May Rebuffed in Personal Brexit Lobbying in Brussels, Yet Much of UK Press Spins Otherwise

Forgive me for being briefer than I would like but a major wrench got thrown in my schedule.

It wasn’t a hard call to say that Theresa May’s emergency visit to try to get the EU to give the UK a Brexit break was certain to fail. The EU had signaled for over a month that the UK had not made enough progress in the talks thus far for them to agree to let the negotiations move to the next phase, of considering the “future relationship,” meaning above all, trade

However, depending on which press account you believe, the meetings may have achieved the difficult task of making things worse. One of my theories of negotiation is that if two sides have no overlap in their bargaining positions, more interaction does nothing except make their interpersonal relations worse. It appear at most that May’s and David Davis’ personal lobbying at best made even clearer where the points of disagreement lie.

One critical clarification came via the Guardian: the EU member states are more united against the UK on the stumbling block issues, most important, to pretty much finish the first phase negotiations, including reaching a general understanding on the so-called Brexit bill, before moving to new topics. We took note of the accommodating position taken by the EU’s chief negotiator, Michel Barnier, and speculated that he was both representing a deal as well as representing his principals, which in the end entails trying to get your side to make concessions.

That was if anything an understatement. Barnier is seen by some EU leaders as going beyond his remit . From the Guardian:

Calls to the French president, Emmanuel Macron, and the Irish taoiseach, Leo Varadkar, along with a 90-minute dinner in Brussels with the European commission president, Jean-Claude Juncker, and his chief negotiator, Michel Barnier, failed to move the dial in the prime minister’s favour, with senior diplomats insisting the UK had not done enough.

A joint statement from Juncker and the prime minister following their dinner gave no indication of any movement in the British government’s favour, but instead included reference to the sequenced approach to the talks insisted upon by Brussels…

European leaders had overruled Barnier when he suggested opening talks on a transition phase, the source added, and member states were in no mood to offer May any succour. “The problem is not in the commission so you will not find the solution in the commission,” the source said. He added that Barnier had overstepped the mark in the eyes of some member states by suggesting some weeks ago that talks over a transition period could be doable following the Florence speech, giving Britain false hope over what was feasible.

And even though May was set to have dinner with Juncker, that was never going to make a dent. Again from the Guardian:

But earlier in the day the latest leak of a draft statement from EU leaders, to be published at a European council summit in Brussels on Friday, made clear the desire among member states to continue to take a tough line with Britain.

Following lobbying from France and Germany, it contained stronger language than a first draft leaked last week, demanding progress on all three of the opening withdrawal issues in order for trade talks to begin, and an additional mention of the need for a role for the European court of justice in protecting citizens rights.

As Politico said in May’s Brexit gambit leaves Brussels mystified:

At least there was an agreement about no leaks….

This time, the two sides issued a joint statement that twice pronounced the dinner “constructive” while also agreeing divorce talks needed to “accelerate” over the next few months.

But it was a sign of just how badly the negotiations have gone that according to officials familiar with the dinner discussion Monday night, May and her advisers sought to enlist Juncker and his top negotiator, Michel Barnier, as Britain’s new allies in Brussels…

Locked out of the Council’s discussion on Brexit on Friday and battered by political critics at home, she correctly identified that Barnier, at least, is committed to finding a solution. Officials in Brussels have repeatedly expressed sympathy for May’s political predicament but stressed they cannot break EU treaty obligations to help her.

Senior Commission and Council officials said they had nothing to add to the joint statement by May and Juncker.

One official, asked if there was any further insight into May’s goals in coming to Brussels, replied cheekily: “Nope, but it was a constructive and friendly dinner.”

The Guardian article also reports that Donald Tusk, European Council president, wanted this Friday’s statement to include text that would give Barnier permission to start talking trade in December if enough progress were made on the open issues. And while it does offer the UK a bone in terms of saying the EU will have think about “the future relationship,” it won’t be much of a think:

It is understood, however, that the EU will not present a detailed vision of the future trading relationship even then. “When it comes to the future framework there is not that much food for thought from London about what it should look like,” one senior source said. “So I would say the guidelines adopted later [in December] will be very much forthcoming when it comes to transition and very general when it comes to the future framework as there is not that much we have got from London on the UK vision.”

