Even Before Brexit Triggered, EU Again Signals It Is Not Budging on “Shape of the Table” Issue

We’ve written repeatedly that Brexit boosters and their allies in the UK media are acting as if the EU will accede to their pet wishes, for no logical reason whatsoever. The most common fantasies seem to that the UK has more bargaining leverage and that the EU needs to be nice and/or fair to the UK, when divorces rarely have those as driving considerations.

Yet more confirmation of the depth of this delusion comes in a Politico update on Brexit. Theresa May has announced that she will trigger Article 50 on March 29. Yesterday, the Financial Times described some of the key dates in the timetable. Notice how attenuated the start of the process is:

March-April 2017: EU-27 adopt guidelines
After Mrs May activates Article 50 on March 29 the EU will draw up “guidelines” on handling Britain’s withdrawal. Donald Tusk, president of the European Council of leaders, said this month that the EU could give a first response within 48 hours.

But the formal guidelines will need to be endorsed by a summit of the remaining 27 EU countries. Mr Tusk announced on Tuesday that the event would be held on April 29 — even though some countries are worried about holding a big gathering in-between the two rounds of the French election.

The guidelines — which will in part show how hard a line the EU is taking — are one of the most critical parts of the Brexit process. They are expected to specify priorities for the EU-27, principles that cannot be compromised, and the structure of the talks.

May-June 2017: EU-27 agrees negotiating directives
Once the guidelines have been decided, the EU-27 must formally nominate the European Commission as its lead negotiator and develop confidential directives giving the body a more detailed mandate. The commission will make a proposal and the EU will spend roughly four weeks discussing these terms. The mandate must then be approved by EU-27 ministers.

Negotiations cannot take place until this happens. Diplomats are pencilling in late May or early June for the start of formal face-to-face talks with the UK.

The UK is already, or one might say yet again, getting a warning of what the EU’s stance on “guidelines” or what is often referred to as “the shape of the table,” meaning negotiating parameters and process.

EU officials continued to tell the press, in this case Politico, that the UK will get no breaks in the negotiation process.

For instance, Theresa May has repeatedly acted as if Britain can ignore the EU’s demand for a squaring up of outstanding obligations, which the EU estimates could be as high as €60 billion. The UK’s House of Lords opined that the UK had no legal obligation to settle up, although they also said that if the UK wanted access to the European markets, they might need to think twice. It’s hard to imagine that anyone on the EU side of the table will be moved by a UK legal reading, particularly since the EU has the upper hand.

EU officials yet again nixed that idea, and sent another warning shot, that contrary to the UK’s repeated insistence, it will not negotiate a new trade deal in parallel with exit talks. From Politico:

EU leaders aim to use the legal requirements under Article 50 to force the U.K. to settle the most important “divorce” terms first.

“As in human relations, to get to the terms of a new relationship you have to go through an orderly divorce,” a senior EU official said. “First, it’s the money and the kids, the car and the flat.”

As we indicated from the very Brexit vote, the EU treaties do not allow for the EU to negotiate a trade pact with a member state within the EU. The country must be outside for the process to take place. That means Brexit first, any successor deal second. The Politico story gave more detail on the legal foundation:

Article 50 clearly requires that negotiators “take account of the framework” of a future relationship with the U.K. But EU officials and law experts said that the treaties also effectively block [chief Brexit negotiator Michel] Barnier from negotiating such a relationship — whether that is a free trade deal, some kind of association agreement, or something else.

To do so, Barnier must receive new negotiating directives under Article 218, which governs how accords are reached with “third countries or international organizations.”

“You cannot conclude an agreement on trade with the U.K. on the basis of Article 50 because the aim, the content, of the procedures are different,” said Jean-Claude Piris, who served as director-general of the legal service of Council of the European Union from 1988 to 2010, and worked as a legal adviser during negotiations on the Maastricht, Amsterdam, Nice and Lisbon treaties.

If the negotiators overstep their legal authority, Piris warned, the European Court of Justice could invalidate any deal they reach.

And although the EU has said it will present its official preliminary response by March 31, Politico indicated this is how the Eurocrats expect the negotiations to proceed:

On Tuesday, officials told POLITICO they expected negotiations to proceed in three stages, with the first stage beginning with setting the parameters and location of the talks, before focusing on the divorce terms.

The second stage would focus on terms of a potential transition period beyond Article 50’s two-year deadline if such a transition is needed. And the third phase, they said, would be the negotiations over a future relationship, but would begin only after Barnier requested and received a new set of directives from the European Council — “once we have clarity,” a senior EU official said.

The sources stated that everyone realizes things will go better if the talks are amicable. But with so much distance between the two sides, and the British history of demonizing the EU, it’s hard to see how that will come about.

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  1. Gman

    Given the widely accepted point that little of any substance will be discussed until after the French and German elections and the fact that the EU effectively takes the whole of August off, bless ’em, I must say I find it strange that Mrs May didn’t wait till September at least to trigger Article 50, if she should be doing so at all yet.

    1. PlutoniumKun

      Given that time is not on the UK’s side, it is reckless in the extreme for May not to have delayed until the last possible minute. She could easily have come up with reasonably convincing excuses to delay for another year or so while they sorted out their internal team and made some sort of attempt to address the Scottish/Northern Ireland issue.

      Having said that, in my opinion there is far too much attention being given to the French/German axis. The real issues will be with eastern Europe, given that all 27 members must agree. Its been reported in Irish newspapers that Irish diplomats have encountered an extremely hard line when they’ve sounded out east European countries for their views on the negotiations. There is a strong likelihood that some will take the view that nothing can be agreed unless the UK coughs up all the money they say it owes, plus more, and that this money should be used to give them rebates from their own contributions. They see this as a zero sum game, and they see themselves as having all the cards.

      1. Colonel Smithers

        Thank you, PK.

        Please have a look at the following and let us know what you think:



        There may be some truth in what the pair have to say, but Monteith is a Brexiteer and former Tory MSP and the other a New Labour neo-liberal. Neither has any insight, but both have an agenda.

