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February 21, 2018

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Brexit decision day

The most important political event in the EU this week is a behind-closed-doors meeting in the country house of Chequers, between Theresa May and her cabinet. We agree with the assessment by William Hague that for the participants this is 

"likely to be the most important deliberations of their political lives."

He notes that Theresa May's Brexit strategy is facing the moment of greatest danger as the Labour Party is slowly inching towards endorsement of the customs union. It seems that Jeremy Corbyn is confused on this issue. He firmly ruled out membership of the EU customs union in a TV interview a couple of weeks ago, saying that it would not be consistent with Brexit. But yesterday he made the cryptic remark that the UK will 

"have to have a customs union"

which was followed by an official denial by the Labour Party that their position had changed. We know there is a battle going on in the party. This is not quite as vicious as in the Tory party, but the Labour Party is far from united. Nevertheless, Hague is right that the Labour party is moving towards a customs-union consensus and that this position could well find a majority in the House of Commons - or, as Hague put it, it could bring the house down. This is why May is in a rather difficult position. If she accepts a customs union, she risks an open revolt against her leadership by Tory rebels. The rebels, who organised themselves in the European Research Group of the Tory party, have sent a letter to May signed by 62 backbench MPs. Nicky Morgan, the Tory chairwoman of Treasury select committee, described this as a ransom note. The letter demands that the UK adopts full regulatory autonomy and maintains the right to strike third-country trade deals, which of course would not be possible under a customs union agreement with the EU. 

If May were to kowtow to the rebels, she risks the possibility of a parliamentary vote forcing her to change the Brexit mandate. 

She will try to steer a middle course, the contours of which were outlined yesterday in a speech by Brexit secretary David Davis before business leaders in Vienna. In his speech, Davis concedes that the UK will continue to accept EU regulations, pointing out the UK was instrumental in drafting many of them. He set out a strategy that the UK intends to follow a path of mutual recognition agreements, similar to those the EU has with Switzerland, Canada, and South Korea. He did not mention a customs union - or a customs union agreement - but it is very clear that the UK government is moving away from the hard Brexit version of the ERG, which is very similar to that outlined by May herself in her Lancaster House speech last year. Boris Johnson's recent speech, while widely mocked by the Brexit opponents, was important in that it essentially backed Davis' position of Davis, which suggests to us that the cabinet may well agree a line that could hold the Tory/DUP majority together.

Lord Hague's proposal in the Telegraph is to strive for a compromise - a customs union agreement for goods only. We very much agree that this is the best way forward. It would have a majority in the House of Commons. It would be acceptable to the EU - in fact the EU would really want this. And if May can unite the cabinet behind that position, it would reduce the risk of an open rebellion. We also believe that the rebels will ultimately not push the party over the brink because of the risk of a total defeat. A new election before March 2019 would clearly put the whole Brexit project at risk, or would lead to the softest form of Brexit imaginable with a request for an extension of the Article 50 process, and a change of the mandate in favour of EEA membership, or even a second referendum.

We agree with the assessment by Martin Wolf, who takes a step back and looks at the future role of the UK. It will be to the EU very much what Canada is to the US, a middle-of-the-road democracy rather than a Mad Max dystopia, as David Davis put it in his speech. Wolf thinks the most likely outcome is a Canada-type agreement, which would leave the Irish problem unresolved. And we also agree with Wolf that something like Ceta - in contrast to a customs union - would involve real economic costs. The UK is more powerful relative to the EU than Canada is relative to the US, but the UK may find the EU an overbearing partner. 

Our other stories

We also have stories on the politics behind Wauquiez' indiscretions; on the effect of the SPD's low poll ratings on the referendum; on whether the Latvian scandal is fake news; on whether De Guindos is good for German savers; on an important court ruling in Germany on diesel cars; on the latest in the Greek Novartis scandal; and on the relationship, or lack of, between eurozone ins and outs.

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