Never bluff the EU: if Britain talks defiance it must be deadly serious
If the European Union will not take Yes for an answer on Brexit, this country faces a traumatic decision very soon.
Should the European Council refuse to endorse talks on future ties with Britain next week in Brussels, we may indeed be forced to depart without a deal, on minimalist terms and in acrimony.
One loses count of Theresa May’s concessions, all seemingly to no avail. There comes a point in diplomacy when a sovereign nation must stick its ground. This decision cannot be put off for much longer. ‘Time decay’ is poisonous. It is working remorselessly against British economic interests.
The Bank of England’s Sam Woods warns that banks and City finance houses will activate their contingency plans and start to decamp en masse by Christmas unless they know where Brexit is heading.
RBS chairman Sir Howard Davies said American, Japanese, and Chinese banks are poised to shift operations out of London. The question is whether City losses will be in the thousands or the tens of thousands, and the timing is “very tight indeed.”
The German industry federation (BDI) said it is working on the assumption that Brexit talks will break down. Its Brexit ‘task forces’ are already taking steps to replace British subcontractors and reorganize their supply chains.
Every week that goes by in this purgatory means Britain suffers the irreversible effects of a hard Brexit, yet without any of the benefits of free agency and without being able to negotiate new trade deals. It is dragging out the ordeal. It is risks turning into the worst of all worlds: a hard Brexit by default.
The Brexit mandate imposed on EU negotiators by the EU Council is legally dubious. Article 50 does not stipulate that all divorce issues must be settled before there can be any talk about trade ties. It states that the EU should work out the arrangements for withdrawal while “taking account of the framework for its future relationship with the Union.”
Britain has gone along with the EU’s sequencing framework nevertheless. It has done so even though the three chapters on Ireland, citizens’ rights, and the alimony bill cannot logically be separated from longer-term trading and security links.
Theresa May has largely signed off on citizen’s rights. It is fudge, of course: a legal mechanism will be found to lock in the privileges of EU nationals in Britain, with UK and EU judges working in concert. “The British have basically given in,” said Charles Grant from the Centre for European Reform.
Theresa May has largely signed off on citizen’s rights, although it is a fudge
In her Florence speech, the Prime Minister pledged to “honour commitments” made during Britain’s EU membership and to ensure that no EU state ends up worse off. The wording of that passage was negotiated in advance with Brussels, effectively drafted by the Michel Barnier’s negotiating team at the Commission.
At a meeting of EU ambassadors last Friday, Mr Barnier recommended that EU leaders accept Britain’s overtures and launch talks on the future relationship at their October summit. This was vetoed by Germany and France. “The Germans are blocking everything until they are offered more money. But they had better be careful because if this leads to the downfall of Theresa May, they will come to rue the consequences,” said Mr Grant.
Britain faces a corrosive state of affairs. The EU powers are “shaking the tree”, delaying real talks even as they compete in trying to carve off hunks of the British carcass for their economies. Former Foreign Secretary Lord Owen says the time has come for a “unilateral declaration” stating how the country will proceed.
Brinkmanship is a part of every EU summit. Germany and France may be playing a tactical game to wring out a few more concessions. By the same taken, the British government is hoping to concentrate the mind by floating contingency plans for a ‘no-deal’ scenario.
Brexit Seven types of Brexit, from “soft” to “hard”
1. Transitional arrangement aka “Implementation period” The UK negotiates some continuation of its EU membership on a time-limited basis. Both the UK and EU teams have now indicated openness to this idea, with details to be agreed.
More time to negotiate a better post-Brexit landscape and implement the new systems we will require
Not a Brexit solution in itself
While a temporary EU member, the UK would continue to be bound by its regulations and its financial obligations
2. Single market access aka the “Norway model” Members of the European Economic Area fully participate in the EU’s single market. More Advantages:
The EU harmonises regulations and tariffs across member states. One key benefit is that services, a dominant sector of the UK economy, can be traded more easily between all EEA members
EEA members must submit to EU regulations and contribute to the bloc’s budget, with diminished influence on setting policy
The EU is ideologically committed to preserving its “four freedoms” as indivisible – whereas the UK government wishes to restrict Freedom of Movement.