At this point, with the talks barely progressing, it seems optimistic to assume the EU will approve adding trade to the negotiations in December. The UK was under pressure to be within hailing distance of an agreement on the three topics at issue, movement of people, the Irish border, and the exit tab, and didn’t. Instead, it acted as if it could bully its way into changing the order of negotiations and failed. There’s not much reason to think the UK is any more prepared to come to decisions on charged issues than it was in the last two months, given the lack of any obvious resolution to the standoff between the hard and moderate Brexit camps within the Tory party.

Laura Kuenssberg of the BBC pre-punctured the Tories’ efforts to put a positive spin on the Brussels fail:

OK, in theory, if I am driving a car at four miles per hour and I speed up to eight miles per hour, technically I am accelerating.

I may still be basically crawling along. I still may be late – very, very late – for my eventual destination. But, by the very action of pressing the pedal and going faster, I am actually speeding up.

If anyone accuses me of going nowhere, or slowing down – well, look at my speedometer. I am going faster and I have evidence that you are wrong!

That is why, in the next few days, don’t be surprised if every Tory politician you see, hear, or read about is using that word (at least those loyal to the government) to claim that there is progress in the Brexit talks, just days after the chief negotiator on the EU side declared a deadlock.

With this as background, the Torygraph falls in line with stressing the “accelerate” word: Theresa May and Jean-Claude Juncker pledge to ‘accelerate’ Brexit talks – but fail to break deadlock. But the real wowser is from the supposedly more evenhanded Times: ‘EU dragging feet to squeeze bigger payment out of Britain’.

European leaders are deliberately stalling on a deal that would protect the rights of EU and British citizens after Brexit to wring further financial concessions from Theresa May, government sources claimed last night.

Statements like this seem credible in isolation…:

Privately, even some European diplomats admit that calling for the EU courts to have direct oversight of residency rights is a smokescreen. They say it is designed to ensure that the 27 member states cannot be accused of holding up the talks purely over money.

…until you remember that one of the issues on which sufficient progress needs to be made is the Irish border, and despite some bluster by the Government’s mouthpieces, the UK has put nothing credible on the table.

The article then argues that the fact that an agreement on the movement of people is “almost done” means the EU is the stumbling block. The EU’s guidelines for the talks made clear sufficient progress had to be made on all first phase issues before moving on.

And this part confirms that the Times reporters are clueless or mere scriveners for the UK side:

Second, it reflects an acceptance by the British side that it won’t make progress on Thursday unless it gets Mr Juncker and Michel Barnier, the EU’s chief negotiator, on side.

I’m afraid I must give short shrift to a new story in Prospect, Peering over the cliff-edge: why Dominic Cummings fears Brexit will fail. For state-side readers, Cumming is often called “the brains behind Brexit.” Some choice quotes from this must-read piece:

“Theresa May and David Davis have provided a case study of grotesque uselessness” in their approach to Brexit. This comment was not made to Prospect by one of the usual “Remainer” suspects, but by Dominic Cummings, the Vote Leave mastermind…

No wonder Cummings is so worried—this epochal diplomatic screw-up could quite easily happen. The government’s Repeal Bill is supposed to take all EU law into UK law, but as Daly points out, even if we’re still “fully convergent with EU law… Belgian customs officials, French financiers, Italian importers… will not recognise the UK as part of the EU trading system.” They won’t be allowed to. The Repeal Bill fills the domestic legal vacuum, but without a deal with Europe, our “current trading arrangements will fall into a void.”

Nor is the idea of falling into the arms of a newly-cosy trading relationship with America looking so convincing after the US slapped hefty tariffs on Bombardier and jeopardised jobs at the aircraft manufacturer’s plant in Northern Ireland. In truth, it was never going to work.

I really wish there was a prospect for these negotiations getting back on track. But as one of my colleagues liked to say, “Things look the darkest before they go completely black.”

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36 comments

  1. Mark P.

    Richard North at EU Referendum
    http://eureferendum.com/blogview.aspx?blogno=86638

    ‘… EU “diplomats” are widely cited, reiterating the same point we’ve been hearing endlessly from Barnier, that the UK has not made “sufficient progress” to allow the talks to move on. This, in itself, makes one wonder why the Prime Minister was deployed in Brussels. Looking at the move in chess terms, it is the equivalent of bringing the queen into play – something which one often reserves until she can have decisive effect ….

    ‘In those terms, the “queen” seems to have been played without measurable effect – which opens Mrs May up to ridicule and even humiliation if this eleventh-hour intervention is seen to have achieved nothing of consequence. And, once she has intervened, the cupboard is bare. There is nothing else to bring into play.

