brexit negotiations down the list of priorities for the European Union. But what has always been clear, and I think that's sometimes being misunderestimated, or underestimated, or misunderstood, or underestimated better at the side of Brussels, is that this is a government in the UK, a conservative government of all Brexiteers of people who are committed to delivering Brexit and who believe in it. Even though they may not believe in it privately, they believe in it publicly, and they are on the record saying so. And the only rationale for Brexit would be leaving the single market and the customs union because that at least keeps up the illusion, if you want, of taking back control and of sovereignty of basically being able in charge of your own trade policy, and your own immigration policy, and your own laws, and money, and so on. And so I think they are dead serious on delivering on this. And that's also why this government, the Boris Johnson government, is actually quite comfortable with a no-deal scenario, right? They are willing to walk away from what they think a bad deal, they think no deal is better than a bad deal. The big difference between now and a year ago, of course, is that there is a withdrawal agreement. So there, there is a solution for Northern Ireland, there is a solution for its citizens, EU citizens and UK citizens on both sides of the negotiation. And there has been—they have settled the money question. So the question now before us is, are we going to have a free trade agreement, a bare bones free trade agreement, between the UK and the EU? And that means zero tariffs, zero quotas, or are they not going to be able to get to that point?
And so in many ways these negotiations have now dragged on since the summer of 2016, if you want to, really in earnest since March 2017, when they triggered Article 50, which started the clock of the two year countdown. But of course, that was extended a few times, and now we are at the end. There was one-year extension to the transition. So basically from the end of January to December 31. And there was a chance in June for the Johnson government to say, okay, we want another year extension to have a better agreement, a more solid agreement, because a lot has to be negotiated. And they decided against it. So another credible commitment that they're willing to leave the EU, they've already left it, they're willing to leave the single market and the customs union without a deal.
So what are the three sticking points right now? And there really are three sticking points in these negotiations. The biggest one, and it is the biggest one because it goes to the very heart of the rationale for Brexit, is what's known as the level playing field. So if you want a free trade agreement with the European Union, the European Union wants a guarantee that you're not going to use random state subsidies for unfair competition, that the Johnson government is not going to subsidize all kinds of companies and firms and give them an unfair advantage when they compete with France, with Germany, and so on. And so why is this an important sticking point? Well, because Boris Johnson's government wants to do industrial policy right, one of the rationales for Brexit, especially his Rasputin-like figure, his advisor Dominic Cummings, really believes that the EU restricts what member states can do, that they cannot arbitrarily support industries in the north, where they feel that the left behinds from globalization haven't gotten enough support. And so one of the rationales of Brexit is to do this. And so if the UK's point of view is to say well, we only want a simple free trade agreement, the way Canada has won, the way many other countries, Singapore, and so have with the EU, you cannot expect us to now sign off on all kinds of restrictions to what we can do from an economic policy point of view. Of course, Germany, and France is saying, well hang on a minute, I mean, you're very close, you're already very competitive, if you're going to give yourselves even another edge, that's not a good deal for us. And of course, there's an irony here, because it's Margaret Thatcher, that most famous of recent British prime ministers, that insisted on very strict level playing field conditions when she was championing the single market, because she didn't trust Germany or France to not support their own industry. So it's almost the reverse order.
Second main sticking point is fisheries, the negotiations over British territorial waters. And so for—this was already a big sticking point back in the 1970s, when Britain joins the European Union originally, so you have Portuguese, Spanish, French, Belgian, Dutch, Danish, and Scandinavian fishermen, who access British territorial waters and get quite a lot of catch from these waters. So does Brexit mean that Britain gets complete control over these waters again, and they can just bilaterally negotiate with countries how much they can catch every year? So that's something because for forty years, fishermen, and especially the French feel very strong about this, they basically want to maintain the status quo Europe. They know that they won't get there, so that's part of the leverage negotiation.
And the last point, the last sticking point in the negotiations, is the governance with how is this agreement, this free trade agreement, going to be governed? The British have been explicit that they do not want the European Court of Justice involved with any of this, they want their own law. So you're going to have to have a separate mechanism for things like level playing field. But then, the debate is that is there going to be exempt [INAUDIBLE] commitments to what we can and cannot do, or whether we're going to shadow EU regulations or not for good straight, for example? Or is there going to be an expose mechanism that looks into complaints that say well here, there's a dumping charge or there's a violation of the spirit of the agreement. And then there's going to be some sort of court, a bilateral court, with judges from both sides, and maybe judges from third countries—you can even imagine American judges being on there—who then say, well, actually the EU is in the right or the UK is in the right.
