More Brexit Delusion: May’s “Exit Tab” Surprise, Davis’ City Scheme v. More Customs Alarms, Tech Brexodus

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.

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  1. NT

    I don’t disagree with your comments but the London example is not particularly about BrExit. London has seen population grow from 9M to 10M in last ten years. House prices and rents have soared. It now 40% cheaper to live in Berlin. Its just not that attractive for IT folks to come to London now.
    Its time for other capitals to take up the startup growth. We are also seeing some companies move out of London to places like Brighton where cost of living is lower.
    Personally, as i live in London, I would welcome a stop to the growth in population. My children do not plan in live in london in the future because it is too expensive and the pay doesn’t compensate for the high cost of living.
    Ofcourse it would also be helpful to stop people buying property in London using offshore companies to try and stop the house price growth and taking other measures to reduce the house price/rent spiral.

    1. Anonymous2

      The Times of London is speculating that Merkel’s political difficulties may make the EU readier to make concessions to the UK. FWIW I suspect it is more likely to result in greater rigidity. It usually requires political strength to change course.

      1. vlade

        If Merkel/Germany is fully occupied by having to run another elections (which seems likely now, as Merkel seems to prefer that to a weak minority govt), then the entire power centre for the negotiation shifts to Paris, with some influence from Poland I suspect (outside of Germany/France, one of the most vocal parties, more so than say Dutch or Belgians who have likely more to lose). EU will now have even less time for the UK, and no reason to make concessions.

        It’s funny, how the same Times (arguably, not just them) were saying how the Germans will make the EU to get good terms to the UK, because of BMW and stuff, and when Germany ignored that, they are now saying that with Germany having to sort out itself it’s will means EU will be more lenient..

        1. Colonel Smithers

          Thank you, Anonymous and Vlade.

          One reason for the misreading of EU27 / German thinking etc. is that few, if any, British politicians, civil servants and journalists speak another language or spend much time in-country. Until the 1990s, reporters would spend years, if not decades, in country or be local, e.g. the BBC’s legendary Mark Tully in India, Guardian’s Anna Tomforde in Bonn or Times’ Anne-Elisabeth Moutet in Paris. There were also specialists, like economist Peter Jay. Now, we get “roving reporters” who know little and don’t bother learning the local language or, as with the BBC’s current America team, a group of Brits of Jewish or south Asian origin sent to annoy Trump and play up identity politics. Or, the economics editor who is a politics specialist and had to be given remedial lessons in economics over the summer / in the gardening leave before taking up his post.

          Many of the ministers and some bureaucrats who served in British governments until the 1970s had studied in France and Germany. Many had also served in the world wars. They had a completely different outlook to the people in government now.

          Speaking of diplomacy, diplomats I know reckon that the current ambassador to the EU is not up to the standard required, especially the high standard set by his predecessor.

          FWIW, my parents, dad, a former RAF officer, and mum, formerly in the City and Whitehall, reckon the rot set in when the wartime generation gave way during the reign of Thatcher and accelerated under her successors. A generation or two ago, a Cameron or Osborne might have served in the Guards for a few years and made a career in City before politics, perhaps learning something. The pair, instead, went into politics from university. We know how well that turned out.

          1. Clive

            A widespread problem unfortunately. And not just in government. In my TBTF I have to suffer (and suffering it is, although it does have to be kept in perspective, we’re not starving and homeless, having to claim social security or fight a medical insurance carrier when we’re really sick) through an endless merry-go-round of parachuted in “talent” who are plucked from wherever it was they made an exit from — presumably just before the roof fell in as a result of their last incompetent ministrations.

            Fast food restaurants, grocery supermarkets, clothing retailers, law firms, TV companies — anywhere and everywhere. All, apparently, are therefore automatically in possession of the right knowledge and skills to manage complex technical systems. Then you get former management consultancy shops’ rejects. They are the worst.

            TV reporting is dire as you say. It’s obvious the generic “journalists” have never been anywhere near the subjects they are reporting on.

            I view a lot of the U.K. government Brexit stupidity as not so much malicious intentional stupidity but more just mere stupid stupidity.

          2. visitor

            It is really odd that the much-touted “globalization” was led by a generation of managers, politicians and media-men who are so provincial, insular and ignorant of the world…

  2. gallam

    “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.”