        Comments from Eustache de Saint-Pierre and others are most welcome, too.

        With regard to the Brexiteers cosying up to the former colonies, I have spoken to friends and family from the former colonies. In my family’s case, it’s Mauritius, a former French and British colony. We agree with the following:


        1. vlade

          How much do the former colonies add up to in terms of spending power? Yes, India is very large, but the spending power is low, and the barriers are high.

          TBH, everyone in the commonwealth will want to export to the UK, but their markets added together won’t cover even part of the EU.

          And, importantly enough, everyone in the commonwealth will require easier access of their WORKFORCE to the UK as part of any deal they are going to strike. So bye bye Polish Plumber, hello Indian IT person (especially if it would allow Indians backdoor to the US market).

          1. fajensen

            The Brits did that number already, the polish plumbers being the last rivals just got to carry the blame for pretty much all of the popular anger and concern about the last 30 years of free commonwealth immigration into to the UK.

            1. Colonel Smithers

              I have a team of Czechs doing a super job of redecorating home at the moment. After this job, the team breaks up. Some are returning to Brno, not so much due to Brexit.

          2. Colonel Smithers

            Thank you, Vlade.

            Absolutely correct. If you have a look at the Olusoga article in the Guardian, he comes up with figures, showing that even at the height of empire, the UK traded more with Europe.

            I hope you are well. See you again soon.

        2. PlutoniumKun

          Thanks CS. I just had a quick scan of the first two articles – the first is nonsense, just wishful thinking from a Brexiteer, the second is wierdly wrongheaded.

          First off – there is zero chance of Ireland following the UK out of the EU. There is complete unanimity among the political class, across left to right, that Ireland should stay, and this is reflected in popular opinion. There are a few journalists and opinion writers who have floated ideas like joining the commonwealth instead, but they are all professional contrarians, nobody takes the arguments seriously. A few on the far left and right extremes might secretly harbour a desire for that, but they know its a vote loser so they keep their mouths shut. Irelands economy is far too dependent on external trade to even consider that level of disruption, and among the public, there is still very strong pro-EU sentiment, and that sentiment stretches across the rural/urban and left/right political divide.

          The New Stateman article seems quite wrong-headed to me – its typical of the type of writing that implies that NI politicians are mostly tribalists and that nice, right thinking people are a separate species who live in a few leafy upper class suburbs south of Belfast. The vote for Brexit in NI was largely lead by the DUP quite possibly because they were paid to do so by Arron Banks, a rich Brexit supporter. There was support for a ‘Lexit’ as it was dubbed by a small left wing group, PBP, but they lost one of their two seats in the last election, almost certainly for this reason. Quite simply, Brexit is almost universally unpopular among nationalists, moderate unionists and the young, with its support centred just in farming and urban loyalist DUP voting communities. But in the current political chaos, with the DUP and Official Unionists in internal turmoil and no London interest in sorting things out, I don’t see any sort of internal deal between nationalists and moderate Unionists to oppose NI being part of Brexit as being possible.

          It has raised the issue of a united Ireland, one reason why the current Irish government is very nervous about it. Sinn Fein are very keen on using it to push for additional cross-border structures – their great ambition is to be in government in the N.Ireland assembly and in Dublin simultaneously. There is quite possibly going to be an election within the next 12-18 months in Ireland, and on current polls, there is a strong possibility that the next government would be a Fianna Fail/Sinn Fein coalition, which would be a generally centre/centre left government with a moderately nationalist party aligned with a republican party. They would be much more aggressive in pushing for a constitutional deal where NI (and maybe even Scotland) could piggyback on Irelands EU membership to stay within – so the border would shift to the Irish Sea or even Hadrians Wall. My own feeling though is that its too late for this – there simply isn’t enough time to negotiate this before Brexit becomes complete in 2019, so if I was a betting man, I would say a hard border in Ireland is already pretty much baked in to the process.

          1. vlade

            NI is the only place where I can see the GErman re-unification comparison (mentioned in the links) as a relevant one. Of course, that implies unified Ireland, but my feel is that as the old guard is dying out, and now with Brexit, the young would see it as more and more of a valid option.. If I’m deluded PK, please tell me so :)

            1. PlutoniumKun

              I think its fair to say that the younger generation in NI are pretty agnostic on what might be termed the old tribal divisions. I think the more prosporous middle classes, including Unionists, could be persuaded to favour a united Ireland if its firmly in their interests. Its also worth noting that its widely anticipated that there will be a nationalist (i.e. catholic) majority in NI by around 2025. So there is a reasonably possibility of an overall majority favouring some sort of united Ireland in the near future.

              However, the practical implications are enormous, not least the financial burden on the Republic. NI is an economic basket case, surviving primarily on transfers from London (mainly in the form of public sector wages). In a sense, its not dissimilar to German unification, with the problem being that Ireland is no Germany, with a bottomless pit of money to throw at the problem. So it could only happen with an EU/US agreement to fund it (which is not impossible for all sorts of reasons).

              I think its entirely possible that a new constitional arrangment could come about, along the lines discussed here. But I think a lot depends on what happens in Scotland – if Scotland were to vote for independence, then all bets are off and anything could happen. But I think that the obstacles to changing NI’s constitutional position in any way are so huge that I think its unlikely to happen, too many mis-matching pieces would have to come together.

              1. Mark P.

                Scotland can have another referendum and a majority of Scots can even vote for independence.

                Firstly, though, it doesn’t have its own sovereign currency but runs on the GB sterling, so London owns its money. How did that work for Greece with the Troika? Wasn’t the currency issue the game-stopper during Alex Salmond’s run at Scottish independence the last time, in fact?

                Secondly, Scotland is also running spending deficits that the Eurozone won’t countenance and last time I looked relied on capital transfers from London/GB as a whole. That would have to change for it to join the the EU.

                Thirdly, Spain and maybe others already in the EU are likely to block a secessionist candidate like Scotland from entering the EU.