So that's where we are, there’s clearly a deal to be made. The European Commission wants to make a deal, because the risks of not having a deal would be a short-term economic shock—we can come back to what that would look like—but they don't want to offer up the integrity of the single market, they don't want to give the Brits a special deal, because then they have to give the Swiss a special deal and other countries and then becomes a slippery slope. The Germans want a deal but know that at the cost of European unity and the French want to do but not at a cost of bankruptcy for their fishermen, either.
And then, of course, Boris Johnson himself wants a deal. We're in the middle of a pandemic—the cases—the second wave is getting worse. He's had one policy U-turn after the other in his first nine to ten months as new prime minister since December. And so he wants to show that he can deliver, that he can govern. "Get Brexit done," was that kind of very attractive—for many voters at least—slogan like, let's get it over and done with and let's move on from this. And so if there is a no-deal scenario, this is going to go on and on and on and on. Because no deal in itself is not an outcome. It's a temporary situation, where then you have to have hundreds of bilateral deals that have to be negotiated. And that many people argue Britain will be in an even worse position, then because they will need that deal more than the European Union side will need it. So why don't I stop right there?
FASKIANOS: Fantastic. Thank you so much. Now we are going to go to all of you for your questions. You can either raise your hand by clicking on the participants icon at the bottom of your screen or clicking on an e-tablet on the more button. Or else, you can type your question in the Q&A box. And if you could please—if you're opting to write a question, please identify yourself and your affiliation. And give us your name if you haven't renamed your device, so we know who you are. So I'm going to first take a question, raised hand, from our colleague Mojubaolu Okome, and please make sure to unmute yourself.
Q: Good afternoon and thank you very much. So what I'm wondering is what really is the ideal resolution for this, given the fact that there are so many interests that are threatened on both the British side and the European side? Also, how does this—I mean, I'm African, I come from Nigeria—and I remember, Theresa May's government was making a lot of overtures to African countries, because I believe there's a need for alternative markets, if this EU relationship is going to be broken. So I mean, what then is this Boris Johnson administration willing or interested in doing and how does this affect the chances. Plus, there were so many people opposed, and their voices I don't think were heard. So how about that?
MATTHIJS: Excellent question. The main problem, of course, in these negotiations is that what's ideal is very different from an EU point of view than it is from a UK point of view. So, from an EU point of view, they would love nothing more than the UK to remain in the single market; keep the free movement of goods, services, capital, and people; and for them to remain in the customs union because it makes the EU and more attractive markets to make free trade deals for the EU with other countries, be it China, be it the United States, be it India, to just name the top three biggest markets that the EU doesn't have free trade deals with. But it also means basically that they have the best of both worlds, right? The UK is no longer a member so it cannot frustrate future decision-making or block or veto next steps in European integration. But they have to follow the rules, basically. And of course, that is immediately clear. From a Brexit point of view, that's exactly what they don't want. That is the worst of all worlds. For Boris Johnson's government, it's maybe not the worst of both worlds from a pure economic point of view because it means nothing changes in the UK, right. And in the end, who cares what exactly, car bumpers, modifications are or what regulations are when it comes to certain food standards because in the end, UK preferences are much closer to EU preferences than they are to American preferences or Russian preferences or Chinese preferences. So that's one.
I think you're absolutely right, in the sense that a lot of voices weren't heard in the UK. And that's the nature—and everybody in the United States will know this right now—the nature of the electoral system in the UK that when there was an election in December 2019, it was settled in favor of what's known as a hard Brexit, meaning leaving the customs union and the single market that then allows the UK to control its own immigration, to make—to strike its own trade deals all over the world. So one thing I think important pointing out here is that if there is indeed a no-deal scenario, that means that the UK will have to trade with everybody, not just with the EU, but with everybody on what's known as most favored nation terms, which means they would have to treat China, Russia, the United States exactly the same as they treat France or Germany, which means, the tariffs, they could say, well, if we have too high tariffs that will be inflationary and bad for our economy. And of course, will drive up prices of all the kinds of things we import so let's just keep a zero tariff. But that will wipe out the automotive industry, the agricultural industry, and farmers, fisheries because they suddenly will face tariffs with the rest of the world, with the EU, the way they're faced with the rest of the world. So that's why your point about alternative markets is important.
But that being said, the European Union has hundreds of trade deals with all kinds of countries, and association agreements, and so on. And so the UK has benefited from that negotiation because the EU is always in a stronger position because it had a much bigger market. The UK will have to renegotiate every bilateral deal with the EU has for itself. And we've seen that they've done this in the case of Japan. And what you note right away is that when it comes to the UK–Japan free trade agreement, Britain has had to accept worse conditions than the European Union had to accept. And so certain things like quotas, they say, well, you can have the rest of the EU quota, unless the EU uses the full quota and then your quota goes down, for example. So that's why I don't see there to be a great many short-term opportunities, because nobody will want to make a deal with the UK unless its relationship with the European Union has been settled.
