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October 04, 2016

US breaks off peace talks with Russia

The deterioration in relations between the US and Russia is serious. On Monday Russia cancelled the agreement struck between Vladimir Putin and Bill Clinton in 2000 to reduce the amount of plutonium to be used for nuclear weapons. The decree, issued by Putin, said Russia will follow it but will no longer subject itself to international monitoring. This is a big deal - one of the few areas of US/Russian co-operation that was left. 

Yesterday, the US hit back by suspending talks with the Russians on a ceasefire agreement in Syria. As the New York Times  reports the US also shelved plans for joint US-Russian operations to target jihadists in Syria. Both sides accused each other of failing to stick to previous commitments. 

We are not following every twist and turn of US/Russian relations in general and the war in Syria in particular, but this is a serious development with important repercussions for the EU. The tension will make an EU-Russian economic detente much harder to achieve. And the continuation of the war in Syria, without hopes for a ceasefire, will drive more refugees towards Turkey and into the EU. 

The FT notes that the talks with the Russians on a ceasefire had been the Obama administration's last attempt to restart the peace process in its remaining months in office.

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October 04, 2016

Shocked, shocked about Brexit

We still get the sense that some of the critics of Theresa May's EU exit course are in campaign mode. They will eventually have to decide between three courses of action: make constructive proposals, starting from the premise of the referendum result; wait for inevitable accidents on the road to allow them an I-told-you-so moment; or seriously try to derail the entire process by all means possible. We consider the latter course to be the biggest waste of time of the young 21st century, and worse: a disaster for every pro-European because it minimises their influence on the debate.

Theresa May has now outlined her priorities clearly. There were still attempts in the media to reinterpret her pledge about what "access" to the single market means. But there can be no doubt. It means an external trade agreement. Membership of the single market - which constitutes an inalienable right, but comes with obligations - including on freedom of movement - is a completely different category. The degree of autonomy she outlined in her speech is clearly consistent with an FTA. 

There is a still a fight worth fighting for - on the interim agreement, its scope, and most importantly its length. This is where the absence of former pro-Remainers is most painfully felt. Surely, the debate should be about minimising the economic costs, rather than on predicting gloom.

The single most constructive comment we have yet come across is by Charles Grant, who had visited European capitals and came back with the impression that the others are more united than widely assumed (including by us), and likely to take a tough line on the UK. But on one point they seem to be in agreement with May: that the future relationship will have to be based on an FTA, not a version of the EEA, given her stated preference for immigration controls. Grant makes the correct observation that the refusal to compromise on immigration is due in part to a wish to discourage others from asking for similar arrangement, and in part to prevent populists from claiming that the British arrangement is so attractive that others might follow suit. Curiously, a hard Brexit stance is true even for Germany. One German official Grant talked to said that foreign investment might be diverted from the UK to Germany, so one should not overestimate Germany's preference for a soft agreement with the UK. We think the following is useful advice to the British government:

"Having listened to continental viewpoints, I have a few suggestions on how the British government should handle the Brexit talks. On migration, the British should not rush into a new system for restricting free movement without consulting partners (once Article 50 is invoked). Unilateral actions in this area would go down badly. One German official said that if the British decided to exclude only unskilled workers, with the result that many poor Romanians ended up in Germany rather than the UK, it would be seen as an unfriendly act. The longer the British delay announcing the details of their restrictions on free movement, the greater are the chances that they could choose a system that is tolerable to the 27."

Gideon Rachman is close to despair over the prime minister's decision to set the date before she has received assurances of the nature of the interim deal she might achieve. By ignoring this advice, she knowingly places Britain at a disadvantage in the forthcoming negotiations. Britain desperately needs a deal, while the Europeans can play cool. The reason May has decided to ignore that advice is politics. If she had delayed triggering Article 50, she might have faced a revolt from Tory eurosceptics. 

We also noted a comment John Springford who picked up on a BBC report that one option the UK was considering was to "grandfather" existing third-country trade agreements of the EU. He notes that the economic fallout from higher trade barriers to the UK economy will be onerous, with only 7% of EU exports going to the UK, and half of UK exports going to the EU.

And finally, if you would like to get a taste for delusional Brexit-reversal fantasies, here is Jolyon Maugham in Prospect Magazine.

Can we be sure that May received no private assurance on the interim agreement? How could she have followed his advice in any case, since the EU said it would only negotiate after Article 50 is triggered?

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