We’ve slacked off a bit in giving regular updates on Brexit. The pace of activity has slowed but events continue to break almost entirely against the UK, as we predicted. For instance, the UK had harrumphed that no how, no way was it going to pay an exit bill, and/or certainly wasn’t going to entertain that discussion unless the EU negotiated a trade deal at the same time. The EU had said from the outset that it wasn’t going to talk about trade until the Article 50 matters had been settled, and then relented a tad and said it would be willing to discuss the general outlines of new trade arrangement, but only after all the exit stuff had been pretty much settled.
The UK capitulated to the EU position on the first day of talks. The only “shape of the table” issue the UK appeared to have won was one week of negotiations per four week period. But that does not really work to the UK’s advantage. With such an insanely compressed timetable for resolving so many matters, the UK would be better served to spend more time negotiating with large support team(s) deployed to investigating and resolving technical details. But the UK is so short staffed that it appears to be unable to do much if anything in parallel.
Similarly, Theresa May made a proposal on citizen’s rights that essentially reiterated an earlier position that the EU had rejected. EU leaders were minimally polite, perhaps out of surprise, when she tried re-inflating a trial balloon that had already been shot down. But in the next few days, EU leader gave more firm negative signals. From the Financial Times on June 23:
Theresa May’s “fair and serious” offer to guarantee the rights of 3m EU citizens living in Britain has been given a cool reception in Brussels, as Brexit was pushed into the margins of an EU summit.
Donald Tusk, European Council president, said the proposals were “below our expectations”, while German chancellor Angela Merkel said they were “not a breakthrough”….
Although the UK proposals are viewed by EU negotiators as the basis for a possible deal, one diplomat said: “The idea that we should be grateful she isn’t going to deport people in 2019 is a bit strange.”
An important point of difference is the EU’s demand that European citizens should be able to uphold their rights in the European Court of Justice after Brexit, a position rejected outright by Mrs May.
Jean-Claude Juncker, European Commission president, said: “I cannot see the ECJ being excluded from the settlement, but that is a matter for negotiations.”
Keep in mind that getting out from under the jurisdiction of the ECJ is seen as fundamental to Brexiteers. But the EU may actually have legal constraints as to how far it can go, even if it were to want to accommodate the UK (and there isn’t much reason to think it does). EU citizens have rights and can sue government bodies if their rights are denied. Access to ECJ courts is arguably one of their rights. EU citizens living in the UK could conceivably sue to block a Brexit deal that traded that right away.
On top of that, May’s unholy alliance with the reactionary DUP has had the perverse positive effect of putting the difficulty of squaring the circle with Ireland in focus. The short version is a Brexit is at odds with an open border between between Northern Ireland and the Republic of Ireland. And a hard border almost certainly means a resumption of the Troubles. I was on an assignment in London in 1984. When you got on a bus, the thought was always in the back of your mind that it could be bombed. The memories of the Blitz were fresh enough in the collective memory that Brits just carried on in their usual Stoic manner. I’m not sure a younger generation will stay as cool in the face of threats to safety.
And quietly, British officials are admitting that all of their glorious Brexit talk was a bunch of blarney. From the Guardian on July 3:
Government insiders report a dramatic change of mood at the Department for Exiting the European Union (DExEU) since the general election, with growing Treasury influence helping force ministers to choose between prioritising economic interests or sovereignty.
This is in stark contrast to the public position of both main political parties, first set out in the Theresa May’s Lancaster House speech in January, in which she echoed Boris Johnson’s boast that Britain can “have its cake and eat it” – enjoying full trade access without conceding over immigration, courts and payments. Labour’s Jeremy Corbyn sacked three shadow ministers on Thursday for departing from a similar position.
Yet UK civil servants are now said to be presenting ministers with a more binary choice: accept political compromises similar to aspects of the European Economic Area (EEA), or settle for a much more limited trade deal such as the recent EU-Canada free trade agreement (Ceta).
“We have a problem in that really there are only two viable options,” one official told the Guardian. “One is a high-access, low-control arrangement which looks a bit like the EEA. The other is a low-access, high-control arrangement where you eventually end up looking like Ceta – a more classic free trade agreement, if you are lucky.
Yet even the idea that the UK really has the EEA option is yet another delusion. As Simon Nixon wrote in the Wall Street Journal on June 21:
A second fantasy is that the U.K. might engineer a “soft” Brexit by joining the European Economic Area alongside Norway, Iceland and Liechtenstein. This has the superficial appeal of keeping the U.K. in the single market, but it could never work as a long-term solution. Not only would it require the U.K. to accept the free movement of people, but would also oblige the country to become a rule-taker rather than rule-maker.
That is bound to be unacceptable. Only this week, Chancellor of the Exchequer Philip Hammond accused some in the EU of advancing “protectionist agendas…disguised as arguments about regulatory competence, financial stability and supervisory oversight.” The idea that the U.K. could sit on the sidelines, as Norway must, when the EU next draws up banking rules is absurd.