FASKIANOS: Thank you. I'm going to go next to a question in the chat from Peter Gourevitch at UCSD, University of California, San Diego, School of Global Policy and Strategy. Who are the interest groups in Germany and France pushing for a deal? And what will they give up to get one?
MATTHIJS: That's a very good question from Professor Gourevitch. And very much expected, you'll be happy to know we just discussed politics in hard times yesterday in my comparative political economy class. And so the main interest groups pushing for a deal in Germany are the usual suspects. So it is automotive, I mean, everything that's heavy machinery exports that has a substantial market in the UK. So what they're worried about is tariffs on their products, and that will immediately make them less competitive. And to some extent, certain any services that rely on a lot of imported UK services, whether it's legal, whether it's financial, that they use, they also want to maintain good relations and so are pushing for a deal as well. I think in France, it's more complicated. Because, and that's where I think in these negotiations you see America playing good cop, pushing for a deal, pushing for a deal, not at any cost, but still staying optimistic, staying the course. You see Emmanuel Macron of France being much more pessimistic, and much more taking a hard line on this, especially fisheries. He wants very much a good deal because there's all these coastal villages, all over Brittany, Normandy, you name it, the whole French coast, that will be destroyed if there is no deal. So from that point of view, he wants to deal. From the point of view of level playing field he very much wants a deal, a very strong deal as well, because he is worried about unfair competition for France's national champions, and so on.
So what will be interesting to see is who wins this tussle of strength? It seems to be the case that France and Germany have a new understanding since COVID-19 and since the European recovery fund, and what's called next generation EU, where Germany basically made a kind of dramatic U-turn, sided with the southern European countries, especially Italy, Spain, and France, in favor of a much more generous package that is consisting of grants rather than loans, and is kind of at odds with some of the northern European members right now. That being said, what is clear, thanks to this new strength of European integration, which arguably was possible because the UK had left. I mean, I think that's an important element here that the EU was able to come up with a significant recovery package of COVID-19 because there was no UK veto possible. The question is who will win this? Will the French let go of some of their vetoes or hard lines on this?
I really do see if there's a breakdown of relations, it will be the UK that will pull the plug, I think the EU will negotiate until the last minute of the last day, because for them, the difference between the UK and the EU is that the EU did not vote for Brexit, there's no constituency in favor of this. Macron, I think, is pushed the other way from financial services, for example, because they see a real opportunity to steal quite a lot of business from London. So it's a very complicated dance among France, Germany, the Commission, Northern European countries that export the law, and then Southern European countries who honestly, it's not a priority for them. They're mostly worried about the European recovery fund, and that's what they're focused on.
FASKIANOS: Thank you. I'm going to go to Morton Holbrook next. Morton, please identify yourself.
Q: Yeah, I'm Mort Holbrook at Kentucky Wesleyan College in Kentucky, obviously. My question is, U.S. Secretary of State Pompeo has been going around the world promoting an anti-China coalition describing the Chinese Communist Party as the world's greatest threat. How has that been received in the UK and the EU? And will Brexit, or has Brexit, made a difference in how the UK and the EU respond to that? Thank you.
MATTHIJS: Excellent question, Morton. I think actually on China, there has been an alignment of interests between the EU—especially recently Germany—the UK, and the United States. So what you can see happening starting next year, when Brexit is over, I mean, it will never be over because the relation continues and a lot of things will continue to be negotiated, but I think the Huawei—the decision of Germany to follow the EU guidelines on things like Huawei and 5G, and citing security worries as not including them in their 5G network, is suddenly showing that Germany is aligning with the rest of Europe and the UK when it comes to kind of a more hawkish position on China. I do see relations between the EU and China worse for that point of view. Where there could be a difference is Russia, because the UK has traditionally been the most hawkish on Russia and Russia sanctions, now that they're gone, other voices, more pro-Russian voices from Southern Europe and even from Germany, may start to gain the upper hand even though it's not going to change overnight, either. And that may cause quite a bit of transatlantic dissent, whether there's a Biden presidency or whether Trump has a second term, that's always going to be an issue, I think, the relations between Russia and the EU are more important for the EU because of its proximity.