                1. Strategist

                  The Scots Nats and their think tanks eg Common Weal have answers to all three of your points. Not speaking for them, and without guarantees I have got this right, I think the answers to your points are:

                  1. This time the Scots will propose their own sovereign currency, which will be a fairly hard currency, esp. if they leave the UK debt-free and without a share of the UK national debt

                  2. No-one knows what the Scottish public spending deficit is, except that it is certainly less than the existing estimates made by the UK Govt. If Scotland crashes out of UK without taking a share of the UK national debt with it, it is in quite a good fiscal position.

                  3. Spain will have a totally different attitude to Scotland leaving UK in order to stay in the EU. They will simply say that they accept the principle that an EU region can break away from its state in order to stay in the EU, safe in the knowledge this creates no read across to Catalonia. They may try to pull this trick in order to create a mechanism to get Gibraltar.

      2. vlade

        May is in thrall to the Tory hard-liners. See the U-turn on the NI contributions.
        A relatively few Tory hardliners are going to run the UK to the ground, and then claim “EU has made us do it” (or something similar, placing all blame squarely anywhere but themselves).

        1. purplepencils

          The NI u-turn was kind of bizarre. May has been so harsh against her people — even her cabinet –, so much so that I thought the only one she’d bend backwards for is Trump. It showed that May will bend to… the Daily Mail?


    2. purplepencils

      It gets so hot in August, I’d take the whole month off too. But in all seriousness, I’m not sure there’s a point in delaying if May has her mind set on her red lines and parameters. There are 27 countries to contend with, not just France/Germany — there’ll be elections at some point somewhere. Clearing out 2 years for Brexit talks is not very feasible.

      The caveat to all that, of course, is that May may not know what she wants / how to get what she wants, and may not get that what she wants is simply delusional. Whatever little faith I had in her at the start of her premiership, which admittedly was very little, is swiftly dwindling.

    3. fajensen

      “Evil”, “Belligerent” and “Incompetent” are the main character traits that the Tory party are looking for when finding candidates.

      Anyways, it’s time to load up on some puts, “markets” are running out of flim-flam and sparkly unicorn dust.

    4. Tom

      Simply because it doesn’t make any difference. I am baffled as to why people think a deal can be negotiated between 1 party on one side and a “need to be unanimous” 27 on the other. Simply put, a deal can only be struck if the UK acquiesces to whatever debilitating drivel the EU comes up with. Given they have stated many times their parameters and desires for maintenance payments the UK cannot agree to their terms. On the reverse side the EU has precious little wiggle room as they won’t get 27 state sign-off. That leaves the option as simply one of a shit deal or no deal. At least, unlike some, May is aware of this.

  2. Tim

    The natural strategic position of the Remain camp is to make Brexit negotiations as antagonistic as possible. In reality, it doesn’t need to be. The ideal final position between the UK and the EU is to have the UK slightly worse off financially for being out of the EU.

    We are in a strange period in which the Remain camp and the Brexit camp’s (media) are running the same game. Remain want to make it antagonistic and frightening, and Brexiters want to ensure the entire break does not drift into a false exit.

    Norway’s position is a good example of the false exit. Twice they have voted to stay out of the EU, but the government has simply aligned 95% of law and agreements and simply purchased market access so that they are “EU” as most other members.

    So phrases such as…

    But with so much distance between the two sides, and the British history of demonizing the EU, it’s hard to see how that will come about.

    … are not so much about reporting the situation, as much as trying to create it.

    Donald Tusk tweeted the other day…

    Will do everything in my power to make sure that UK, EU are close friends after #Brexit and stress that EU’s door will always remain open.

  3. expat

    If Britain has unfavorable terms with the EU it is because it has never been a warm member. Britain has been willing to accept worse conditions in order to retain sovereignty or independence (e.g. the pound and Shengen). The loss of Britain certainly weakens the EU, but not dramatically, not as if France, Spain, or Germany were leaving. If fact, it could be argued that the EU will be stronger without Britain since it will be able to push ahead without “Bush’s poodles” dragging their paws of every issue.

    Britain and May have no bargaining power whatsoever. Theresa May and the Brexiteers are delusional. There is a difference between breaking down and rebuilding an inefficient system versus simply breaking shit because you are angry. Brexiteers were angry. They spat out the dummy; how long before they are screaming because they want it back?

      1. Synoia


        It’s not like the EU is much of a bastion of anything good. One could ask the Greeks, Spanish, Portuguese and Italians their opinions on that.

        They cannot leave because of the banking system software issues.

        Oh well. they can always join the Sterling Currency area /s.

        1. vlade

          EU != Euro area. TBH, no-one forced the likes of Greece and Portugal to join EUR (yes, there’s a “join EUR” clause, but no timeline on that). It was a pure matter of national prestige.

          1. jrh

            In the strictest pedantic sense of course EU != Euro. However the Euro always was a poltical project driven by the desire for ever closer union, rather than the economic mirages peddled at the time of the Euro’s inception.

            So you in reality you are talking disingenuous bollocks.

            1. Colonel Smithers

              Thank you, but methinks not. Vlade is correct.

              Evidence has emerged showing that Portugal (sort of) qualified for EMU. When Spain got wind of that, it pulled the same stunt. When Italy saw what was happening across the Med, it did likewise.

              It’s no different to the Greeks not wanting to leave the Euro as they don’t want to be lumped with Balkan neighbours.

              You may be aware of the French saying that Africa begins at the Pyrenees.

            2. PlutoniumKun

              Its not pedantic, its a simple statement of fact. The euro is part of the overall EU project as seen by the elites, but countries are free to choose if they wish to be part of it. The stupidity of the euro design has been well rehearsed on this blog many times before, but the reality is that countries were free to join or not join, independent of EU membership – in fact several countries within the eurozone are not EU members. The same does not apply for the overwhelming majority of EU membership rules.

        2. Expat

          The problems in Greece, Spain, Portugal and Italy were not caused by the Euro. They were caused by greed, corruption, and willful blindness to economic realities plus a strong dose of being buggered senseless by Goldman Sachs. There are problems with the Euro, of course, which affect each country differently but it is not all that different from the kinds of problems faced by, say, Alabama vs California with regard to the USD. The Euro is now very weak again so this not even be an issue, right?

