Don’t Be Fooled By the Friendly Brexit Goodbyes

(Bloomberg Opinion) — London and Brussels are two hours apart by train but on Friday, the day the U.K. officially leaves the European Union, the two cities will feel worlds apart.The Brits are planning a Brexit celebration worthy of a downtrodden colony freed from the shackles of imperialist rule. A new coin has been minted for the occasion, trumpeting “peace, prosperity and friendship with all nations.” There will be a light show to mark the U.K. regaining its “independence.” Never mind that the country didn’t adopt the euro, wasn’t part of the border-free Schengen Area, and, according to its own citizenship test, was last invaded in 1066. The slogan of “take back control” has stuck.The officials and diplomats steering the 27-member EU see things a little differently. There will be no coin, or light show, but plenty of funereal sobriety. This is the first-ever departure of a big member state, and it’s a palpable loss: Britain will take with it 14% of the EU’s gross domestic product, 40% of its military power and 13% of its population. Brexit is a “tragic geopolitical disaster,” according to Dutch Finance Minister Wopke Hoekstra. It’s a “lose-lose,” according to Michel Barnier, the EU’s chief negotiator of the divorce papers.Both the cheers and the tears seem extreme at first glance, considering how little will change on the ground on Friday. The transition agreement struck as part of Brexit means that, for the next 11 months, the U.K. will be treated as if it were still part of the EU (though Britain’s official presence in Brussels will recede). Free movement of goods, capital and labor will continue as before. Talks on a new free trade agreement will likely be tough, but the reality of geography and the intertwined nature of the U.K. and EU economies means there will be an incentive to keep a close relationship.And while the Brexiteers champion “Global Britain” as a free-market counterweight to a protectionist EU, we have yet to see a real divide on trade and geopolitics. On cybersecurity risks from China, both the U.K. and the EU have resisted pressure from Donald Trump to ban Huawei Technologies Co. from their fifth-generation mobile networks, while also refusing to give Beijing’s market power a free pass. When it comes to taxing technology companies like Facebook Inc. or Amazon.com Inc., the U.K. has found itself on the same side of the argument as France and Italy, proposing a national levy on digital services that has enraged Trump. And on Iran, the U.K. has broadly stood by France and Germany on the nuclear deal.This entente won’t last long, however. Both the U.K. and the EU are trying to carve out a place for themselves on a world stage that’s dominated by the U.S. and China. The Brits aspire to retreat from the world’s biggest single market in favor of a soft-power, light-touch island economy — experts have imagined Singapore-on-Thames, the Canada of Europe, or “Belgium with nukes.” The EU is going in the opposite direction, one that brings to mind its history during the Cold War. When the U.K. joined the EU’s precursor organization in 1973, along with Ireland and Denmark, continental powers like France saw it as a trade-off: Europe would mechanically become more Atlantic and more economically liberal, but it would also grow in stature and find its own voice as a world power between the U.S. and the USSR. Today, as the U.K. leaves, the trade-off has been reversed: The EU is mulling a less Atlantic, less liberal, but more integrated bloc that would respond to citizens’ concerns and counterbalance the likes of Trump and China.Brexit is therefore likely to be seen as an opportunity for closer EU integration, seen as  key to achieving both geopolitical and technological sovereignty. A more concentrated bloc is precisely what the Brits fought hard to prevent: Closer euro-zone integration, for example, was one catalyst behind the U.K.’s departure. While the Germans will mourn the departure of a pro-market, economically liberal voice, the naturally dirigiste French can barely contain their glee. “The British have been a permanent pain in the backside since 1973,” former French minister Alain Lamassoure told Le Monde. “Brexit lifts a handbrake on Europe.”The next 11 months will be a crucial fight between these competing aspirations. The EU will seek to bind the U.K. close to its regulatory orbit to avoid it becoming a bridge-head for U.S. influence; the U.K., meanwhile, will be tempted to strike closer ties with the U.S. to offset the loss of frictionless trade with its large neighbor. So far, there is more convergence than divergence between the two sides. But Washington and Beijing aren’t sitting still. The mood could get ugly soon.