But when it comes to China, that's where I think that the concept of what's known as EU sovereignty or open strategic autonomy or pick your vague term, this is really an effort of the EU to deal with China and the COVD-19 pandemic made everybody realize in Europe, how vulnerable they are and how dependent they are for certain goods and their supply chains, how well they're linked with China. So the effort now when it comes to health, or industrial policy, or the Green New Deal, or digital, these sorts of industries, Europe wants to be more self-sufficient. And so I can see them—it's more likely that they will cooperate with the United States there, then they will become more dependent on China. It's of course easier said than done. This sounds good in theory, but in practice, this is hugely expensive. And a lot of Northern European countries here are probably skeptical that the EU can pull this off on its own.
FASKIANOS: Matthias, there is a question about the United States' position on Brexit. So, what is the Trump administration's position? And if Biden wins and takes office, what would be his? Is there any difference between the two?
MATTHIJS: That's an excellent question and I think is on the minds of many of you. I mean, obviously, Brexit happened, and it's often linked with the advent of Trump in the United States because they seem to at least invite similar currents in Anglo Saxon capitalism, or an Anglo Saxon society, for that matter. So both had an anti-immigrant bent, both had a sort of anti-establishment bent. And so similar forces that drove the British people to vote for Brexit, voted many Americans to vote for Donald Trump. So the president, the American president has been very supportive of Brexit. He sees the EU as a competitor. He believes in sovereign states, and he wants to do deals with states rather than with something like the European Union. There was this famous meeting with Angela Merkel, where he kept asking her let's do a deal between Germany and the United States. And she kept saying, we cannot do a deal with you, because our trade policy is done by the European Union. And after the fifteenth time, he said okay, well, let's do a deal with the EU in that case. So I think that the main sticking point right now, and Joe Biden himself has repeated this, but even someone like Mick Mulvaney, who's the former chief of staff of Donald Trump, and of course, the special representative in Northern Ireland now, have played the Irish cards. So it's very clear that the Irish American and the Irish lobbying in Washington, DC, has more sway in the traditional special relationship, the Anglo–American relationship between London and DC. So here, Nancy Pelosi has said it, many Democrats, some Republicans even have said, there will be no trade deal with the United Kingdom, if there is a threat to the Good Friday Agreement. So the context of this is that in September, Boris Johnson's government rolled out what's known as the internal market bill that guarantees free movement of goods, services, and so on within the United Kingdom of Northern Ireland, Scotland, Wales, and England. And this was immediately seen and admitted by their own governments that this violates the withdrawal agreement with the European Union that went into effect on January 31. And so in the meantime, the European Commission has started a law—a legal suit—against the UK to take out the passages in that internal market bill that threaten the and the integrity of the Good Friday Agreement that could potentially force Dublin, or the Republic of Ireland, to put up barriers on the Irish border on the island of Ireland, between Northern Ireland and the Republic of Ireland.
I think whether it's Democrat or Republican, Britain will have to have some sort of agreement, clean agreement, with the European Union before any trade deal can be done. Naturally, I think Donald Trump is more sympathetic to the whole Brexit idea. I think most people in the Biden administration, or in a potential Biden administration, Biden's policy team, they actually, they don't really understand the rationale for Brexit. They want to do business with Europe, and they, I think, see Germany as a more important partner, whether it's security or economics, than Britain right now. And so I would imagine under a Biden administration that the relationship between the EU and the U.S. will be more important than the kind of bilateral relationship between Great Britain, or the UK, and the U.S.
FASKIANOS: Fantastic. I'm going to go back to the raised hands and go to Babak Salimitari, who's at the University of California, Irvine. So please unmute yourself.
Q: Hello, can you hear me?
FASKIANOS: We can.
Q: Thank you for taking my question. My name is Babak Salimitari, and I'm a second year econ student. My question is regarding the international complications of Brexit, especially the JCPOA. The UK is a signee as well as the European Union. However, this tug of war between the two groups has kind of put the entire European Union on edge. And I was wondering how that can possibly affect international deals, specifically the JCPOA.
MATTHIJS: Yeah, I actually think on this specific issue, the EU, especially France and Germany, and the UK will remain much more aligned than they're divided on this. I mean, I could be wrong on this. There are hints from certain sources within Boris Johnson's government, that they want to align themselves much more closely in foreign policy with the United States. I think it will matter here, whether who's president of the United States, because it will make a difference. But that being said, I mean, the British people and the preferences, I think, in foreign policy, whether it's for nuclear diplomacy with Iran, whether it comes to climate change, whether it comes to global terrorism, the alignment, the values are much closer of what the UK wants, what the UK people want, and what the European Union want.
