Fog across the channel - and noise
There is a lot of noise in the Brexit process, and we expect to hear a lot more. As long term observers – and former colleagues – of Boris Johnson we have grown used to his flamboyant diction, but for your average CDU MEP with little exposure to British politics the combination of Boris Johnson and Nigel Farage is a bit too much. So when Manfred Weber, Angela Merkel’s most senior MEP, says about one of Johnson’s numerable assertions: “It is unbelievable, frankly speaking. It is a provocation,” then we have to tell him there is a reason why the UK is leaving, and Johnson’s diplomacy is a rather fitting symbol of why we are where we are. Looking back to the pre-referendum years, the idea of Britain as a member of the EU now seems quite pathetic.
There are still surprisingly many people out there are arguing the case against Brexit – like Tony Blair, who is openly campaigning for a second referendum, and is bankrolled by his own wealth and by Richard Branson. Twitter is full of embittered ex-Remainers, who are still shouting their heads off. But their tale is still fundamentally a version of Project Fear – a little fine-tuned given that the predicted recession failed to happen. As we are 100% certain that Brexit will happen (not a probability we attach to many future events), we are confident in our decision to ignore this rather large body of discourse.
Where ex-Remainers are right is in their assertion that the British government has made a number of unnecessary mistakes – like Theresa May’s Tory party conference speech, and the early insistence on immigrations controls as a red line. That basically reduces to Brexit options to one: a hard Brexit, feathered at most by a transitional regime. This is also how Charles Grant sees it, noting that the position of the EU-27 has hardened in the last couple of months. We agree, and would like to add that the thinking is fluid, that there are two years still ahead of us, and that some people's hard position is informed by what they read in some continental newspapers, German in particular, which keep on writing that the UK might ruefully return. If that is what you believe, then clearly your negotiating position is the one that Donald Tusk summarised as: Hard Brexit or no Brexit. Once it becomes clear that the latter is not happening, they will get more serious about negotiating.
But the Grant article makes a number of important points that are likely to stand the test of time. One is that the inseparability of free movement of labour and of goods will also apply to the transitional regime. We agree. The transitional regime is an EEA-like construction, where the UK remains a de-facto member of the EU with all its rights and obligations. The purpose is not to smooth the transition to the final regime, but to give time for preparation. Grants notes that that the EU wants to have a transitional period of two or three years, which seems rather short to us. The reason is to speed up the FTA on the British side, Grant writes. We find that puzzling. Is it more reasonable to think that the UK will drag out the FTA negotiations, or that the EU will take its time to ratify it? We think it is nonsensical to impose a time limit unless the EU can commit to it. It can only do this if the FTA is not classified as a mixed agreement. All of these conditions are as yet uncertain.
We agree with Grant that May’s statement about a non-binary version of the EU’s customs union is pure nonsense. You are in or out. It is that simple. He is also right that there is no hope for the City of London. There will be no passporting, and no, regulatory equivalence does not amount to much especially since the EU will tighten the regime. Getting rid of the City of London is one of the few big attractions of Brexit for the EU-27. Where we part company with the consensus is that we believe that it is also a good thing for the British economy to become less reliant on finance.
We also thought it was interesting that the EU wants the UK to produce a Brexit request with only a simple mandate, rather than a detailed list of demands, which would be shot down. There also seems to be disagreement among EU officials as to whether the Article 50 negotiations should focus primarily on the exit modalities and the transitional arrangement, or whether the contours of an FTA should also be drawn up. There is also some confusion about whether the election of Donald Trump will help or hinder the British position.
Grant believes that the UK is headed for a hard Brexit, unless the proponents of a soft Brexit get louder, if the Treasury were to face down the other ministers, and if the economy were to fall into recession. Two years is a long time.
His colleague Simon Tilford has a counter-intuitive suggestion. The election of Trump will be to the disadvantage of any country that is reliant on the global free trading system, as the US will become more protectionistic. It would therefore be in the UK’s best interest to stay in a strong customs union. A bilateral trade deal between the UK and the US is possible, but the US would drive a hard bargain: it would force the NHS to buy more expensive US pharmaceuticals; the UK would also come under pressure to open its market to US agricultural imports, which might make a trade deal unacceptable to British voters. Tilford warns:
“Trump’s allegiance to Britain seems to rest more on emotion than on a clear-sighted assessment of US interests, and as such might not survive any disagreement between the US and the UK.”