          In any case, my argument was not that the Euro is better than the pound, but that Britain never really wanted to be in Europe since they don’t like Europe, look down on it, and think they are special. As a result they see only the bad parts. When it’s the European Air Force bombing London next time, maybe they will regret their decision. In the meantime, fuck ’em.

          1. Mael Colium

            Are you serious? The problem IS the Euro. Had monetary union not been applied across members states then very few of the economic issues facing the southern states would have eventuated. By giving up their monetary sovereignity, members have rendered their fiscal capacity incapable to manage their economies ineffectively. This was a deal cooked up between France and Germany and was lost when France ceded authority to the Ministry of Finance and shelved the Ministry of Social planning. Those dumb Frenchies though the CAP deal would protect them – cough! Germany’s industrial strength has delivered them an enormous economic advantage over agrarian members to the extent it is so lopsided that Brussels has to keep breaking their own rules to keep the project viable. These are the same rules that those criminals in the Troika smashed over the heads of the Greek people, forcing them into an austerity led depression which they will never recover from in a couple of generations, if at all.

            This myth of a United Europe is just that – a myth. Members have vastly different cultures, languages and economic capabilities. This was never the original intent. It is sheer, moon barking madness.

            Sheesh! Some people really believe in fairy tales.

  4. Foppe

    A dutch article from y’day called ‘the secret strategy for the divorce from the brits’ suggested that the ‘guidelines’ start with a reassertion of the 4 freedoms, as a prereq for access.

    Chapter 2 discusses the wish that the 3m EU citizens currently in the UK should keep their access to NHS, jobs, in exchange for the 1m expat brits (living in spain, etc.) keeping the same. Also discusses the e60B divorce bill, which is as high as it is (the Volkskrant emphasizes, presumably because its source did the same) at least partly because of the deal Cameron cut in 2014 (concerning the UKs contributions to 2014-20 EU budget). Another bone of contention apparently involves the UKs refusal to recognize the ECJ, which will either require the creation of a special ‘settlement court’ / involve the ICJ in The Hague.

    Chapter 3 asserts that ‘EU Membership should have added value’ — i.e., what you’ve been saying.

    Chapter 4 is about the principles that they feel should underwrite/inform the negotiation process, the keyword apparently being ‘loyal cooperation’

    source article: http://www.volkskrant.nl/4476851

    Also: Barnier is apparently talking about how he hopes the negotiations can be finished in 1y, so that the proposed final settlement can be ratified prior to the May 2019 EP elections.

  5. Colonel Smithers

    Thank you, Yves.

    There’s nothing to worry about. Blighty will get an even better deal out than in. BoJo said so. Also, French TV had a feature on the royal visit last Sunday night. The BBC’s Nicholas Witchell was interviewed. He said that as the French have a soft spot for the royals, the French government will give the UK a good (Brexit) deal.

    The next stops for Wills and Kate are Berlin and Warsaw. Wills will feel at home in Germany.

    1. paul

      I imagine this ‘charm offensive’ is the only fruit of the government’s forward planning.
      Someone should clue Nicholas in to the importance of sentiment,tenderness and nostalgia in trade agreements.
      A friend remembers him being driven through a BBC picket waving his credit card from behind the glass. Like our royal family, a real class act.

    2. purplepencils

      I was quite peeved that the royal family is dispatched on a charm offensive… is this really the best the government can do? Instead of figuring out what a no-deal situation looks like (was I the only one that choked over my breakfast when the papers reported that Cabinet has no idea what this would look like?), they’re spending taxpayer money on royal travels?

      I’m not denying the power of optics, or soft power. But I really don’t think a royal infusion right before triggering Art 50 is going to do anything, just as a vitamin shot before chemo isn’t going to make chemo more bearable or effective.


      1. Colonel Smithers

        Thank you.

        I don’t disagree, but one has to keep these workshy layabout immigrants off the streets.

  6. purplepencils

    As I think Yves pointed out, if the UK thinks the City can somehow force the EU’s hand on this, the UK is sorely mistaken. Goldman is already pulling people out. The banks will simply go where it is easier to do business, and make no mistake — European countries are going to make accommodations. If not for the business, then for the pleasure of diluting the City’s power. You can’t argue rationality inherent in capitalist impulses, and then pretend the banks aren’t going to be ruthlessly rational.

    Lloyd’s of London (the insurance market) apparently favours Luxembourg. I have to say, I’m pretty intrigued by what they’ll do, as it’s not a conventional insurer.

    There are already calls for the lowering of corporate taxes to preserve the City. (The shipping industry is also lobbying for lower taxes to make its flagging shipping industry (pun fully intended) more appealing.)

    1. vlade

      City has more or less given up on Brexit. It’s pretty quiet on it in the UK – because it figured it has nothing to gain by being vocal except being branded “enemies of the people”, but I believe all the major banks (and that includes the UK ones!) are already starting to execute on the move. They just can’t afford to wait. Of course, they will ask for any sweeteners, but they will still move (large chunks).

      Those who are going to pay for this are SMEs that will be hit by the border checks, tarriffs, etc. etc., which often they don’t have capacity/money to deal with.

      The Brexiters “but there will be new markets open” argument is idiotic. For that to be true, one would expect that the current UK companies would be straining at the bit to export – but there’s no evidence that says so, if anything, most of the UK companies wants to deal with domestic markets, at most EU, because it’s nice and simple. Even w/o borders red tape exporting overseas is full of all sorts of cultural and local-knowlege traps that few want to deal with.

      1. purplepencils

        Absolutely. From what I understand, mobilisation has begun. My guess is that the lobbyists will be partially successful — incentives, taxes. So the UK will retain some of it, but the key word is “some”. In a sense, it’s the worst of all possible worlds. I’m not the EU’s biggest fan, and the red tape drive me bonkers, but without the EU, what is left? The Tories continue savaging public services, hollowing out regulations that do attempt to protect privacy, health and safety, and lowering corporate taxes, while not being able to retain the (admittedly annoying) might of the City.