Here, a no-deal scenario will make this much harder. And that's what I think both sides realize is a no-deal scenario means that at some point in December, maybe even earlier, both sides say we are not going to get a deal now, we're going to start preparing for no deal. And then these preparations will become self-fulfilling because they will become less scary. But then, no deal happens, it's January 1, there's chaos at the border, there's chaos in the airports, everything takes longer, everything needs to be renegotiated. Nothing is certain anymore. There's so many things that regulate this very close relationship. Then they're like, okay, well, now we have to start renegotiating all of this. But it will mean failure of diplomacy. And it will mean that there's a fundamental lack of trust between both sides. And so it's going to be a lot harder to coordinate foreign policy positions, as important as JCPOA, as you mentioned.
I don't want to be too one sided and think this is a tragedy for the UK. I do think it is and I think it was the quote unquote, wrong decision. But it is a tragedy for the European Union as well. I mean, we are now in a world, a more multipolar world, with a more assertive China and a revanchist Russia, and an unpredictable United States, especially now. And so the EU should, in its own interest at least, have a more coherent foreign policy. But that usually means having some hard power behind it. That would have been a lot easier if the UK was a member, because it has a serious military with global reach. It has an air force and so on. And now basically, much of the EU will have to rely solely on the kind of diplomatic strength of France. And that's not something that everybody is happy with in the European Union either because there's still a kind of mistrust of France's intentions. Are they doing this for the EU or are they doing this for themselves? Irina?
FASKIANOS: Yes, thank you. I am scrolling through lots of questions and several questions have come up about the role that the WTO or ICJ can play in arbitrating the EU–UK trade disputes. This is from Heidi Hardt at University of California, Irvine. So if you can talk a little bit about that. Waseem Khokhar also asked, what will happen if there will be no trade deal by the end of December? Will they follow the rules of WTO or bilaterally? So there are several questions along that, in that vein. If you can address that Matthias, that would be fantastic.
MATTHIJS: So yeah, there is a fundamental problem with WTO. Of course, it's undergoing a leadership change right now and we should know fairly soon who's going to take over. I mean, I think the odds-on favorite right now is the former Finance Minister of Nigeria, Ngozi Okonjo-Iweala, who would be an excellent choice, who's shown her strength and acumen already at the World Bank here in DC. And so the problem with the WTO is that it's handicapped right now by a lack of U.S. involvement, or by an active hostile U.S. administration who's refused to appoint new judges on its appellate body. So right now, it can't actually hear cases and rule on cases. So again, one would expect this to change in January. Under a Biden administration, you'd expect a much more supportive U.S. administration that will want to be more multilateral. Under a Trump administration, all bets are off. I mean, who knows, he may want to see a reform of the WTO or he may just withdraw from the WTO altogether. It's a lot easier to withdraw from the WTO than it is from the European Union, as I think we've seen in the last few years, with Britain trying to extract itself from it.
So if there is no deal, then the EU will treat the United Kingdom on January 1, as a third country, as a WTO member like Mongolia, or like any other member of the WTO that it doesn't have a bilateral free trade agreement with. So basically, the UK will be treated like the United States, China, or Russia. So that means there will be tariffs on certain goods, automotive is a key one. Agriculture, because the UK will no longer be part of the Common Agricultural Policy. So this will hurt farmers who export to the EU. Fisheries are the same thing, because it's a great idea to have in theory, having control of your territorial waters and not have French and Dutch and Belgian fishermen in there means there is much more for the UK, in theory. But ninety percent of what British fishermen and fisherwomen catch in British territorial waters is sold in the European single market. So if suddenly, tariffs go up dramatically there, then there they are with all their fish and they can sell it.
So here's the thing, what the UK can do is say, well, okay, unilaterally, we decide we won't charge any tariffs to any former EU members or former EU partners. But that means by WTO law that they then have to extend that privilege to every WTO member and then that includes China, Russia, United States, Canada, you name it. And so that will be hugely damaging for its own industries as well. So it's kind of like they're in a double bind, they will suddenly either see very high tariffs on goods coming in which will be inflationary, and which will lead to shortages, or they will see their own markets abroad, especially in the EU, be much less attractive for the exporters. So, you would expect January, February, March, then the UK and the EU will go back to the table, and they'll realize that this is unsustainable, and that they will come to some sort of free trade agreement. That's what I meant by saying that this is not an outcome, no deal. It's just a temporary state of affairs of somewhat chaotic relations with long lines at the border and in airports. At some point life goes on and deals will have to be made. But it's very much a question as well whether the WTO will be functioning. And the UK, once it's out of the EU, has every interest in multilateralism to work because they won't be part of a bigger trade bloc anymore. And so they won't have this kind of market power that they used to have as members of the EU.
FASKIANOS: To continue in that vein, Matt Schaefer has posed a question about how will sensitive agricultural regulatory issues come out. And the US–UK FTA, such as chlorinated chicken, beef hormones, gene-edited, genetically modified crops. Will the UK be able to accommodate U.S. requests on these issues or will its deal with the EU prevent such accommodation?