    The Treaties that govern the exit of the UK from the EU are perfectly clear. There are no financial benefits or obligations attached to a leaving member after the date of exit. As a matter of law, the UK’s offer of financial contributions in excess of what it would normally pay up to the exit date is a concession. That is simply not in dispute.

    If the EU does not recognise its own Treaties in this matter the negotiations will fail. As each day goes by failure becomes more and more likely. As I said at the start of this mess the negotiators on both sides are pursuing their own ends, not the interests of the people they are supposed to represent. This has been a recurring theme in western politics for a very long time now and it is leading us all to disaster.

    1. Marlin

      Why are you so sure, that a disorderly brexit isn’t in the interest of continental European people? As Yves described above, business and talented people move from the UK to the Eurozone. In case of disorderly Brexit, quite a chunk of the financial sector will follow, which has a critical role in every economy. Unless it gets really really bad, less well educated people will not cross the boarder illegally from the UK to the EU, so it doesn’t create a meaningful refugee problem. The problems in Ireland can be solved over time, most likely with a unified Ireland, which can be subsidized from the EU. Initially a disorderly brexit will be bad, but over time, the UK will become more and more a peripheral country to the euro-core countries somewhat like eastern and southern European countries, which don’t compete on an equal footing for the highly mobile educated elite and the kind of economic hubs, that come along with them. I fully support the driving people behind this, e.g. Juncker, Selmeyr & co. If the UK doesn’t want a disorderly brexit, it is in their power to incentivize (I know this word isn’t beloved here, but it certainly is something that the UK gov’t gets) the EU to do something different.

      1. gallam

        You seem to be suggesting that the EU would welcome having the UK as an enemy, rather than as a friendly neighbour and trading partner. I think there are probably a few people in Brussels that share this view, as you suggest. It would be a grave mistake to make an enemy of the UK and totally contrary to the interests of the people of Europe.

        As far as solving the problems in Ireland with a united Ireland are concerned, you might like to have a quick look at the history of the conflict in Ireland. The radio program referred to above gives a flavour of the problems. In proposing a united Ireland as a solution, you make the rather large assumption that the government in Eire would actually want to try and assimilate Northern Ireland.

        1. MisterMr

          “You seem to be suggesting that the EU would welcome having the UK as an enemy, rather than as a friendly neighbour and trading partner.”

          Why would not having a trade deal make an “enemy” of the UK? So if the EU doesn’t strike a trade deal with the USA it becames an enemy of the USA?

          This is, I think, the root of the problem: for some reason you and, apparently, most of the UK assumes that the UK has the right to a post-brexit deal, and if the EU isn’t offerin one (and a good one) then it’s slighting the UK, or maybe blackmailing it to keep it in; from the point of view of the EU ”Brexit means Brexit, everywhere.” [Barnier], so basically the default option is “no deal”, and a deal only if it is advantageous to both parties, and a “no deal” is not seen as a slight to the UK.

          Hence I expect: no deal, and most of the population of the UK blaming it on the EU.

        2. Marlin

          Wrt your first point: Not just from you, but reading BTL in the Guardian or the Telegraph, I often see this nebulous statements about negative consequences, if the EU antagonises the UK. I never have seen a specific scenario, how this is supposed to play out short of sending bombers to Brussels (yes, this scenario was actually posted by pro-Brexit commenters). It might seem unfair to ask you, but not all these other people, but can you actually elaborate on what a hostile UK would actually mean for the EU, especially the original signatories of the treaty of Rome?

          Wrt your second point: If the Republic of Ireland doesn’t want to assimilate Northern Ireland, I see even less of a problem for the EU as a whole. It is recognised, that Ireland is impacted especially negative by Brexit and the negotiations of the EU with the UK need to take this special situation into account. But this doesn’t mean, that the EU has to make unreasonable concessions to the UK (as in cherry picking without paying) to accomodate Ireland. I would guess the majority of people in the Republic of Ireland accepts this and if no good solution is found, will primarily blame the UK, not the EU.

          1. Mark P.

            I often see this nebulous statements about negative consequences, if the EU antagonises the UK. I never have seen a specific scenario, how this is supposed to play out? …

            The standard techniques of covert interstate conflict — non-attributable low-grade warfare — are industrial and infrastructure sabotage (which nowadays includes cyberwar and financial attacks); release of pathogens, which means crop blights and infections of animal agricultural stock, alongside low-grade classical agents like influenza that strike human populations to lower labor efficiency and production; and the support of insurgent/oppositional/independence movements that disrupt the enemy state.