        I’d sure like to see what the UK is going to export… if I were May, I’d start making the country more self-sufficient, and that points towards a new manufacturing renaissance at the very least.

        But hey, WTO right?

    2. JM Chicago

      So an American company, looking to establish a foot hold in Europe, one where the regulatory environment is more suitable to their liking, would set-up shop in Paris or Brussels, or Frankfurt over London?

      And the companies in Europe would not do business with the UK firms because the new costs would be too onerous and there would not be any work-arounds?

      IMHO, Its a crap shoot, and I think that there is some real generalizations being made, far too early.

      Having lived in London for 10 years in the 1990’s, I am hardly an expert, but all these countries have worked with each other for centuries under more difficult circumstances. This isn’t occurring in a vacuum. There is tons of trade history between these countries and company subsidiaries.

      Today, I’m just not convinced that the sky will fall and the UK will be left on the outside looking in to the point that they will be worse off. Not just yet.

      1. purplepencils

        I don’t think the UK will become a business pariah. However, it will mean increased costs, and these costs will be passed on to the consumer. And yes, you’re right, companies have subsidiaries. But where a company may have found it easier to have main operations in London, with smaller offices on the Continent, they may have to make it more 50/50. The point is precisely that dilution away from the UK, and more specifically, London.

        It’s funny, because I do actually like the idea of diluting the importance of the City. But that needs to be part of the plan. Not the way May is doing it, i.e. pretending it’ll all be fine because UK.

        It’s precisely because this isn’t happening in a vacuum that it’s tough. If there’s no history, it’d likely be easier. I remember a few years back, I was speaking to an EU law expert, and he commented on exactly how painful it’s going to be on the back end repealing whatever the UK hates about EU laws. We’re talking mountains of legislation. Getting married is easy; getting divorced and sorting out the mess is tough.

        And we haven’t even gotten into the hostilities and open disdain! A friend recently told me about how a partner in a top City law firm has been saying incredibly derogatory things about Europeans in the wake of Brexit. I don’t think he’s alone; there are plenty of people here who think that way. If this is the kind of atmosphere pervading the nation — through national papers, in Cabinet — it’s going to be one hell of a job negotiating an amicable divorce.

      2. Tom

        JM, the remoaners are wishing the “outside looking in and crying” scenario will eventuate else it makes their whining seem like empty-headed chicken little talk. They need it to happen. Fact is, the world will go on and anyone who thinks the EU will go from strength to strength after this is delusional. It will eventually split.

  7. George Phillies

    The possibility that the EU-27 will have difficulties reaching agreements among themselves on advancing, prior to announcing their proposal for the shape of the table, should not be overlooked. Negotiations in which the two sides talk past each other, for example not agreeing as to which topics are under discussion, might also take place.There is a hard deadline two years out. 4-6 months at the rear for parliaments to approve–if they do–are consumed. 3 more months at the front are used above. Then there are two months of August vacation. That leaves a solid year of negotiation, in which lines of all color are already being drawn, likely in contradictory ways. A hard exit looks to be where the smart money may be.

    The UK may also ‘informally’ negotiate new trade arrangements with Canada or the US, informal meaning that the dotted line on the signature block needs to be added to the ms.

    1. purplepencils

      I’m going to guess Poland may be a problem. Warsaw has been feeling very grumpy and bitter after Tusk’s re-election! It might not be in the mood to reach a consensus and make everyone’s lives earlier. The FT reported that the Poles were hoping May would speak up, but frankly, how could she possibly. Can’t be one foot and three toes out of the door and try to shape the EU!

    2. Tom

      As I responded above, it’ll be a choice of shit deal or no deal. My money is on the latter.

  8. The Rev Kev

    My reading on this tells me that the EU wants to make an example of the UK for leaving their elite club by turning it into a worse version of Greece – pour encourager les autres! The Brits do have one hard card that they can play. What if they tell the EU that OK, you want to send us to poverty row but here is what happens next.
    As we will no longer have the money for it, we will pull the entire British army establishment out of Europe – ALL of it! Every squadie, every tank, every jet, every ship – the whole lot. It is my understanding that the Brits make up a sizable portion of NATO forces, especially that they are now being sent to the Russian front, errr, border. The EU states would have to make up this massive gap which might mean doubling or tripling the military budget for each EU country. I’m sure that they would love that idea.
    The eastern European countries want to pay hard ball with the Brits? Better make nice with Moscow then as your nice new military shield will be shredded. The Scots and the Irish want to stay in Europe? That’s OK. Their social security schemes would fall under the purvey of Brussels then. Better ask the Greeks first how that works out in practice. Goldman Sachs wants to move to Frankfurt? The Brits should offer to pay for the removalist vans then. The only worse thing that could happen to Britain leaving the EU would be for it to stay until it implodes in the not distant future. America got Trump as their elites were tone deaf to all but themselves. The unelected elites running the EU are even more delusional.

    1. paul

      NATO and the EU are seperate ‘institutions’ and if the NATO leadership (the US ,usually with a scandinivian neocon mascot) tell us to go fight somewhere, that’s what we’ll do.
      Russia is not going to invade any country and there is no reason not to play nice with them.

      1. Colonel Smithers

        Thank you, Paul, but it would be funny to watch the others, especially the snowflakes who get their knickers into a twist about Trump’s deplorables, but expect them to fight for Europe in Europe, have to pay up and march east.

      2. The Rev Kev

        What you say is true Paul about they being separate institutions but if the money is not there, the Brits cannot be expected to spend tens of billions defending the exact same countries that want to punish them so bad. I have heard the NATO is not only the armed wing of the west but also that of the EU since it is mostly the same countries involved.
        Fully agree with you about the Russians though. No way, for example, do they want to take back that failed state known as the Ukraine. They could have been our greatest allies but now they have been pushed to turn their backs on the west and form solid ties with China and Iran. That took strategic thinking on the west’s part that.

        1. a different chris

          >Fully agree with you about the Russians though.