    ‘It is possible, though, that there might have been another agenda being worked. It might be that Mrs May is keen to face Juncker – and Michel Barnier, who was also at the dinner, alongside his opposite number, David Davis – in order to convey to them personally that there are no further concessions on offer, so there is no point manoeuvring for more.

    This would be a direct way of saying that, if agreement can’t be reached in October, then holding over to December is not going to get the “colleagues” a better deal. The message might have been “settle now” or face the prospect of the talks collapsing later ….

    Her high risk strategy could, therefore, have another objective. Her willingness to go to Brussels and put the UK case directly to Juncker might be part of the wider attempt to demonstrate that she has gone the extra mile, positioning the Commission as being responsible for the blockage. Played out to a domestic audience, this would be used to legitimise a walk-out later in the talks ….’

    Reply
    1. Yves Smith Post author

      What the UK seems to refuse to accept is the EU does not care if the talks fail (well some countries do but not enough to change the dynamic). They have already psychologically recognized the losses and are focusing on what if any recovery they can make from there. They also have repeatedly said their job is not to rescue May and the Tories from their political problems.

      Reply
      1. Anonymous2

        Yes. Thank you again for more insightful comment.

        I am no game theory expert but believe it is recognised that the most difficult negotiations are when it is a lose/lose scenario. The pressure is on to make sure as much as possible of the loss is taken by the other side. People mind much more about losses incurred than about potential gains foregone.

        In the case of Brexit the situation is made worse because a substantial segment of the British population have been led to believe that they will be better, not worse, off as a result of Brexit. Those who seeks to disabuse them are given a hostile reception. Sooner or later they will be disabused, at which point trust in the political class, already low, will fall further. I think the responsibility ultimately lies with May but suspect she fears she will be attacked if she is honest with the people.

        At present my impression is that the government is largely paralysed, trapped between the Hard Brexiteers and reality.

        It is hard to see where the bottom is, but I fear it is a long way down.

        Reply
        1. PlutoniumKun

          Negotiations are always going to go particularly bad when one party is deluded as to the strength of their negotiating position. I’ve noticed that Brexiteers have gone a little quiet lately on the ‘German industry will make Merkel do a deal’ line. I think the reality is slowly setting in that the Germans have already discounted their losses. They have moved on, and the influence of BMW, Siemens etc., on the negotiations will be only at the margin. The Danes and Dutch have been signalling their unhappiness too, but their leverage in the EU is minimal.

          Unfortunately, I think the next move for the UK government is to start waving the flag and overtly putting blame on the EU, preparing the pitch for a theatrical walkout to the sound of Rule Britannia. The EU and individual governments will not be bothered by this in the slightest, but it will sour things deeply and make a chaotic exit all the more likely.

          Reply
          1. Colonel Smithers

            Thank you, PK.

            At a town hall at our TBTF’s NYC branch last week, the CEO said that the group is working on hard Brexit. We are getting ready to switch on soon after new year, but can switch on now.

            The government is mulling commissioning a new royal yacht Britannia, useful to intimidate Johnny foreigners at trade talks according to some accounts. It has not been said how the floating gin palace will be paid for and where it will be built.

            Reply
            1. PlutoniumKun

              You’d imagine they could use one of those aircraftless aircraft carriers the Royal Navy have built. The flight decks would be perfect for garden parties. All you’d need is cover them with astroturf.

              Reply
      2. vlade

        Well, it would be interesting if May did walk out on Friday, and EU turned around and said “fine, we’re agreeing there’s not going to be a deal so the drop out date is going to be (say) Jan 1 2018, sign on the dotted line please”.

        Reply
        1. PlutoniumKun

          One issue thats not been discussed much – but I would be surprised if it hasn’t been whispered into various European politicians ears – is that while negotiations are going on, nobody can advocate an overtly mercantilist approach to British industry and financial services.

          But if negotiations come to a formal halt, with an exit date, then the gloves would come off in the fight to attract relocations from the UK. A lot of EU countries will see a carplant or two as a rightful ‘compensation’ for the damage caused by Brexit.

          Reply
          1. vlade

            Basically, if the above would happen, the next day pound would crash in double digits. Anywhere up to 50% (yes, it could be that bad, given the external account, uncertainty and all of that). You’d see business going out and saying “ok, so we’re out”, very explicitly.