3. Restricted single market access aka the “Switzerland model” The European Free Trade Association is an alternative European trade bloc, which already has free trade agreements with the EU. Switzerland effectively enjoys single market access through a series of bilateral treaties with the EU. More Advantages:
Limited access to the single market - although Switzerland’s financial services are excluded
Greater sovereignty – major EU policy decisions are put to national referendum before being adopted
Part of the deal Switzerland made was to entirely adopt the EU’s “four freedoms” and in fact it joined the Schengen Area of free movement
Putting policy decisions to referendum on an ongoing basis could have undesirable results
4. Customs union aka the “Turkey model” Customs union members do not charge import taxes on each other’s goods and agree a common tariff on goods from states outside the union. Turkey is the only external state to be a part of the EU’s customs union. More Advantages:
Less bureaucracy when shipping goods to and from the EU than some other options
There would be no hard border between Northern Ireland and the Republic
Does not cover services
Customs union members are unable to negotiate independent trade deals
5. Comprehensive trade deal aka “the Canada model” A bespoke free trade deal akin to Canada’s recently-signed treaty with the EU. CETA is more comprehensive than a standard free trade deal, offering a certain degree of access to the single market and some harmonisation of regulation between the two partners. Advantages:
Some single market access
Freedom to seek other trade deals
Room for negotiation on which EU rules to adopt
Tremendously complex to work out – eight years after negotiations began, CETA is not ratified by national governments
Very little influence on ongoing EU policy
Likely toll on the UK’s financial sector, which the EU’s incumbent providers would want to be excluded from such a deal
6. World Trade Organisation rules aka “No deal” With no EU deal in place, the UK would Brexit as a member of the World Trade Organisation, but no longer fully subject to the treaties negotiated on its behalf by the EU. Advantages:
Greater freedom to negotiate independent trade deals, within WTO restrictions
Period of international financial limbo with no international trading status
Unprecedented legal situation, which may lead to WTO wrangles delaying even initial negotiation
Tremendously complex process involving many thousands of tariffs
Likely wholesale adoption of EU trade schedules as a basis for future trade
7. Total free trade aka “the Singapore model” With no EU deal in place, the UK reverts to WTO rules, then drops tariffs on imports completely. Advantages:
Extremely simple and unlikely to be opposed by WTO members
The UK becomes a true free trader, owing allegiance to no-one
Dropping import tariffs does not mean other countries will drop theirs against our goods
Likely decimation of UK manufacturing sector
I have no objection to such plans. What bothers me is that this is suddenly coming to the fore just days before the summit in what looks like a negotiating ploy, supposedly in order to call Europe’s bluff. This is a dangerous gamble. It is the sort of thinking that led the Syriza rebels in Greece to so gravely misjudge the Eurogroup, and why the much-bruised Yanis Varoufakis warned the Tories never to fall into the same negotiating trap.
It is an error to try play the ‘no-deal’ option as if it were a card, not least because it misreads the European landscape. Two years of ultra-easy money and fiscal loosening have together generated a boom. We are in the white heat of a cyclical expansion.
Germany has just recorded its best month of industrial growth in six years. Romania’s economic growth rate has hit a nine-year high of 6.1pc. Italy looks almost healthy again. City analysts know that the underlying pathologies of monetary union have not be cured, and that North-South divide will lead to a fresh euro crisis once the next global downturn hits. But right now the mood in EU capitals borders on hubris.
The Germans calculate that Brexit severance on WTO terms would be a manageable friction for their own companies, even though their €52bn current account surplus with the UK matches their entire surplus with the rest of the EU. This is odd in one sense, but the EU single market is so central to German strategic dominance in Europe that it has taken on a totemic, ideological significance. The BDI industrialists have bought into this Weltanschauung. They will not rescue the British.
If we are going to talk about a ‘no-deal’ rupture, we must be willing to see it through. Here we confront the Original Sin of the Brexit ‘cake and eat it’ movement: they never admitted that Brexit means blood, toil, sweat, and tears. They never told the British people that there might be a stiff price to pay for restoring the Supremacy of Parliament, or that it would be a logistical nightmare to extract ourselves after over 40 years enmeshed in the EU system.
They have no political mandate for the hairshirt sacrifices that a walk-out may entail. It is time to tell the British people immediately what those sacrifices might be. If we opt for defiance, nobody should be in any doubt about what it means