            Though cyberwar and synthetic biology provide interesting new potentials, most of this stuff isn’t novel and was used all through the Cold War, at least as far back as Operation Gladio —


            — and indeed by British intelligence operations against the Kaiser’s Germany preceding and during WWi.

            1. Yves Smith Post author

              Given that the current UK leadership can’t begin to negotiate, I doubt that they could begin to implement that sort of low-grade war. Plus most of the ideas you listed, pathogens targeting humans and crops, would blow back to the UK in time, likely a very short time.

              And the UK is the US’ security poodle, I doubt the US would tolerate the UK doing much to undermine the EU, given that we want the EU as our allies v. Russia. We have plenty of ability to discipline the UK, starting with not supplying replacement parts to all the fancy military toys we’ve sold to them.

              1. Mark P.

                Yves wrote: Given that the current UK leadership can’t begin to negotiate, I doubt that they could begin to implement that sort of low-grade war.

                Oh, granted.

                Plus most of the ideas you listed, pathogens targeting humans and crops, would blow back to the UK in time

                Trust me on this: states have done this stuff for decades. These are mild classical agents that incapacitate and dissipate without providing a target with reliable means for attribution. And without attribution, what does the target state do?

                The UK is the US’ security poodle

                And yet the UK was the first European country on board with this ….

                US anger at Britain joining Chinese-led investment bank AIIB

                US mismanagement of the Iraq occupation and then 2008 may have opened a few eyes over there. Some figures now might privately express opinions about the US not dissimilar to those that the Russians currently do e.g. as a hegemon the US is no longer fit for purpose.

                Of course on that score a country with the current Tory buffoons as a government hardly has a leg to stand on.

                1. Anonymous2

                  I am with Yves on this one I reckon. Power of course ebbs and flows but if you research the topic of Trump’s office’s ability to tell Boris Johnson which meetings he can attend as Foreign Secretary I think you will get an idea where power resides in the US /UK relationship.

              2. fajensen

                I am not convinced that the US is exactly a close friend of the EU, certainly our people are not seen as equals to Americans – unless perhaps they give up their identity and become Americans in mind and spirit (except that didn’t work out in Puerto Rico).

                I think it will never be acceptable to the US leadership if the EU gets it’s shop in order and manage to surpass the US in trade or economic performance.

                The US does not like competition one little bit especially if that competition has a different “faith” than American Corporatism. The US is not afraid to be dirty, we had the CIA running “Gladio”, wealthy Americans being permitted to fund and arm the IRA for decades – just imagine the howls og outrage and the sanctions if the tables were turned and, say, Germany were funding the Black Panthers.

                The role of the UK was indeed to be The Spoiler of The Broth (or Stainer of the Persian Rug, as it were) by, for example, advocating rapid expansion without any of the social frameworks that the 1980’s EU had.

                The bad idea of including Turkey into the EU was possibly not one of entirely European design. Of course on can never be too sure of that – there is a strong desire for value signalling in our leadership and there would be much SoMe “diversity credits” to be collected in including the historic enemy of Europe into The Club.

                Anyways, there would be no practical way that the EU could create enough jobs to include even the population growth of Turkey into the EU economy, causing the EU to fail over the usual ethnic questions, which always come up when the economy is going down for long enough.

                So, I don’t now. Maybe the US will abandon the UK for another “Spoiler of The Broth”, like Poland, perhaps. The polish are certainly coming out with a huge chip on their shoulder and an unusual confidence these days.

      2. Darn

        A united Ireland requires a referendum in both the north and south. There isn’t any prospect of winning one in the north unless 100% of nationalists and more than a few unionists decided a united Ireland was better than Brexit. But, the economic hardship Brexit will cause only underlines how much worse a united Ireland would be, including for southerners. To succeed it would need the EU to agree in advance to subsidise us, but that’d be about 1% of the EU budget, and they will not negotiate with part of a state, the same as they wouldn’t for Scotland. It’s either border posts or a UK-EU customs union.

