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Analysis: How will the COVID-19 downturn affect EU-UK trade talks?

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In this Monday, March 2, 2020 photo, EU Brexit negotiator Michel Barnier, right, speaks with his UK counterpart David Frost in Brussels
In this Monday, March 2, 2020 photo, EU Brexit negotiator Michel Barnier, right, speaks with his UK counterpart David Frost in Brussels   -   Copyright  AP Photo
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Four years ago this month, the British public narrowly voted to leave the European Union. What followed — years of protracted debate and animosity — painted a picture of a country utterly divided. But a deal was finally reached and the United Kingdom did leave on January 31 this year.

But while the UK has settled its divorce, it remains in a transition period until the end of this year. A year in which it must abide by the rules of membership, while enjoying the privileges. Ultimately though, the transition period is about achieving an orderly settlement on what the future relationship will be.

That, however, all looks in doubt. Talks appear to have stalled.

The EU’s chief Brexit negotiator last week accused the UK of “backtracking on its commitments”, saying the two sides remain “very far” apart. He concluded that the talks will now “go right to the wire” in the autumn, adding, “I am disappointed by the UK position.” Both sides would need to agree by the end of this month to extend the transition period by a year or two. Britain has repeatedly said no. It now looks likely that any deal will come down to more crunch talks later this year, probably involving respective leaders. Some have concluded that it is simply too late and that a no-deal exit remains not just the possible but actually likely outcome.

Coronavirus has clearly not helped. Negotiations have been hammered by Michel Barnier contracting the virus in March. Also, there has been frustration on both sides that they have not been able to meet in person. Analysts have suggested that it is nigh on impossible to carry out detailed, complex talks via video conferencing rather than face to face.

If a deal is not reached, some are seriously worried about the consequences of a double economic whammy. Europe later this year should be recovering from its deepest recession in almost a century, brought on by nationwide lockdowns. Some fear that, already wounded, the EU will then be hit by another economic blow from a hard Brexit. The UK remains a major trading partner. Its economy is bigger than a dozen of the European Union's smaller member states combined.

For some countries, the problem is more acute. Ireland, Belgium and the Netherlands are particularly exposed. Diplomats in Brussels are now expressing concern that the €750 billion recovery fund has not taken into account a hard Brexit.

At an EU diplomats’ meeting last week, Belgium argued that the European Commission’s recovery fund proposals did not take sufficient account of the economic threat posed by Brexit. Ireland indicated that a Brexit shock might need to be factored into the EU’s broader debate on the recovery fund and forthcoming seven-year budget, diplomats told the Financial Times.

It is clear that the threat of the EU failing to reach a trade deal with the UK is very real. It would undoubtedly add to the economic distress the continent faces. The question for Angela Merkel, Emmanuel Macron and others, is just how much are they willing to move to accommodate British demands. Is a bad Brexit deal better than more economic carnage?

If you have missed the Brexit drama in recent months, don’t worry, the series is still running. There is lots more to come and the next episodes are likely to be back making news very soon.

Darren McCaffrey is Euronews' political editor.