As the critical December Brexit negotiation round gets closer, the UK side is under more and more pressure to reach closure on the three issues where the EU has said the UK needs to show sufficient progress before it will entertain discussions on “the future relationship,” most importantly, trade. And because Theresa May is in such a weak position, and the Tories are engaged in bitter infighting, far too much of what passes for the UK’s negotiating strategy is the result of who seems to have the upper hand today, as opposed to any coherent plan. In the meantime, there is more and more evidence that the UK cannot begin to cope with a hard Brexit, let along a disorderly Brexit.
For now, we’ll skip over one of the three issues, the Irish border, where neither Ireland nor the EU buy the UK’s fudge of a magical technology fix. The short update is Ireland leaked a document to force the UK’s hand, showing that Ireland and the EU were working on an “all Ireland” strategy, which would put Northern Ireland in the single market to prevent a hard border in Ireland. Earth to UK: if you don’t propose workable solutions, you give the other side the power to devise them for you.
The UK side was predictably irate, since among other problems, an “all Ireland” approach would be anathema to the Tories’ coalition partner, the DUP. But the EU kept twitting the UK about it. From Politico daily Europe newsletter:
BARNIER SPEECH: Around 300 people watched the livestream as the EU’s Brexit negotiator Michel Barnier engaged in some plain talking at the Center for European Reform Monday. Every carrot had a string attached, and the sticks were many. Full speech here…
What he said: There are currently about 100 examples of shared all-Ireland economic regulations, such as the “all-Ireland electricity market.”
What he meant: We can read English too. We have 100 reasons to believe an all-Ireland economic system is possible.
The matter that has the Government’s manhood at stake, however, is the so-called Brexit bill. The UK keeps trying to deny the EU’s position, which is that there are certain obligations that the UK has incurred that need to be settled, and that means cash settled, although clearly Brexit payments could be spread out over time and some could even be made contingent on future events. By contrast, British officials seem to believe their own PR, that the Brexit tab is raw extortion by the EU and thus any monies paid are too much. In keeping, the UK also sees the Brexit settlement as strictly haggling over a total amount, while the EU had envisioned the talks as working through the various obligations the UK has to the EU and coming up with ways to cost them out.
Yesterday, May got agreement from her ministers to make a higher offer (before she had been willing to go only as high as €20 billion) but while trying to attach strings which the EU has made clear it will not accept. From the Financial Times:
Boris Johnson, the foreign secretary, was among those at the Brexit cabinet subcommittee who said that any increased financial offer should be contingent on the EU agreeing to transition talks next month and to finalising a favourable trade deal by next year.
“It has to be something for something,” said one ally of Mr Johnson. “This can’t be unconditional money.” Mr Johnson and other ministers said at the cabinet subcommittee that Britain should have a clearer idea of the “end state” of UK-EU relations before committing more money.
This is ludicrous. The European Council, per the terms of Article 50, provides the guidelines for negotiations, which it set forth in April. That included the negotiating sequence, and in particular, that the parties had to show sufficient progress on the first phase issues before moving to the next phase. The EU does not accept the premise that the UK is making a concession by increasing its offer and therefore deserves something back. Its position is the UK has obligations it needs to settle and it needs to come up with a reasonable number, and its current €20 billion isn’t adequate.
And that’s before we get to the fact that there is absolutely no way a trade deal could be concluded in 2018. Sir Ivan Rogers has estimated it would take until early to the middle of the next decade.
The UK is also overplaying its hand on how it intends to present its offer. She wants to spring it on the EU at what amounts to the last possible moment, December 8, a Friday. Again from the pink paper:
Mrs May told colleagues she was seeking assurances from EU leaders that the move on the divorce bill would be received favourably. She wants to give the leaders just enough time to prepare a positive response at the European Council in Brussels on 14-15 December.
Help me. First, who are these “EU leaders”? May has tried divide and conquer before and it was an abject failure. Second, if the UK offer has any bells and whistles, serving it up at the last minute is not a way to win friends and influence people.
The Financial Times’ comments section, which usually has quite a few Brexit enthusiasts piping up, was in close to unified derision of this gambit. For instance:
Funny. TMay wants to play chicken with 27 EU countries (wants to wait for the last moment?).
Why can’t she and the english understand that there is no negotiations, no “give and take”. None. There is nothing to negotiate: Brexit is Brexit.
It’s all applying the EU regulations, as for all members of the Club.
And england was a member of the Club, and she accepted the Club’s regulations. Now, it’s simply a matter of closing the books, as per the Club’s regulations. Nothing to negotiate or play chicken with.
What is mesmerizing is the charade that May & Co. are deluding themselves with, all the while when they know that their positions and pronouncements are pure fantasy.
Moving on to an even more obvious bit of bluster, last week David Davis promised the City it could have not just a pony, but a stable of ponies. Again from the Financial Times:
The Brexit secretary did not disappoint. He promised the City almost everything it has asked for and more, including a commitment to seek a quick deal on a transition period by next January and to secure a “durable” co-operation agreement for the long term on financial services with the EU.
Mr Davis even threw in an extra concession — announcing plans to introduce a special travel regime for professional services employees “to ensure that our new partnership with the EU protects the mobility of workers and professionals across the continent”.