        1. gallam

          Yes, and it’s about 300 border posts in 500 kms, a number of roving agricultural patrol units, a modest navy and control of inland waterways that is required. The smugglers in Northern Ireland are rubbing their hands with glee at the prospect of a hard Brexit.

          1. Darn

            Sure, but if ppl don’t like the increased smuggling (granted it will provide funds to dissident republican terrorists above what they already get from cigarettes and diesel), or the harm to NI as a whole from Brexit-recession and reduced trade, then they’ll hate a united Ireland even more.

            The Irish Revenue says only 8 customs checkpoints would be needed.

        2. Marlin

          Certainly the EU would welcome, if the UK would stay in the existing customs union, but for the UK, it doesn’t make any sense to stay in the customs union, unless of course the whole brexit is canceled. Staying in the customs union would make almost all the promises made by brexiteers impossible.

          This idea floated by the EU, that Northern Ireland stays in the CU and the hard border is between NI and Great Britain would make even less sense, if NI plans to be part of the UK for the long term.

          1. Anonymous2

            It is true staying in the customs union would prevent the UK negotiating separate trade agreements but I do not think that is an issue that most of the UK population mind about. The issue which got traction for the Leave campaign was freedom of movement, where obviously single market membership would prevent any UK restrictions over and above those already permitted by EU rules.

            What is open to the UK is to promise to comply with all other single market requirements on e.g. phytosanitary standards. In the context of the Irish border, that could lay the basis for a pretty relaxed border regime, though the UK would probably have to pay an annual fee.

            Personally I think the UK would be largely on a fool’s errand pursuing trade agreements with the non-EU world rather than seeking to retain its trade links with the EU. Quite apart from the transition costs of switching the economy from aiming principally to do business with other European countries to one aiming at export markets elsewhere (and probably at least 3000 miles away, so transport costs would have to be absorbed), I doubt the UK would get much joy from the large markets of the future. The US is already pretty open, will not drop non-tariff barriers, while China and India are largely protectionist cultures which will not IMO open up to UK exports even if their governments were to sign agreements (which they are not in any hurry to do).

            The point which often gets missed is that much of UK export business is now being done by multinationals who have no loyalty to the UK. They set up in the UK because it could claim to be a good place to do business inside the EU single market. Unless it provides an alternative reason to stay they will leave over time.

            There is talk of making the UK a ‘low-tax, low-regulation’ economy as an alternative strategy. What this does not mention, but should, is that it would also have to be a low-wage economy. Taxes could only be cut significantly if pensions and expenditure on the NHS was reduced. UK regulation is already pretty light in many areas so that changes there are unlikely to deliver much in the way of cost reductions.

            Much of what is going on in the UK can be explained, I believe, by the Leave leaders seeking to avoid being shown up as having made promises which in practice are undeliverable or worth very little in reality.

        3. Yves Smith Post author

          This is not about a “united Ireland” from a democratic/governance perspective. It is united only with respect to trade, which as Barnier pointed out, has 100 precedents.

          1. Darn

            If you’re responding to me, my comment was in reply to Marlin who I think did mean from a governance perspective, but I could be wrong…

      3. Duncan

        I cannot perceive of a better result, a unified Ireland, under EU control would be a present to the English. Especially if imposed by the Brexit settlement.

        A modern day anuswer to the question “who will rid me of the turbulent priest?”

        1. Mark P.

          …. a unified Ireland, under EU control would be a present to the English.

          Just to be clear for those who don’t know Northern Ireland’s financial situation, NI’s deficit is about 27 percent of its gross domestic product (GDP), which amounted to €10.8 billion that was covered by the UK before May even made her deal with the DUP.

          Putting it another way, Northern Ireland’s per capita GDP is similar to the Border region of the ROI, which is about 38 per cent lower than the ROI’s national average.

          Hence, in a united Ireland, back-of-the-envelope estimates of per capita GDP would be about 11 percent lower than Ireland’s current national average GDP. This GDP gap for a United Ireland would be similar to the gap that applied between East German per capita GDP and that of the reunified Germany. So it’s dealable with in principle.

          Except that Ireland isn’t Germany, and doesn’t have the manufacturing prowess and trade surpluses Deutschland does.

          1. Fazal Majid

            Ireland’s GDP per capita is 50% higher than Germany or the UK. They will do just fine.