          Me three but your taunt still stands, b/c the Elites need Russia to be some sort of bogeyman, thus they would be stuck shutting up and just taking it. Lies always eventually paint you into an uncomfortable corner.

  9. Colonel Smithers

    Thank you to Yves and the commentariat.

    The quality and breadth of commentary is superior to what one finds in the UK MSM. That is an indictment of the UK MSM and, frankly, public.

  10. Eustache de Saint Pierre

    Dear Colonel.

    I really have nothing much to add to the above which as usual PlutoniumKun has nailed. My only thought is that it is most probably a shame that there was a Brexit vote & that many very hard pressed people were forced to use it as a form of protest, which will no doubt be a fuse that they lit, which will no doubt explode for the most part, directly into their own faces.

    I do think however that the EU is heading nowhere worth the visiting of – something that appears to be a case of eventual chaos or a Federal strait-jacket, where I believe Democracy is very much under threat. I just cannot see them changing tack enough to quieten the as yet only simmering revolt against their neoliberal course. It is a kind of bubble, which the longer it is allowed to inflate, the bigger the bang & damage when it eventually blows.

    As I have said before I believe we are all heading nowhere good, but for better or worse, we in what remains of Britain, will at least have some semblance of control over how we most likely screw it up. I am not a Brexiteer by any means, but I do believe that sovereignty counts for something & I agree with Nicholas Taleb, that smaller is better in terms of self control.

    I shall hang on to my hat.

    1. Anonymous2

      The problem with the self-control argument is that it assumes that is what the UK will achieve. Much more likely – and there is already evidence of this – is that the UK becomes a vassal state of the US. At least in the EU, the UK had a major voice how matters developed, with a significant number of MEPs etc. As vassals of the US they will have no say.

      1. UserFriendly

        the UK becomes a vassal state of the US

        As opposed to the vassal free status quo?
        *cough cough* Iraq *cough cough*

      2. Mark P.

        For the UK to be a vassal state of the US, the US would have to have a coherent, competent ruling elite and state policy.

        It doesn’t. US foreign policy is driven almost entirely by corrupt military keynesianism and that’s only going to get worse in the next few years.

    2. Colonel Smithers

      Merci, Eustache. I agree.

      One of the reasons I named you was with regard to your Irish background and how you see these events panning out.

      Further to your recent visit to Dublin and remark about homelessness, I am just back from Paris. I was there a few weeks ago. It seems that in that time, not even a month, Paris has overtaken London in the number of people homeless and on the streets. London appears to have more with mental concerns.

      Needless to say, there is no mention of such problems in the French MSM. Au contraire, they are emulating their anglo-saxon brethren and masturbating over property (price increases).

    3. purplepencils

      I’m actually pretty sympathetic to the sovereignty argument — better we screw up than someone else screw us up/over. Indeed, isn’t that what Sturgeon said to Ruth Davidson?

      But imo, debates on sovereignty are ill-defined and too traditional, considering the ways in which nations are robbed of their sovereignty. It isn’t purely by being part of something like the EU. It’s by marauding MNCs that lobby our useless politicians to do that which benefits the former over the public. It’s the many ways in which powerful countries bully smaller countries into doing their bidding, even if they’re not part of a bloc. I’m not saying that it means brexiters have no right to fume over the EU’s high-handed ways. But if you must do it, let’s also have a conversation into how the electorate is deprived of any real power! Let’s talk about investor-state arbitration! Let’s talk about lobbyists! Let’s talk about big businesses, monopolies, oligopolies.

      Let’s have more frank conversations. But let’s not pretend — as many hardcore brexiters seem to — without the EU, the UK will have control. It may be mere semblance of it!

          1. Colonel Smithers

            Thank you.

            As Yves and Vlade can tell from my Linked In profile, I worked at two trade associations and on regulatory projects at two TBTFs, so was often in Brussels, but also Basel and DC.

            Brussels on a Thursday night is an interesting place. The EU institutions don’t do much on Fridays. Many MEPs etc. go to their homes overseas.

            There is a lot of letting hair down on Thursdays (and Fridays). One learns a lot when drink / entertainment paid for by someone else loosens lips (and zips). I have no doubt that certain intelligence services are observing (and following up).

      1. PlutoniumKun

        There is always I think a paradox in sovereignty in that, for small countries, there is no option but to surrender some sovereignty in order to maintain independence. If the EU (and arguably, for that matter, NATO) didn’t exist, many smaller countries would find maintaining their independence, they would simply be steamrollered one way or another by larger neighbours. One reason, for example, why the EU is so popular in Ireland is that it proved impossible to maintain a truly independent and sovereign nation when sitting right next to, and being trade dependent on, the UK.

        So an honest argument is not about ‘losing sovereignty’, its about how much you can and should give up in order to maintain local power and democracy. This of course applies at all levels, from the smallest local village community to the largest of countries.

        1. vlade

          I keep saying – there’s no such thing as sovreignty. The only sovreignty you have is what those stronger than you allow you (this goes for freedom as well).

          Whether this turns into jungle or cooperation really depends on how nice the stronger want to be, or how well the weak band together and cooperate.

        2. a different chris

          > its about how much you can and should give up in order to maintain local power and democracy

          I’m not sure the English language is up to this, as I sort of get what you are saying but you simply can’t “give up” power to “maintain” power…

          But assuming I’m following you, if you are approximately the right size and temperament and have a few sharp edges – think house cat – you can play bigger powers off each other. You don’t really “give up” anything, you “acquiesce” to whatever but always make it clear that you are not against taking a better deal elsewhere.

          The problem with not-so-jolly Old England is that they mostly did “give up”, except for (and this might save them if they also toss out May and her ilk, we can dream) the currency thing so it’s like a dog that ran away, it generally gets chained up if it comes back or gets run over by a car.

          (I had a cat that moved next door, actually not the human’s fault she disliked one of the other cats… still, it hurt!).

        3. purplepencils

          Yes, I see your point. Indeed, I personally was in the Remain camp, because for all the faults of the EU, it was worth losing that bit of control for.