But could the EEA be a short-term solution to the U.K.’s Brexit challenges, operating as a transitional arrangement while the long-term relationship is negotiated? This seems far-fetched too. The EEA doesn’t pertain to the EU customs union, all EU free-trade agreements and agriculture, so it could only be a partial solution and would mean striking many other deals. A push to join the EEA would in any case be complex to negotiate, requiring not only the consent of 27 EU members but also the three other countries in the EEA. And the EU has been clear that any transitional deal must come under the jurisdiction of the European Court of Justice—precluding one under the European Free Trade Agreement court that oversees the EEA.
The truth is there is no soft option for the U.K.: The price of a transitional deal is almost certain to be continued adherence to all EU obligations overseen by the ECJ.
Let us stress that negotiating to join the EEA would likely be nearly as difficult, if not as difficult, as negotiating the supposed end-game arrangements. How much energy are UK and European officials going to have for endless negotiations? And how much appetite will UK and European businesses have for organizing their affairs around interim legal arrangement with they expect to be revised in an uncertain number of years to some to-be-determined arrangement?
Nevertheless, more and more reality is beginning to sink in despite the ongoing cheerleading from Fleet Street’s press barons. As PlutoniumKun put it, “Looks like the British business class are finally waking up to the disaster that is a Brexit run by the Conservatives,” pointing to a new article in the Guardian, UK business leaders to call for indefinite delay in leaving single market. But even though the corporate elite finally has started to take stock of what Brexit might mean for them, their proposals are as unhinged as May’s negotiating position:
Business leaders are to demand that ministers agree an indefinite delay in Britain’s departure from the European single market and customs union to give more time for talks on a long-term trade deal.
In a dramatic escalation of the battle to soften the government’s Brexit strategy, groups representing thousands of UK employers aim to present a united front during a summit at Chevening country house hosted by the Brexit secretary, David Davis.
Do none of these executives have staffers that are capable of reading the news and briefing them adequately? How did they miss that the Article 50 process runs a hard 24 months, the clock has been ticking for a while, and the UK will crash out if it can’t come to an agreement? The only way to stop the process or extend the deadline is if all EU members agree. EU leaders have said they’d be willing to let the UK reverse itself on Brexit and terminate the process, but even if that were to happen, you can bet the Europeans would require the UK to pay a price for having the EU bail them out of the mess they created, like cancelling the reduced EU contributions that Maggie Thatcher negotiated.
Similarly, from the very outset the EU has rejected negotiating a trade deal before the exit terms have been largely settled, and even then they’ve agreed only to discuss general parameters. The very tight timetable operates strongly to the EU’s advantage. Why should they give that up just because the UK has realized it’s going to do itself great economic harm?
If the UK were to go so far as to try to propose this sort of scheme to the EU, it would only sour relations further. The EU spent considerable time developing and getting agreement on its negotiating priorities and the “shape of the table” issues. Having started negotiations, then pushing for the UK businessmen’s plan would be tantamount to reopening the shape of the table issues that had already been settled. In negotiations, one side can return to closed deal points only by offering meaningful concessions. But what the British businessmen want is entirely one-sided.
As we pointed out in 2015, the Greek government did the same sort of thing repeatedly and it poisoned relations between the two sides, leading ultimately to the Troika pulling the plug on the Greek banking system. That in turn did even more damage to the already crippled Greek economy and also led Syriza to swallow the deal on offer, including its destructive labor “reforms” and pension cuts.
And while the Europeans have been more measured than usual in trying to deflate UK wishful thinking, perhaps because they don’t want to be accused of undermining the already wobbly Theresa May, Frans Timmermans of the European Commission, who is leading negotiations for the EU member states, was unable to restrain himself. He compared the UK’s posture to that of the hapless Black Knight:
The most often cited line is “Just a flesh wound” but the later “I’m invincible” seems more apt.
And that’s before you get to the fact that May herself is committed to a hard Brexit. Richard Smith earlier flagged this section of a Politico story in June on the Queen’s Speech:
3. Trade bill
This is the clearest evidence yet that the prime minister still intends to withdraw the U.K. from the single market and customs union.
“The bill will put in place the essential and necessary legislative framework to allow the U.K. to operate its own independent trade policy upon exit from the European Union.”
This is simply not possible within the customs union.
And the Guardian article stresses that she has a good bit of political support:
But the deep and prolonged transition phase proposed by business is likely to enrage Tory eurosceptics who believe it would amount to a betrayal of referendum aims to “bring back control”. It also poses multiple practical challenges for Downing Street, not least how to allow Fox’s trade department to continue negotiating trade deals elsewhere.
A final factor is that the polls have moved against Brexit. The YouGov polls, which have proven to be the most reliable, showed a majority was opposed to Brexit shortly after Theresa May called her disastrous snap election. Even the Torygraph felt compelled to report in early July that a new poll that found that 54% would now vote for Remain. Admittedly, sentiment has bobbed around, but if more polls show that a majority favors Remain and support for Leave falls and stays below 45%, that may open up new political options. Signs that the weak pound is starting to produce inflation and the UK economy is starting to soften could increase the souring public mood and anxiety among businessmen.
It’s doubtful that any decisive measures will occur before the August holiday break in Europe. But more and more people are coming to recognize that the UK has made a big mistake and the Conservatives are managing to make a bad situation worse. Something is likely to give, but whether it improves the situation much is yet to be seen.