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U.K. Set to Choose Sharp Break From European Union

Downing Street dislikes the term “hard Brexit,” but an outcome along those lines is not unexpected, because it flows logically from the priorities Mrs. May has set out, particularly about controlling the country’s borders. Being outside the single market could damage Britain’s important financial services sector and is likely to hit the value of the pound again, at least temporarily.

A week ago, Mrs. May said in a television interview that post-Brexit Britain would not be able to keep “bits” of its European Union membership. That, too, was interpreted as a break with the single market, which requires freedom of movement and labor for all citizens of the bloc.

“Often people talk in terms as if somehow we are leaving the E.U. but we still want to kind of keep bits of membership,” she said then. “We are leaving. We are coming out. We are not going to be a member of the E.U. any longer.” She added, “We will be able to have control of our borders, control of our laws.”

She and her officials have made it clear that her two main priorities are ending the jurisdiction of the European Court of Justice over British law, and restoring British control over its borders and immigration, including from the European Union.

Those decisions mean that Britain could no longer be a part of the single market for goods, capital, people and services of the European Union, because the rules for that market are adjudicated by the European Court of Justice.

The situation is similar for the customs union, which applies only to goods. Membership in the customs union would mean that Britain would have to obey European Union regulations on manufacturing standards and would be banned from making separate trade deals with countries — two of the most important reasons pro-Brexit forces have cited for leaving the bloc.

Another implication of leaving the single market and the customs union would be Britain’s desire to negotiate a new trade deal with the European Union as a special partner of some kind, but one different from those held by countries like Norway and Turkey. It would also seem to mean trying to negotiate a transitional deal with Brussels while the larger trade deal is being haggled out, which could take many years.

Under a transitional deal, which would extend beyond the two-year limit for negotiating the exit, Britain would presumably continue to have a relationship much like the current one, including paying into the European Union’s budget.

In an article in The Sunday Times of London, David Davis, the minister in charge of the new Department for Exiting the European Union, wrote that Britain would consider ways to extend or smooth the exit process to provide certainty for businesses.

“If it proves necessary, we have said we will consider time for implementation of new arrangements,” he wrote. “We don’t want the E.U. to fail, we want it to prosper economically and politically, and we need to persuade our allies that a strong new partnership with the U.K. will help the E.U. to do that.”

In a combative interview published on Sunday, the chancellor of the Exchequer, Philip Hammond, warned that, if no agreement could be reached on market access, Britain could change its economic model from “European style” taxation and regulation to regain competitiveness.

“The British people are not going to lie down and say, ‘Too bad, we’ve been wounded,’” he said. “We will change our model and we will come back, and we will be competitively engaged.”

Those comments, from an interview with the German newspaper Welt am Sonntag, were interpreted as a warning that Britain could use its corporate tax as a form of leverage in Brexit negotiations.

In a television interview on Sunday, Jeremy Corbyn, the leader of the opposition Labour Party, said that Mr. Hammond “appears to be making a sort of threat to the European community,” calling it “a recipe for some kind of trade war with Europe in the future.”

But Mrs. May’s speech on Tuesday, judging from the excerpts, is also meant to assuage European Union colleagues by committing Britain to a close, friendly and constructive future relationship.

Britain would prefer a duty-free customs relationship with the European Union if one can be negotiated on British terms, which would mean limits on the bloc’s citizens working in Britain and the ability to do separate trade deals. European Union leaders have been largely dismissive of such efforts, but both sides are setting out hard positions before the real negotiations begin, sometime after Britain invokes Article 50 of the Lisbon Treaty to officially begin the process of leaving the bloc.

Mrs. May insists that that will take place before the end of March, even if it requires a vote of Parliament, setting off two years of complicated talks on extracting Britain from a union it joined more than 40 years ago.

Mr. Hammond is known to have argued strongly inside the government for Britain to keep its access to the single market to protect its financial sector, which accounts for 10 to 12 percent of Britain’s economic output.

Bankers and brokers in the City of London are sometimes reviled by many Britons but are also highly paid, so their tax receipts are important to the Treasury. If a significant number of them moved their operations to European Union cities or New York, the pressure on the British government’s budget to pay for health care, pensions, welfare benefits and military spending would increase substantially.

Britain already runs a significantly higher yearly deficit than most European countries, about 4.4 percent of gross domestic product, and its cumulative debt is estimated at nearly 85 percent of G.D.P. Mainstream economists — under fire for wrongly predicting an immediate recession after the Brexit vote last June — say those figures are likely to worsen as the pound falls and the economy slows from the delayed effects of Brexit and the uncertainty around it.

Mrs. May has also emphasized an interest in working with the incoming American administration of Donald J. Trump, and her government trumpeted its success in arranging a Washington meeting with the new president before the end of February.

But her officials were not likely to be happy to discover that Michael Gove, who strongly favored Brexit and whom she fired from the cabinet, had secured the first British interview with Mr. Trump, scheduled to be printed in The Times of London on Monday.

That interview comes after Mr. Trump had a series of meetings with Brexit advocates like Nigel Farage, the former leader of the U.K. Independence Party, and Arron Banks, who gave millions to fund UKIP and an alternative “Leave” campaign in the June referendum. Both men are expected to attend Mr. Trump’s inauguration.

Source: NYT > World

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