            The demographics of NI have also changed, and Catholics probably outnumber Protestants by now (they were neck-to-neck in the last 2011 census).

    2. Darn

      While it is true that the EU doesn’t have a legal right to impose an exit penalty, it is also true that Article 50 will take effect automatically unless extended. “Will fail”, though? The negotiations only need fail over this if the UK refuses to relent.

    3. vlade

      If the UK believes that any amounts asked for are illegal under EU treaties, it could easily refer it to the ECJ.. That would drag for a few years, EU could hardly dispute that, and who knows what would have happened by then..

      1. Clive

        And a similarly valid approach could be made about the “we should not have to pay them anything because the EU accounts are qualified due to errors so no-one can say how much we owe anyway” argument. Ultimately, it could be used as a delaying tactic and to annoy the EU.

        I can’t make up my mind whether, if I was Prime Minister, I’d be tempted to try that strategy — just be the unpleasant relative who hangs around the house after Christmas who eventually you’ll do anything to be rid of them, but they keep finding inventive new reasons why they can’t pack their bags quite yet.

        As you say, even after a few years of it, a lot could happen…

        1. Synoia

          What’s appears clear is the EU, with its large cash demand at the start of negotiations, wants to cause hurt, and punish.

          Three choices:
          1. Agree in secret, and hope for the secret’s revelation to happen “not on my watch.”
          2. Don’t agree on the cash demand, a Broken Brexit.
          3. Agree with the cash demand, negotiate, sign and renege on the cash agreement.

          I like the explanation below, as I’ve always believed what will happen is what is the most profitable for Tories:

          1. Make the UK unattractive for “the others.”
          2. Short Sterling
          3. Buy distressed assets after the Broken Brexit
          4. Keep the UK unattractive for “the others.”

          1. Duncan

            Plus a Unified Ireland, under EU control would be a present to the English. Especially if the Tories could lay blame on the EU.

          2. Yves Smith Post author

            I don’t agree with your “wanting to hurt the UK” claim at all. It demonstrates that you have not bothered to familiarize yourself with the UK’s commitments to the EU and what is entailed in disengaging. You can’t cut cords in a deeply enmeshed relationship tidily.

          3. PlutoniumKun

            The reason the cash demand is so central to the EU’s negotiating strategy is very simple – there is zero possibility of getting any agreement past the EU Parliament or any individual government if it is accompanied by an extra requirement for members to contribute to EU coffers to make up for a UK shortfall. If the UK doesn’t pay up, then someone else has to. Its not a matter of punishing the UK, its a simply necessity for agreeing anything during or after the A.50 process.

            That such an obvious barrier to an agreement was apparently a surprise to the UK is yet another sign of their woeful incompetence.

  3. bold'un

    “For now, we’ll skip over one of the three issues, the Irish border”: here is a proposal. Establish a single market border between Scotland and England, along Hadrian’s Wall, then Scotland could stay in the single market (as they voted in the Brexit Referendum) while, politically, Ulster will look less of an exception (there are long-standing links between the DUP and Scotland). For the rest of UK businesses, including its finance sector, this would create interesting arbitrage possibilities between being based in Edinburgh and in London.
    Maybe the current Brexit schemes are too binary, in or out, when the best solution could be some sort of ‘eurofudge’!

    1. vlade

      Scotts would actually like that. But inside the UK, it would look way too much like Scots getting their own country (after all, you’d have hard border within a country..), so I doubt it would fly. It would also hamper the trade between Scotland and the England, which for better or worse is majority of the Scottish trade.

      1. bold'un

        Hamper? Trade might actually increase in both directions if there are exploitable wrinkles in the arrangements: more paperwork is sure, but that can perhaps be automated; the role of the ECJ would be more problematic.

      2. el_tel

        You know better than I, but doesn’t it also fall foul of the (supposed) rule that some sort of independent Scotland (de facto or de jure) would not be entitled to “take up” the UK’s membership of the EU and would have to apply for new membership? Or maybe I misunderstood and this “fudge” would circumvent that “rule”…..? Thoughts?

        1. vlade

          I believe that the proposed solution would be that Scotland would be still part of the UK, but the UK would be sort of one-leg in, one-leg out (i.e. Scotland/NI in, England, Wales out..).