          There’s also more than a kernel of truth to what vlade says below: that there is no such thing as sovereignty. I come from a region that’s been toyed with by our favourite imperial powers for more than a century now; I don’t believe much in our sovereignty.

          I think a great deal of what is happening here in the UK is post-imperial malaise — a subset of the general inability to process one’s history — , dragged on for too long. It’s proving quite impossible for many to grasp the fact that Britain is no longer the empire on which the sun does not set.

  11. DH

    After the austerity punishment that Greece et al have taken over the past few years, why would those countries acquiesce to an easy UK Brexit where UK does not pay what is perceived to be their full debts and retains lots of freedoms of movement and business? Also, why wouldn’t Germany, France, Luxembourg etc. make a play for lucrative financial center business? The British ex-pats living in Spain and Portugal will probably continue living there in the same way that Americans and Canadians live in Costa Rica etc. without being part of a “four freedoms” treaty.

    I think the EU will be asking for the full $60B to get even consideration of favorable treaty terms for anything else. After all, what is UK’s BATNA? Probably cancelling Brexit altogether which is also probably politically a non-starter, which leaves them in a weak negotiating position as their only other alternative is to exit without any agreement which would mean little hope of a favorable trade treaty post-Brexit.

    I think the austerity-hit PIIGS and the Eastern European countries are going to be major hard-line players at the table unless they are looking for a very soft alternative of no debt being paid off, in which case they themselves might look to bail.

    1. Brexit Guy

      Brexiteers boast that the EU is dependent on British contributions, yet they seem oblivious that the EU has neutralised this ploy by making any deal contingent upon immediate payment guarantees.

      There is every reason to expect that every EU state will be a hardline player. Net contributors face increased payments. Net recipicents face investment projects being shelved. Neither will be happy.

      Brexit currently isn’t much of a discussion point across Europe. About a minute of the three-hour French presidential debate was taken to discuss and laugh at it before everybody moved on.

      But this will soon change. The subject of liabilities will be difficult, but hours of negotiating progress can be undone by a single outburst by Boris Johnson. He will ensure the UK has no friends in Europe.

    2. Tom

      The UK is only in a weak negotiating position if absolutely does not want to accept the “no deal” option. If it has resigned itself to that (which is a very likely eventuality) then I fail to see the EU in a strong position or in fact any position to demand alimony.

  12. Colonel Smithers

    I would be interested in what the NC commentariat from outside the UK / EU makes of this slow motion car crash and if they see anything in common with what is going on at home, especially the USA?

    From time to time, but more so of late, my parents (migrants from Mauritius in the mid-1960s, but with some Scots and English ancestry) and I talk about how the UK has evolved in their and my lifetimes. A generation ago, one did not think that the within a generation, the UK may not exist. The cracks were always there if one cared to look, but there has been an acceleration as neo-liberalism tightened its iron grip. There is no reason why the / an imperial construct should survive forever or many centuries. In that regard, one wonders if the US imperial construct will make it past its 300th birthday or much longer than that.

  13. Susan the other

    If the 60B euros is earmarked to pay back the UK for its previous contributions (?) it will just be a paper shuffle. After the UK exits they can write up new agreements with the EU and every place else… and the thing is this: since the EU was conceived and effectuated, China happened. I can’t help but think that the UK sees a greater advantage dealing with China and South Asia outside the EU, for some obscure reason, and is planning its moves far in advance. Maybe David Cameron was just setting the stage. For instance, back in c. 2011 there was one brief news blurb that one/some of the trading desks in The City had transferred to Hong Kong; then it was said Shanghai. Then no info at all. I just don’t believe Theresa’s little act. Those guys know exactly what they are doing; but they choose to look hapless. And it never hurts to send the young royals on a PR mission.

    1. Colonel Smithers

      Thank you, Susan.

      I worked a bit on the off shore RMB activities that came to London. There is some truth in what you say, but there was no expectation or suggestion of and planning for Brexit. The UK was still in the midst of the GFC and governed by a coalition that included (neo-)Liberals opposed to a referendum.

      The relocation of trading desks to Hong Kong had more to do with new bank remuneration rules and the fact that Asia-Pacific was weathering the crisis better than Europe.

      There is one thing that sticks out in my mind and this is where I met Jo Johnson, Boris’ brother for the first time. What became TTIP was suggested and promoted as the last chance for Europe and North America to write the terms of trade in their favour before others (e.g. Asia-Pacific, BRICS et al) got organised and ensured a more balanced arrangement. It seemed as if white / European fear of others / loss of global dominance was the driver for TTIP. I did wonder whether the US / Wall Street was scaring the EU into something the EU did not understand and promoted the scam as such.

    2. Colonel Smithers

      I have friends, including one at the UK mission to the EU, and colleagues, former and current, working on Brexit. They beg to differ about Theresa’s motley crew choosing to look hapless.

    3. Anonymous2

      I think you are ascribing too much intelligence to the UK’s actions. China has been mentioned as an alternative market to the EU but there is precious little sign that China is interested in the UK. What has the UK to sell that China wants? Financial services? The Chinese plan to build up Shanghai (though their princes will of course be happy to launder money through London). Cars designed for the European market? It is a long way to ship them to China who will doubtless prefer to make their own. Weapons? Now we might be getting closer, but if the UK was to start selling weapons to China, what does Uncle Sam think of that? I cannot see it happening.

      China was mentioned as an alternative market by the Brexiteers to encourage voters to think there were easy pickings elsewhere in the world if only the UK was outside the EU: China, India and the US were mentioned in particular (other countries’ markets are too small to really count). This ignored the fact that China and India are both protectionist in reality and most unlikely to let the UK get much market share, while the US will almost certainly drive a deal (especially under Trump) which will advantage the US at the UK’s expense.

      The Brexit campaign was largely about duping the English voters into thinking the grass was greener outside the EU. I am afraid they will find it is not.

      1. a different chris

        Not totally arguing with your post but the UK is a net importer, no? Isn’t that exactly the kind of country China likes? They could completely replace the EU’s exports into Britain, apparently effortlessly if the general tone of “Britain is not an important market to the EU” that seems to underlie most of the thoughts here. Not sure I agree…where did that 2 million misbalance in immigration come from?

