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How Brexit Helps a Data Deal Between U.S. and Europe

June 28, 2016, 5:00 AM UTC
Caption:BRUSSELS, BELGIUM - OCTOBER 24: European Union flags are pictured outside the European Commission building on October 24, 2014 in Brussels, Belgium. Alongside criticism from outgoing European Commission president Jose Manuel Barroso on the UK's stance on EU immigration and a plan to quit the European Court of Human Rights, the UK has now been told to pay an extra £1.7bn GBP (2.1bn EUR) towards the EU's budget because its economy has performed better than expected. (Photo by Carl Court/Getty Images)
Photograph by Carl Court — Getty Images

Britain’s stunning decision to leave Europe has created nothing but bad news including market meltdowns and political chaos. But if you’re determined to look on the bright side, here’s a small bit to cheer: Brexit will likely improve the odds for a fragile new data privacy agreement between the U.S. and the European Union.

Such an agreement is necessary for companies like Facebook (FB), which transfer consumer and employee data between from Europe to servers in the U.S. Even though such transfers have occurred for years, the legal framework that once allowed this—known as the Safe Harbor rules—dissolved last year when Europe’s top court said the rules didn’t do enough to prevent the U.S. from snooping on Europeans’ data.

Since then, Facebook and other U.S. companies have been using the legal equivalent of duct tape to avoid getting fined by European data regulators. But those temporary solutions are unlikely to hold up, which is why everyone has been crossing their fingers that negotiators will finalize a new arrangement known as the “Privacy Shield.”

And on Friday, the Privacy Shield got a big boost. News leaked out that the gnomes who negotiate these things had hashed out final rules that touched on things like an ombudsman, the surveillance power of U.S. law enforcement and the transfer of data between companies. An expected vote by representatives of EU member states in July will settle it. (Read my colleague David Meyer to get a full account).

So what does all this have to do with Brexit? The answer relates to legal challenges to the new Privacy Shield.

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According to Alan Charles Raul, a partner at the firm Sidley Austin and a former White House privacy official, any deal that emerges will quickly get dragged back before national regulators and courts. As Raul points out, the same student who knocked down the original Safe Harbor scheme (by suing Facebook), is also behind a follow-up legal challenge in Ireland over the temporary measures now in place.

But even though a new court challenge is almost inevitable, the European Court of Justice’s appetite for aggressive action may be dulled in light of recent events.

“While the impacts of Brexit on data protection, like everything else, are hard to predict, it is possible that the Court and other EU bodies may wish to avoid causing additional uncertainty by rejecting the Privacy Shield and other mechanisms that are necessary to protect international data flows,” said Raul by email.

In other words, Europe’s economy is already in a post-Brexit state of trauma, and so judges and regulators may be reluctant to exacerbate the situation with more shocks. And the failure of the Privacy Shield, and the lack of a legal framework to manage data, would likely be just such a shock since it would force many companies to face an unpleasant choice between major fines or pulling out of Europe. While firms could, in theory, store the data entirely in Europe, doing so would often prove impractical or expensive.

So one (very tiny) cheer for Brexit if it spurs Europe, the U.S. and courts to sort out the uncertainty over data.