          That would have better optics than just NI, as that would effectively split the NI into sort of Gibraltar-like entity, which DUP would not allow

          That said, I can’t see this working, as it’s still just too much trade with England, and it would be blocked by having to have a hard border within the UK..

        2. PlutoniumKun

          I think that if such a proposal was put forward (I personally think its far too late for this), it could be done on the East German precedent. East Germany became part of the EU under ‘Germany’ without ever formally requesting to join (it was probably contrary to EU treaties, but nobody was inclined to challenge it for obvious reasons). So I’d imagine a fudge could be done whereby Dublin would ‘represent’ Scotland/NI in Europe.

  4. Colonel Smithers

    Thank you, Yves.

    With regard to Politico having anecdotes, but not data. It’s the same for me.

    The brother of a friend and former colleague, an IT guy in Croydon / south London, was laid off last summer as contracts with City firms were not renewed. His three daughters attended private school and had to be withdrawn from them over the summer and state schools hurriedly found for them before the autumn term. I can imagine that scenario playing out thousands of time in London commuter region over the next few years. It happened in 2008 – 9.

    The husband of friend and a former colleague of mum, an IT guy in Amersham / Buckinghamshire, is using the drying up of contracts to tout his firm for sale and retire. He employs his wife and two daughters, one overseas. The daughters may not be taken up by a buyer. The daughter overseas is applying for German nationality.

  5. David

    Sigh. In order to have a negotiating strategy you first need a negotiating objective. The Tories seem all to have been out of the room when that part of the syllabus was being taught. Or maybe it’s simply that there is a negotiating objective after all – keep the Tory party together and find someone to blame for the crash.

    1. Colonel Smithers

      Thank you, David.

      That patsy may well be Corbyn.

      According to Canary, a left leaning website, an internal Tory poll puts Labour 12% ahead, much more than the average of 2% from the usual pollsters since the general election.

      I am hoping to dine with a friend / former colleague / Tory activist soon and will revert. He has just become head of government affairs at a well known supermarket, the one founded by the father of the Tory woman who sold three cemeteries in Westminster for 15 pence each a generation ago.

      1. el_tel

        Thanks Colonel. Might be a topic for discussion in person but I’m genuinely curious how the Tories, given their universal detestation of Corbyn, would precipitate/allow an early election that “left him to sort out BREXIT” – of course I may be wrong, but I’d have thought they want to sort this out themselves (even though it’s more likely to lead to electoral hits on them rather than Corbyn, if they created the mess). Thus I guess I’m wondering how Corbyn could be the patsy, given the current/historical desire for power among the Tories at all cost……thoughts?

        1. Colonel Smithers

          Thank you, Darn.

          Her family, unlike Goodwin, donates to the Tory coffers. Also, she can play the tribal card, too. Cross them at your peril.

          I am puzzled by that poll’s magnitude.

        2. Colonel Smithers

          Thank you.

          I return from overseas in late January and happy to meet soon after.

          I could see the government falling and Labour heading a minority / coalition government for a few years and allow a younger generation of Tories to storm back mid-decade and take the U.K. back to the EU by the end of the decade.

        3. vlade

          Because Corbyn would have only bad options if he came to power.

          If there was another GE, that would mean EU stopped any negotiations. Say he comes to power next May. that leaves him about 5-6 months to agree something to be put in from of EP – or he would be a complete deal-taker, assuming EU would actually bother to put something in front of EP.

          That means he has three options:
          – crash out with chaotic no-deal-means-no-deal Brexit
          – ask for A50 extension on the basis that the UK would adopt Norway off-the-shelf deal (18 months just maybe, maybe, could be enough) (TBH, I believe that this is about the only possible strategy left to _any_ govt that wants to implement Brexit which will not be a total catastrophe)
          – ask for A50 to be rescinded

          Any government in the power at the time of chaotic Brexit will get a lot of flak (doesn’t matter they haven’t caused it – they weren’t very visibly against either). Out of government Tories _may_ survive, if they were to very ceremoniously shoot BJ and the likes and claim “it was them, we couldn’t do anything”. Unlikely to impossible if they are in govt during a chaotic Brexit, in which case I say Tory party as we know and love it now ceases to exists (as much as I’d like that, the price is too high to pay for the country).

