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Building an EU-UK Special Relationship

With Brexit, the European Union has lost one of its largest member states, and now must decide what kind of future relationship to pursue with the United Kingdom. Fortunately, beyond trade, there is a broad range of issues on which the two parties can cooperate.

BERKELEY – The European Union has lost one of its most important member states. The United Kingdom accounted for around one-sixth of the EU’s population and economy. Without it, the EU will still be one of the world’s premier economic powers, but it will suffer a loss of dynamism.

Still, there is hope for a fruitful, cooperative EU-UK relationship. The first step is to negotiate a trade agreement. But it would be a mistake to concentrate too much on the details of those talks. Trade is important to both sides, but the minutiae of the UK’s trading relationship with Europe will not determine its economic fate. The most likely outcome is a deal that eliminates tariffs for both sides, but even a return to standard World Trade Organization rules would not be the end of the world. While a better trade deal might prevent the loss of a few percentage points of GDP over the next decade, other variables, such as the quality of education, investment, and domestic regulation, are ultimately more important for growth.

In any case, the EU is much more than a market. It has its own currency and has abolished fiscal-policy frontiers across a massive geographic area. The UK did not participate in either of these key areas of integration and would not have done so anytime soon. As such, the EU has actually lost only a “one-third” member. The relationship with the UK needs to be managed properly. But the fact is that European leaders and policymakers have much more pressing issues to address. Brexit is now a sideshow.

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