MATTHIJS: Yeah, this is a good question and I think there's a simple answer to it. In the end, the EU deal will trump—pardon the pun—any deal with the United States for the simple reason that nobody in the UK wants to lower, or is seen as lowering, food standards. And here is where environmental groups, consumer rights groups, have been incredibly effective in basically scaring the European consumer of American, certain American products. So whether it's hormone, beef, whether it's genetically modified organisms, whether it's chlorinated, or what's now known as chemically washed chicken. And so there is fear of British farmers of this, and they are always a sensitive groups and they always get a lot of support, and a lot of sympathy from British voters. But also what are the other obvious deals or obvious liberalizations that the United States would want with a deal with the UK—pharmaceuticals? And so the National Health Service will be on the table. And that's the kind of precious symbol of post-war British welfare. And so the last thing they want is higher drug prices, because they cannot compete against American drug companies. And there's financial services. What the big prize for the U.S.. will be is much broader access to the City of London, much broader access for American banks to operate there to take business away from British or European banks. So it's not clear that the things that the U.S. wants from a deal like this are all that attractive from a British point of view, because after all, Brexit was sold as this would set the country free and it would increase standards, environmental standards, and so on. Many times, Brexiteers would say, well, listen but EU standards aren't high enough. We can set them even higher once we're free from the shackles of Brussels, we just haven't been able to do this because of competitive pressures with other EU member states.
FASKIANOS: Fantastic. I'm going to go next to Maia Cross from Northeastern University. She asked: what kind of security relationship do you think the UK will seek with the EU after Brexit? And there was another question in this vein but a little bit different—trying to find it in this long list of questions—about the proposed EU army? What are the plans? What is the status? That's from Heba El-Shazli, professor at George Mason University’s Schar School of Policy and Government.
MATTHIJS: Excellent. Hi, Maia, thank you for your question, and would have expected that from you, and I was actually hoping you could answer that. But I understand that you know what you know and you don't know what I know. So, it's a very tricky question because it depends whether there's a deal or no deal. No-deal scenario, you have to be very pessimistic because I think it will break a kind of carefully built up a rapprochement between London and Paris when it comes to defense relations. It's something that was started, as you know better than I do, in 1998, at Saint-Malo between Tony Blair and Jacques Chirac at the time and has been built up since. France will want to lead a kind of European security policy and will, in a way, to some extent be happy that they are no longer blocked in their ambitions from the UK.
That being said, French are also realistic. There's only that much they can do and close cooperation with the UK is in their interest because they're in the same neighborhood. And also, the UK has access to much better intelligence through the Five Eyes agreement between Canada, U.S., New Zealand, Australia, and the UK. So in the case, there's a no deal, I think there's going to be a long, prolonged period of poor relations. And also, I think the UK will choose to have closer relations with the United States, because at the end of the day, we are here with a Tory government that's in power, technically until December 2024, if they want, that's a long time. And their natural pro-American, most of them. And then naturally Euro skeptic, and especially French skeptic. So this specific government has no interest right now in very close defense relations or participating in the European army or anything like this. So, they will want to have closer relations with the United States and they will pressure any new administration or second Trump administration on the importance of NATO, it seems to me.
In the case there's a deal, I think the deal will be broad enough that they will throw defense cooperation in there as part of it. And then, you could well see a kind of Franco and Anglo–French defense relations blossom and then sort of kind of doing a lot more together, cooperative in the realm of European defense.
On the broader question of the EU army—yeah, there is a kind of timing question. Right now, honestly, realistically, the next three to four years, this is not going to be a priority. The priority is going to be the $750 billion euros that have been approved for disbursement over the next three to four years to rebuild the economies of Italy, of Spain, of Southern Europe, of the rest of Europe, and dealing with the pandemic and the economic recovery that will come with this. There's also—it's very clear that from the Franco–German proposal of May 2020, the stress—everybody was feeling there were four points to that proposal. And then everybody was focused on point number two, which talked about the $500 billion euros in grants that was going to be financed by jointly issued bonds through the Commission and part of the budget and a lot of people hailed as a kind of Hamiltonian moment for the EU, and this was a kind of fiscal step forward. And in the end, it could be, but it could not be. Germany has sold this very much as a one-off instrument to deal with an extraordinary situation as in a global pandemic needs, and that this will be paid off over a longer period of time, but there won't be any future commitments to this. The other three points, one, three, and four talked about sovereignty. And that's a very French idea. Sovereignty and healthcare industry and pharmaceuticals that they never have to depend on other countries that are non-EU when it comes to dealing with a pandemic. Green New Deal, and digital world, and then finally, industrial policy. So these are very—so to me, it's not Hamilton, but de Gaulle, that made a comeback in this. And of course, now we are slowly starting to see that this is very much a French view, which is not particularly shared by the smaller Northern European countries, but could well be supported by Germany.