          For the second two options, Labour would have to throw itself at EU’s mercy, which would mean constant domestic attacks, and god forbid something went wrong. It also has the problem of counterfactuals – was a Y2K wasted, or extremely successful effort? The Brexiters would be able, in case of any problems, to claim that under a true-blue-brexit all would be better. And it would be impossible to disprove.

          That assumes that Labour would actually be willing to spend all the managerial effort that Brexit requires – because that would likely leave them little or no time to implement their agenda. Which I doubt they would be willing to drop. So you may end up with managerial mess, but for somewhat different reasons.

          Either way, right now Tory party is running a sort of extreme Russian roulette game. All the chambers are loaded, but half of the party says “my faith in Brexit is my shield, bring it on!” while the other seem to hope their skulls are thick enough to be able to stop the bullet and survive the chaos (plenty of thick skulls, I admit). Giving Corbyn a chance would deprive the faithful of the final test, true, but it would also mean that in the case the rupture of Singapore-on-Thames (TBH, London would probably love if they could get rid of all the pesky countryside, French one is better and nicer anyways) does not arrive, they haven’t given away all their wordily possessions and may still recover.

          1. el_tel

            Thanks I don’t disagree with that analysis or the colonel’s should Labour come to power.

            My point is that I’m sceptical that the Tories will allow their government to fall no matter what. Yes there are people like Ken Clarke and Anna Soubry who I think would be willing to allow it given EU negotiations mess-up, but given DUP issues etc I’m far from sure it would happen in practice.

            But as with the colonel, I’m happy to be corrected in person! :-)

            1. vlade

              I’m not saying it will happen – the faithful brigade seems to be in control right now. I’m saying it should be the rational thing for Tories to do, but hey, they don’t do rational these days.

          2. Andrew Dodds

            Agreed.. the only real choice for a Labour government would be to try and cancel A50 – perhaps with a second, reality-based referendum – on the excuse that the Conservatives had put them and the country in a terrible position.

            I do get the impression that the Brexit brigade are determined to railroad Brexit through as quickly as possible, to get it done irreversibly before people come to their senses. Any collateral damage to the economy seems a secondary consideration..

            1. Anonymous2

              Some think that damage to the economy is a key part of the whole process.

              Short sterling on the way down. Cash in profits.

              Snap up UK assets at fire sale prices. Cash in more profits later.

              1. vlade

                That is about the only rational reason I can see behind some Brexiters, and so would be really interested in knowing the positioning of the supporters of Legatum institute and the likes. Unfortunately, as usual, it’s not something the UK journalism cares about or even understands they should.

                Now, if it was Soros betting on against the pound (which still may come), I’m sure it would be across all the front pages.

                1. PlutoniumKun

                  I wonder though who would be stupid enough to be on the other side of a shorting strategy.

                  But I could certainly see a lot of investors interested in picking up investments cheap in the midst of a chaotic exit. I’m kinda surprised though that a lot of foreign property investors don’t seem to have taken the chance they had in the last year to exit (at least, I’ve not seen any sign of a sell-off).

                  I still think though that the main driver for ‘rich’ Brexiteers really is ideology. They are true libertarian believers, and like lots of libertarians they’ve never come to grips with the reality that free markets only really work within a rules based system.

                  1. vlade

                    A lot of UK businesses don’t have a choice and have to repatriate sterling. So there are always “natural” sterling buyers.

                    I don’t disagree with your other statement – but I’m sure there are vultures around. I was thinking of splitting the Tory tribe three ways, but my third part was just too morbid :)

        4. begob

          The only way I see the Tories surrendering is through a back-me-or-sack-me moment between May and Johnson. If it’s in the event of a proposed revocation of the Art.50 notice in the middle of a currency crisis, Labour should clean up, so I expect Johnson will move sooner. The exit bill is the one issue that gets people codgered up, so that must be his moment.

          Otherwise, maybe a winter emergency in the NHS – mild weather so far. Something has to blow, and spectacularly.

          BJ: “My friends, as I have discovered myself, there are no disasters, only opportunities. And, indeed, opportunities for fresh disasters.”

      2. Darn

        I’d take anything on Canary or Squawkbox with a barrel of salt, but the national polls have been badly wrong several times before, and Tory internal polling seems to have been behind their victory in 2015 by scaremongering about imminent SNP control of a minority Labour government to get English voters to vote Tory at the last minute — the public polls still predicted a hung parliament.

