I think giving up on free trade of goods would be okay - I think mutually beneficial low tariffs could be negotiated fairly swiftly on goods.
Assuming that economy is the only thing at stake. EU could stand some damage for itself slightly by tariffs on British goods, if it means ending the Euroseptic dreams for good. UK a lot less so. Trade with Britain is about 5% of all EU (sans UK) exports, whereas exports to EU amount to 56% of British exports. Who do you think has the upper hand anyway?
I think politicians are more worried about the financial services and trading done by the City of London in the EU. European countries all want a bigger slice of that action and I suspect the EU will play hardball in the negotiations over it.
This is one of the main reasons why Brexit is inherently a bad idea. Free movement of goods aside, the cornerstones of British economy are existentially linked to the treaties with the EU. UK can not easily replace that, and EU would gladly take the financial business away from London and into Paris or Frankfurt or wherever. It's an inherent weakness that will require substantial concessions from UK.
Furthermore, once Article 50 is triggered, UK doesn't have two years to negotiate a deal on this. It has half the time, if that - the banks will start leaving well before their operations will be hampered by lack of an EU passport. If there is no deal or it doesn't come quickly enough, EU looses a powerful negotiating tool in exchange for a substantial slice of British business, which is a good enough deal in on itself. UK gets the shaft and likely knows this as well.
The problem doesn't actually end there. If UK
doesn't use the Article 50 soon, it will demonstrate that UK is not serious about leaving the EU. It will most likely keep it's already privileged position, but forget about extorting an even better deal for the next 50 years or so.
It just shows how poorly thought out the Brexitard position is. UK will come out weaker, practically regardless of what happens.
McHrozni