            It would be the Brexit come early, really (and I suspect for some pundits Xmas come early – but if it did happen now, it would mean Xmas for a lot of UK families would get cancelled).

            Reply
            1. begob

              Seem like a currency crisis is the only way to bring things to a head in Britain. I guess that results in an emergency hike in the base rate, which transmits itself through the mortgage market. We’re drifting toward the waterfall.

              If May did travel to dinner to give herself propaganda cover, that suggests the negotiations are over, and it’s only a matter of time before the rot spreads from the head to the body, even without a formal declaration. In the Westminster Bridge attack she was caught on camera in a panic as she fled to her car – that may be uncharitable, but the impression of her signing off on the Art.50 notice without satisfying herself on its revocability confirms her cluelessness. An unhedged bet. Or maybe she had ironclad advice leaving that option open – a former AG provided something similar before the Iraq invasion (with some nudging). Who knows? Maybe she’s dreaming of a summit of the 3Ms – Merkel, Macron, May.

              We’ll be lucky to escape without violence.

              Reply
              1. vlade

                See, that’s the rock and hard place BoE is in. If they rise to stem currency crisis (and they would have to rise substantially, if they wanted to make an impact – we’re not talking quarter a point here or there), they kill not just UK companies (they don’t actually borrow that much – not that they wouldn’t want, but the banks aren’t lending), but basically the consumers (how do I hate this word..), as you’d have a recession and a hike in debt costs, so an impaired ability to pay and having to pay more.

                TBH, I suspect that unless pound would really rout (and I’m talking here 25%+ on the day, possibly even more), BoE would sit pat given the above.

                Only if the rout would add a substantial likely medium/long term volatility to the currency, would I expect BoE to intervene, because that would impact external investors (that UK would still need to maintain some current account semblance).

                The main short term impact of sterling rout would be political – both domestic and world. Worl wide, UK would likely lose all pretence (not that it has to anyone who matters, but even more so). Domestically, all bets are off.

                Economic impact of the rout could possibly be actually slightly positive on a very short term basis (6m), although my understanding now is a lot of UK companies are less hedged that they were before Brexit, as they don’t expect much moves between now next summer (that is NOT hard data, take at your own risk).

                Long term effect would be negative, as UK is net importer, and majority of its current exports, even if asumed to entirely unimpacted by Brexit (hahaha) are actually not that price sensitive (I wish most brexiters even understood what it means.. ), and where they are, they often have substantial non-sterling inputs (so all in all, little impact on the overall trade).

                In other words, even if BoE wouldn’t raise rates, sterling crash would make majority of the British worse off, possibly very much so.

                Reply
                1. PlutoniumKun

                  Thanks for this – its perhaps a topic for another day, but I’ve been wondering what the likely sequence of economic events would be if it became apparent that no agreement would take place. I would guess a rapid drop in sterling would be most likely but I wonder where the floor would be. I can’t see that the Bank has any scope for major interest rises, there is far too much debt in the system. And the stickiness of wages means that even a short term inflationary blip will result in a very significant drop in real incomes.

                  Reply
                  1. vlade

                    I see BoE going in only if there was a substantial risk of what Fazal Majid describes, i.e. buyers strike on pound debt.

                    The drop in real incomes would come thoug even w/o that, both via drop in employment, and via increased import costs (which I believe is what you’re talking about).

                    As I wrote, the UK needs to import – both to live and to work. I believe there’s only a few countries in the world that would be workable autarkies, and the UK isn’t one of them. Brexiters live in the 19th century world, where the imperium took care of that, but today’s world doesn’t work like that.

                    Reply
                2. Fazal Majid

                  The UK still enjoys the ability to issue its debt in its own currency. That would go out of the window and gilts would need to be issued in dollars or euros to get any takers.

                  Reply
  2. Bennie

    Yves I do appreciate your Brexit coverage. Very rare to find an American (or even a Brit) this well-informed on the issues. Thank you.

    Reply
  3. Foppe

    Meanwhile: http://www.telegraph.co.uk/business/2017/10/15/britains-missing-billions-revised-figures-reveal-uk-490bn-poorer/

    Global banks and international bond strategists have been left stunned by revised ONS figures showing that Britain is £490bn poorer than had been ­assumed and no longer has any reserve of net foreign assets, depriving the country of its safety margin as Brexit talks reach a crucial juncture.