It is painful to read this. The UK is very unlikely to be given the green light to move on to negotiating new topics in December. Even if it were, there is zero reason to think a “quick deal on a transition period” is to be had. For starters, the EU and UK have seemingly irreconcilable positions on the role of the ECJ during any such period. Having the ECJ play any meaningful role in the UK is unacceptable to hard-core Brexiters, while the EU’s view is that if the UK is in the single market (which is the big objective of a transition deal) it has to accept the jurisdiction of the ECJ.
Barnier felt compelled to tell Davis he was smoking something very strong. From today’s Financial Times:
The EU has warned Britain to lower its expectations of market access for the City of London after Brexit, delivering a blow to the UK’s hopes of a trade deal that maintains current flows of capital, staff and services.
Michel Barnier, the EU’s chief negotiator, suggested that after Brexit the country would have no preferential access for financial services other than patchy “equivalence” arrangements, such as those with the US or Singapore.
“On financial services, UK voices suggest that Brexit does not mean Brexit,” he said. ”Brexit means Brexit, everywhere.” This was a veiled reference to a speech last week by David Davis, the UK’s Brexit secretary, that set out the goal of durable” co-operation with the EU to protect the City.
It is remarkable to see how often the EU has told the UK that the UK will not be allowed to cherry-pick, that any arrangement has to fit in the parameters of the pacts it has with other non-EU states, and that if it is to have access to the single market, it has to accept the so-called four freedoms. Staying in the single market is out because the UK wants to restrict immigration. Yet Davis’ City fantasy was that things would remain pretty much the way they were now.
Moreover, Barnier’s speech included this warning:
There will be no ambitious partnership without common ground in fair competition, state aid, tax dumping, food safety, social and environmental standards.
Per Politico’s translation: “If you leave the customs union and try to be an Atlantic Singapore, don’t cry if your trade deal gets vetoed.”
And while the negotiators were sending messages to each other, participants in the real economy are sounding louder alarms about the pending customs train wreck. From the Guardian (hat tip vlade):
[Leigh] Pomlett [executive director of CEVA Group] told the Freight Transport Association conference in Dublin on Monday that delays in Dover would lead to a “calamitous situation”. It is calculated that an increase of just two minutes in the average time it takes trucks to clear customs could cause 17-mile tailbacks in the port town.
He said 70% of EU trade entered Britain “on a lorry” and urged businesses to be more vocal about the potential disruption in order to force the government into action.
Meanwhile, a body set up by the Good Friday agreement to promote cross-border trade in Ireland warned that some companies in Northern Ireland could be wiped out simply by the sheer number of rules of origin certificates required for each export to the EU after Brexit.
“They are £48 a pop. We worked out the bill for one company would add on £700,000 in costs a year, its entire profit,” said Aidan Gough, strategy director of InterTrade Ireland, which is coaching businesses on Brexit survival..
Pomlett said Britain was facing an exodus of drivers, who would return to Poland and other eastern European countries because of Brexit and the perceived lack of welcome in the UK since the referendum. “We cannot recruit at the speed we are losing drivers at the moment,” he said.
And the UK is losing not just EU immigrants in important roles but also some home grown talent. Some tech industry employees are considering jumping ship to the EU. From Politico:
The country’s decision to leave the European Union has left many in the local tech community questioning the place of the U.K. — and their own — in the global digital economy. That has meant difficult, often very personal, choices about the future; decisions that will likely affect Britain’s competitive edge versus the likes of Germany and France, whose own tech sectors are eager to step out of the U.K.’s shadow.
Politico acknowledged that at this point, they had anecdotes, not data. Nevertheless:
People like James Maskell make up the core of Britain’s digital workforce…
Yet soon after the Brexit vote last year, Maskell, whose partner lives in Berlin, started interviewing for tech openings in the German capital. He finally quit his job late last year to move full-time to Germany….
When Britain voted to leave the EU, Jean Meyer, the French founder of Once, a dating app, initially welcomed the result with open arms.
As a London-based entrepreneur whose revenues are earned mostly from eurozone countries, Meyer and his 27-person team thought the falling value of the pound would boost his tech company’s sales figures…
That bullish take lasted only a few months.
By late 2016, Meyer, 35, was struggling to hire the developers, product managers and other executives he needed to keep the dating app growing across its core European markets. Fewer people were applying for the London-based positions, Meyer says. And those who did kept asking about what would happen to their jobs and potential visas amid the Brexit uncertainty. (He tried increasing his salary offers by 20 percent but still couldn’t find the right talent.)
Confronted with this dwindling talent pool, Meyer — who has also spent time working in San Francisco and New York — made an unexpected decision in July 2017: to move his entire startup to Paris. Almost half of his company is French, and Meyer says he found it easier to hire developers straight out of school in France.
The article continues with two additional vignettes of IT professionals who moved to the Continent, and one, educated in the UK who had worked in Europe, who decided to return. But even with a limited vantage, it seems that the UK’s position as the hot spot for tech professionals is slipping thanks to Brexit.
People on the ground can see that the UK is wildly unprepared for Brexit, and their efforts to avoid its damage will only hurt the economy and the country even more. Yet ministers and MPs swan about as if everything will somehow sort itself out. If you can’t short the pound, consider pitchfork futures.