        And she was never stripped of her damehood unlike Fred Goodwin losing his knighthood!

    2. Carolyn


      Or maybe it’s simply that there is a negotiating objective after all – keep the Tory party together and find someone to blame for the crash.

      That ‘may’ be so but it’s not going to sit well with the people who (unnecessarily) lose their jobs is it? Yes, as a standard response to almost anything the UK has a long history of ‘blame the EU’ but… when the consequence hits the fan, that excuse will become very threadbare very quickly.

      Seriously, are we witnessing a form of mental collapse among Ministers / MPs and others that is producing a generalized incapacity to process and respond to reality? Clearly, we are not hearing Mr Barnier when he says: ‘Brexit means Brexit everywhere’ – as in, ‘no cherry-picking for you my girl’. But no, we persist in trying to ‘game’ the negotiations by ignoring the reality of the situation (and the extent of our prior commitments). Dire behaviour.

      1. Colonel Smithers

        Thank you, Carolyn.

        Plus HMG is being allowed to by a media unable or unwilling to understand the dire situation.

    3. rd

      In order to have a negotiating strategy, you also need to understand the best alternative to a negotiated agreement (BATNA). When Brexit occurs and there is no financial passport, then many of those jobs and transactions move to the continent. The EU strips Britain of much of its most profitable industry without doing anything at all simply by denying the passport for a country that is not an EU member. Britain has 65 million people, but it is not the most populated EU country and it is dwarfed by many other countries around the globe, so it is desirable as a trading partner but not as important as they might think.

      Theresa May has to get agreement of all governments of 27 countries to any agreement. That makes passing health care and tax reform in Congress look like child’s play. With only a few exceptions, it is not in the interest of those countries to make exiting EU look easy or desirable. So Britain is living in fantasyland if they think they are in the driver’s seat in these negotiations. Instead, they are likely to have to put cash on the counter to pay for obligations in exchange for future access.

  6. H. Alexander Ivey

    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

    Boy, am I missing something or is Ireland (both NI and the Republic) looking like they may end up in the position that the UK really wants – to be in the customs and market union but not in the Brussels political union?

    Ireland’s proposal seems like that, to have all of the island under the EU market but still have a NI political seat and a Repunlic political seat.

    Wow, that would be quite the joke on Westminister.

  7. Schofielf

    The Tory Government has managed to achieve the position of Donald Trump lack of credibility. As the British would say the EU is now dragging the UK government through a hedge backwards. It’s a disturbing thing to observe but totally deserved!

  8. RBHoughton

    I’m sending another donation to NC today because its the site I actually feel I understand the Brexit issues. Its a funny thing when a Pom has to go to NYC to find out about London UK news.

    1. SKM

      Another Pom(?ette) feels the same! While I discovered NC fully only recently, so while for power politics, economics, environment etc I`d been reading up the hard way for decades, Brexit completely floored me. I simply couldn`t “read” it as I/we managed immediately to “get” the implications of , for example 9/11 almost on the day it happened, brexit eluded comprehension to the point that I concluded that it wouldn`t/couldn`t happen, one way or the other, sooner or later………
      SO, without NC I`d`ve been lost. For the rest, NC has now become indispensable too, as so much is becoming too stressful and complex to analyse without relying on someone else to do the spadework (and more!). Thanks to ALL!……

  9. p

    This thread may be fading but I only just read it so I’ll toss in my comment even if no one sees it. First, total agreement to the comments saluting Yves for her writings on the Brexit insanity. I haven’t seen anything comparable in Slate, The Atlantic, etc. Second, although many commenters have pointed out the UK’s failure to have a grasp of basic negotiating and most of all a coherent set of end goals, I don’t think anyone has pointed out that one of the EU’s main goals is precisely to make this an unpleasant for the UK as possible so as to set an example for any future EU country thinking of leaving. We saw this, for example, mutatis mutandis, with the financial scourge the EU under German prompting applied to the Greek “baliout”. These people take moral hazard seriously, and given that the French and probably all the Eastern European EU countries whose citizens have been the focus of the British nativists’ ire are eager to put a hurt on the UK (plus Paris and Frankfurt are salivating over the City’s lost commerce) I don’t think there is a snowball’s chance in hell that the EU is going to accomodate the Brits in the least. THe Greeks will be smiling, too.



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