FASKIANOS: Great. I'm going to go back to the raised hands and go to some Salman Al Zamel. Please unmute yourself. I think you're still muted. You accept the prompt. There you go. And identify yourself, please.
Q: Okay, can you hear me?
FASKIANOS: We can.
Q: My name is Salman Al Zamel. I'm from King Fahd University of Petroleum and Minerals in Saudi Arabia. The question is what are the broad options available to the UK to maintain its security stability after its withdrawal from the EU?
MATTHIJS: Good question, Salman. I wish we could have others on this call answer it, but it does seem to me they have a decision to make. Are they going to have close relations with the EU when it comes to they're maintaining their security, which seems natural because of their proximity, and what they've built up over the years? But of course, Brexit means kind of severing ties with the EU and moving further away from the EU. And there, the only realistic alternative is NATO, where traditionally the UK has punched well above its weight of the fourteen commanders that NATO had, eight were American, seven were British, and one was French, traditionally. So that's an incredible amount of weight that they used to have.
They are still a nuclear power; they still have a seat, of the permanent five seat with veto rights at the UN Security Council. And they remain an important player on defense markets and so on. So, are they going to have a security arrangement where they basically try to play up NATO? And how does that then sit with a movement towards closer defense cooperation within the European Union? Or are they actually going to go with, as I mentioned previously, a closer—build on the close relations they built up over the last twenty years with France and play a major role in European defense as well? And what's interesting is that there's a clear deal to be made here as well. I mean, I can see a British commitment to close involvement and close support for European defense and security, in return for more generous terms on the trade front. And so that's where I think their insistence on a kind of very narrow, bare bones free trade agreement is maybe somewhat mistaken. Because closer relations, be it for lots of services as well, financial services, legal services, consulting services, and so on, where a close relationship is fundamentally in the interest of the British economy. That could have come at a price of closer defense cooperation. Honestly, I don't think they've made—they have not made up their mind on this yet. I think this is a discussion that will start in earnest next spring.
FASKIANOS: So we have several questions about Scotland and Ireland. So what is the position of Scotland on all of this? Would a post-Brexit EU accept an independent Scotland into their ranks? Do you think Brexit has pushed the prospect of an independent Scotland and a united Ireland closer to being actualized? And what effect will Brexit have on EU-Ireland relations?
MATTHIJS: Lots of good questions. So in Foreign Affairs a few years ago, I launched the acronym that the UK may become the former United Kingdom of England and Wales. So, you can read it out for yourself: FUKEW, what it sounds like. And I'm afraid that is the direction we're going after January 1. That being said, it's not that obvious either. I mean, think about—let's focus on Scotland first. So, Scotland voted 62-38 to remain in the European Union. They feel very much that this has been forced down their throats, that is being steamrolled. There's very few conservative members of parliament in Westminster that were elected in Scotland, most of them are Scottish National Party. And so Nicola Sturgeon, the leader of the Scottish, the SNP, has also been very good at dealing with Brexit and dealing with the COVID crisis. She's seen as somebody very competent, and as somebody, who if there indeed is a no-deal scenario and the chaos that comes with this, will spin electoral hay from this debacle. And so there is Scottish elections coming up in the spring, and you could see the SNP do very well. They could have an absolute majority in the Scottish Parliament, in Holyrood. And then the calls for a new independence referendum will be deafening, and it will be very hard for a government of Boris Johnson that is so hammered away on democratic will, and we need the will of the people and they wanted Brexit, we need to deliver on it, otherwise, people lose all their faith in democracy, it'll be very hard to resist this. That being said, that's what they will do initially.
But as opinion polls systematically now show fifty percent in favor of independence, forty-five percent in favor of staying in the Union, that's a very different fact. And, Scotland could say, well, you've fundamentally changed the Constitution of Scotland. We're no longer members of the EU and that was very important to us. If you look at the polls, what's striking, is that young people are overwhelmingly in favor of independence, while older people are much more in favor of the Union, there's much more sort of like an attachment to the UK amongst the old than there is amongst the young. So, it's different dynamics than you saw in Brexit, where it was the old overwhelmingly voting to leave, and the young who wanted to remain.