    A massive write-down in the UK balance of payments data shows that Britain’s stock of wealth – the net international investment position – has collapsed from a surplus of £469bn to a net deficit of £22bn. This transforms the outlook for sterling and the gilts markets.

    “Half a trillion pounds has gone missing. This is equivalent to 25pc of GDP,” said Mark Capleton, UK rates strategist at Bank of America.

    Making matters worse, foreign ­direct investment (FDI) by companies is plummeting. [from +120B to -25B]

    Reply
    1. PlutoniumKun

      I’m still trying to get my head around this, its an astonishing admission. I wonder to what extent Mr. Market will see this as a technical accounting matter, or whether it will have serious real world economic impacts.

      Reply
      1. Frenchguy

        This is largely meaningless. These estimates are extremely imprecise, they should be viewed as informed guesses, at best. And even tiny movements in assets prices/exchange rates can dramatically change the picture. No one would trade/act/make policy based on that.

        On the other hand, if you want to worry:

        London house prices are falling at their fastest pace since the financial crisis, confirming the British capital as the worst-performing part of a slowing market.

        https://www.bloomberg.com/news/articles/2017-10-15/london-house-prices-fall-at-fastest-pace-since-financial-crisis

        Reply
        1. Colonel Smithers

          Merci.

          A French oligarch spent EUR50m on three properties in central London in 2015. The family won’t be happy.

          Reply
          1. Colonel Smithers

            Thank you.

            That is certainly the case in Buckinghamshire. Two golf courses near Aylesbury were bought by Chinese investors for conversion into gated communities, for Chinese residents, but the land is overgrown and demolition postponed.

            Reply
            1. Synoia

              Two golf courses near Aylesbury…overgrown and demolition postponed.

              Check with the local councils on development process. This is typical of “yet to be approved” developments.

              And don’t forget the 1948 Town and Country act’s power.

              Reply
              1. Colonel Smithers

                Thank you.

                The proposals have been approved.

                The local council tipped off London estate agents and sought foreign investors. Mid-Bucks is hollowing out. The area is kept going by commuters. The local authorities have been touting for punters from Asia for years.

                Reply
                1. PlutoniumKun

                  I’ve a few Chinese friends with various fingers in property investments and I’ve been trying to find out what the consensus is with them about Britain. Most are pretty contemptuous of Brexit – they think its idiotic for any country to opt out of the EU and still expect to be taken seriously. But I’ve not seen any evidence that small Chinese investors are worried enough to cash in on their London properties (I’ve actually told more than one to sell). I do wonder if the relative drop of London prices relative to the rest of England is an indication that Chinese and other foreign buyers are holding back. Of course, Chinese govt restrictions on currency flows are also having a big impact.

                  I don’t know if its relevant to your local golf courses, but one thing I’ve noticed is that the Chinese focus strongly on capital values and often have little interest in managing their property for income (I’m talking here about small investors, not professionals). I think the peculiarities of the Chinese domestic market encourages them to think this way. So it wouldn’t surprise me if Chinese purchasers just decided they couldn’t be bothered running the golf courses while waiting for investors for the houses, if thats their intention. They may not be aware that planning permissions and permitted uses only last 5 years as a default. If they wait too long they may find that they only own overpriced scrubby farmland with no permissions.

                  Reply
          2. ChrisPacific

            Price increases have also stalled in the bubbly Auckland (New Zealand) property market in the last couple of months. Stricter capital controls introduced by China in August are suspected as a possible cause.

            Reply
    1. Colonel Smithers

      Thank you, Nick.

      I hope you are short Sterling like many of the investment firms backing, cheerleading and advising on Brexit. They may be celebrating Xmas by the end of this month and cancelling ours.

      Reply
  4. Meher Baba

    re Barnier overstepping his remit. It could be classic Sun Tzu strategy in EU favour. Him being ‘ made’ to look like the scapegoat for a higher end

    Reply
  5. JustAnObserver

    Just a small update on the ultimate cause of all this appalling omnishambles:

    https://www.theguardian.com/politics/2017/oct/09/david-cameron-takes-job-with-us-electronic-payments-firm-first-data

    According to the company:

    In a press release, First Data described Cameron as one of the “most prominent global influencers of the early 21st century” and said he would help “expand the company’s footprint in new and existing markets”.

    So there we have it.

    Reply
    1. vlade

      Well, we can’t really deny that Cameron influenced the UK, and EU (less so, but still enough to go into history books) in the early 21st century beyond anyone’s expectations, more the pity.

      Reply

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