        1. Anonymous2

          I agree and do not doubt that the Chinese will happily sell more to the UK. The problem is more where does the UK sell to, if not the EU? I do not see China replacing the EU as a large enough buyer of UK goods. Even if they agreed to sign a ‘free-trade deal’, the Chinese can, I think, be expected to require this to allow arms exports (which the US will IMO resist) and would probably in practice not increase their imports from the UK significantly. There is a big difference between signing a deal and actually buying goods and services.

          As you say, the UK is currently a net importer. However, the UK can only be a net importer for as long as there are inflows of capital to finance the, currently very large, trade deficit. There are such inflows at present but these will not go on for ever on this scale. Sooner or later the UK has to find somewhere to earn the foreign exchange to pay for more of its imports.

          You are right that the UK is an important market for some EU countries (especially Germany and the Netherlands). The problem for the UK is that the EU buys nearly half if its exports, so its dependence on the EU is far greater than the EU’s dependence on it. The UK will have very considerable difficulty offsetting the damage to its trading abilities that would arise from leaving the single market and customs union. I would not be surprised if they finally agree to stay in the customs union for this very reason.

    4. purplepencils

      The Chinese will ensure they get a good deal. For all of Cameron’s infamous fawning, the Chinese haven’t quite forgotten the Opium Wars, nor should they. I also note that the FT recently had a piece on China wanting to be more self-reliant… so, what will UK offer China? Maybe this is the right time to wish the UK had a more robust tech or manufacturing industry. But even then.

      Also, May seems more keen on kissing Trump’s feet than engaging China… and Trump is not exactly China’s biggest fan. I don’t know.

      Finally… I am not sure they’re choosing to look hapless. May sounds like the classic micromanager who drives her employees mad and productivity down.

  14. f

    Can anyone recommend any good literature (no pamphlets masked as studies please) on deglobalization, specifically how it has happened previous times?

      1. JustAnObserver

        I’d add that the attempt to reconstitute the global order post-WW1 with the return to the gold standard (*) lead, ultimately, to the Great Depression, collapse of Weimar and … WW2.

        (*) Esp. the crazed desire to return to pre-war parities as a form of nationalist machismo.

  15. Si

    “for no logical reason whatsoever”
    Other than the fact that the UK is the second largest net payer and a net importer of EU goods.

    Please. Do a little reading before you write a pro EU fluff piece!

    1. vlade

      Please. Do a little thinking after reading from all sources before you regurgitate someone else arguments which have been debunked before.

  16. Chris

    There was an interesting snippet I also read in an old market oracle article mentioning the benefit the uk had with sterling and being able to monetise debt. This faith could be lost under brexit too pushing up interest rates cost of borrowing and inflation. Not helpful when the uk has one of the largest debt loads vs GDP.
    I still cannot see how this can turn out well for uk. There really is no bargining power.

    The question is what will happen when this becomes apparent, who will brexiteers blame….

    Is there any way to go back and say we made a mistake after an article 50, but before the deadline?

    1. Brexit Guy

      Yes, I wonder whether investors will have much of an appetite for paper yielding 1.2% from a country with a current account deficit 5% of GDP that decides it will not pay its EU liabilities. Hmm…

        1. Yves Smith Post author

          Neither Theresa May nor David Davies has made that argument, which says either it doesn’t stand to scrutiny or the “assets” are not significant relative to the amounts that UK is obligated to pay but hasn’t paid yet.

  17. RBHoughton

    Your opening paragraph says it all. Reading the UK responses to the fixed outcomes of Brexit is a voodoo experience.

    The only rationale that can explain it, to my mind, is the City intends to act as a suicide bomber.

    Is it arrogance that prevents UK business reps from speaking realistically. Have they become so inured to telling others what to do that they cannot look in the mirror any more? Are we to dance around a firm and erect structure on May Day and see what our luck brings?

  18. Mael Colium

    Given another terrorist reminder in Westminster today, I think the UK could give a rat’s tail about the EU rattling their cutlery drawer. The project is in failure and it surprises me that little mention is made of those members currently pulling out of monetary union or considering doing so in the next few months. Maybe European unity is not as solid as the goose stepping Brussels elite would like everyone to believe so a media blackout serves their agenda unless it’s in their favour.
    The doomsayers predicted immediate economic collapse if the Brexit referendum succeeded and far from that reality the UK economy has improved. Those same doomsayers told us “just wait until notice of withdrawal” , but considering Parliament has already provided May with the trigger, the markets remain calm. So now they are saying just wait ‘cos we’ll make it real tough on you and guess what? Nothing happened except the generation of a great deal of hot air from the EU bureaucrats sipping on their expensive libations and hell, even the usually truculent Prussians are keeping their traps shut.

    The only appropriate response that I can judge worthy to the latest EU threats is ….. Meh!

    1. vlade

      please provide examples of “members currently pulling out of monetary union or considering doing so in the next few months”.

      I’d really like to know, so I can short EUR, which at the moment is rallying a bit due to pro-EU candidates looking to win pretty safely both in France and Germany (as in the polls would have to be way more off than either for Trump or Brexit for LP to win + get a majority in French parliament, not to mention for AfD to get a large share of votes in Germany), and clearly no-one in the market knows about anyone “pulling out of monetary union or considering doing so in the next few months”

    2. Brexit Guy

      Which members of the Eurozone are pulling out? Could you also square the “media blackout” theory with EU institutions’ notoriety for leaks?

      Ignorant rubbish like this, which is widespread, are why I have concluded there is no option but Brexit and horrible consequences for Britain. It’s the only way to wake you people up.

      This sense of complacency and superiority is a poison running through Britain’s veins. It allows a corrupt oligarchy to take over your press without you realising. We’re British so it can’t happen here, right?

      I’m afraid it is happening. I hope the UK crashing out will be for the best, but I can’t be sure. The recovery will take years, if not decades. Best of luck, it’s your country now.

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