So the problem with Scottish independence is there's a lot of practical problems. Scotland depends overwhelmingly on England for its economic relations. They get a lot of subsidies from London for their education, for their health care, and so on. Also the question is of the currency. Do they want to exchange the pound for the Euro? It's not obvious because the Euro also is a very austere currency, not these days, but at least that's where they want to go back. And so do they give up their dependence on London and then get immediate dependence on Frankfurt for their currency and their monetary policy? That's not an obvious story. It's also hard to imagine an actual border, a Hadrian's Wall, between Scotland and England, because there's so much traffic, and tourism, and daily work, and trade relationship that's enormous. So, that’s for Scotland.
If there is a second referendum, and they overcome these obstacles, and they do win the referendum, the Spanish won't like it, the Belgians won't like it. But will they deny Scottish entry to the EU because they're worried about Flanders or Catalonia and so on? I don't think so. I think it'll be a very important symbolic victory for the EU that Scotland becomes a member and basically take the UK's place. Northern Ireland is also very complicated because there I think it's even more likely that then the separation of Northern Ireland of Great Britain, when it comes to regulatory terms, will gradually move Northern Ireland closer to the Republic of Ireland, because that relationship will be maintained. And so, demographic trends are also in favor of Catholics and Republicans that want to reunite. And here it's not unthinkable that at some point, there's a referendum there, as well, for unification. And then you basically have this kind of scenario that we had with East Germany in the early 1990s, where a part of a country becomes automatically a member of the European Union, as well.
One thing I didn't mention with Scotland which will be a huge issue is nuclear weapons. They will have to give up the nuclear weapons that are UK nuclear weapons that are stationed in Scotland to England or to what's left of the UK after they leave. This is not going to happen tomorrow. This is going to be a longer process, but you can see this dominate the next ten years of UK politics. And I think that is the fundamental irony, is that as Brexit happened, and I definitely was one that shared those fears, you're like, oh my God, European integration has gone into reverse. Here's a country, an important member state—maybe not a Euro member or a Schengen member—they voted to leave. So, the idea that a country would ever leave the European integration was never really seriously considered. And it was a quick fear that other countries may follow suit. I think that's now overblown. It's clear that what the UK has gone through, nobody else particularly wants to go through and that the Orbáns and the Kaczyńskis of the world are more interested in changing the EU in their favor than they are in leaving it because they get a lot out of it, and they know that. But the Union that's really at stake here is the United Kingdom, the United Kingdom of England, Wales, Scotland, and Northern Ireland. So it's thinkable, it's definitely among the realm of possibilities, that in ten years’ time, the UK will no longer exist the way we know it today.
FASKIANOS: Thank you. I'm going to go next to, let me see, Mark—where is it? And he kindly wrote the pronunciation of his name for me, which is fantastic. Mark Kleszczewski. He's a student from CUNY Baruch College's Marxe School. Are there any special risks or outstanding issues that affect the banking and financial sectors?
MATTHIJS: Can you repeat that Irina? Sorry.
FASKIANOS: Oh, no problem. I said, are there any special risks or outstanding issues that affect the banking and financial sectors?
MATTHIJS: Yeah, that's the great price. So, what's interesting when it comes to Brexit is that there's actually a bit of a division within the City of London in the financial sector of whether Brexit is good or bad. Hedge funds, for example, see this as a great opportunity to make money, because there's risk, there's kind of great macro risks and so on. Bigger banks rely on a lot of European clients and are worried of losing their single-market passport, where they can do business in the rest of the EU, like they can in the UK. That being said, it's my understanding that most big financial firms have already made arrangements where they have seats and presences in the rest of the EU, be it in Dublin, be it in Amsterdam, in Paris, in Frankfurt. In that way, they can continue to do business in both the EU and the UK as before. You could see the financial sector shrink in London because it's less attractive now, because it less gives you access to the European central market the way it used to. It's also my understanding that a lot of the things that govern financial services have been extended already for a longer period of time in order to avoid the kind of financial calamity on January 1, in case of a no deal. So I think the risks are much more on the trade front and in the supply chain front right now than they are on the capital flows and the financial front. That being said, Frankfurt gains from this, Paris wants to gain from this, so it is clear that Britain will lose business in the short term. And it's not clear that they can gain this back. The only way they can do this is that they can diverge on financial regulations and make it more attractive to come and do business in London than in the rest of the EU. That being said, there's so many advantages that London had in the financial sector, that these are also not going to go away overnight because of Brexit, whether there's a deal or no deal.
FASKIANOS: Matthias, thank you very much for being with us today, we appreciate it. And to all of you for your great questions. I tried to get to as many of them as possible and to weave them all in, but I left a lot still unanswered. So we'll have to have you back. Thank you. Yes, absolutely. And you can follow Matthias on Twitter at @M2Matthijs. That's how you spell it. So, follow him there.
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