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December 16, 2016

Brexit on the ground

This little short video sequence is a little awkward to watch. It shows Theresa May having no one to talk to at last night’s European Council, and it tells us that Brexit has already happened on many levels, except formally of course. The EU is not only a static legal construction, but a living political entity, from which Britain extricated itself quite some time ago. This is also another reason why we think that Brexit is not undoable - whatever the legal and procedural arguments may be. We are not even sure whether the others would want a rueful UK back in their midst. 

Peter Foster of the Daily Telegraph has probably the best summit story this morning, in which he points to looming divisions among EU member states in their Brexit negotiating strategy. The consensus so far is not a big deal, as it consists of not saying anything until the UK triggers Article 50. This was evident last night, when EU leaders greeted with an eery silence May’s intervention, in which she asked for an early settlement of the status of EU citizens in the UK, and UK citizens in the EU. These difference will come out in the open once the negotiations begin. The article gave a taste of what to expect. It is clear that not all countries support the official hard-line negotiating position, especially on the status of EU citizens. With almost 1m Poles living in the UK, we doubt very much that the EU is going to maintain a position of rejecting May’s offer of a simple reciprocal deal to protect the position of existing residents. We would also not be surprised if some member states wanted to extract a price for such a reciprocal deal - thus turning the residency rights into a bargaining chip. The article quotes a diplomat from an Eastern European member state expressing reservations about the Commission’s hardline stance and calling for a transitional deal as well as parallel negotiations on a trade deal. Another diplomat even challenged Michel Barnier's authority, as he has not been given an official mandate. And, indeed, the European Council last night confirmed that it is in charge of the entire process, from beginning to end, which irked both the Commission and especially the European Parliament. In Brussels, all problems boil down to inter-institutional conflict. 

In the UK, meanwhile, the main discussion has turned to the parallel trade agreement the UK will be negotiating with the EU. We assume that the motivation of those who warned that this might take ten years is simply to scare people into pushing for a reversal of the Brexit course, but these scare tactics have not had a great record of success.  One of the reasons the Remain campaign lost not only the referendum but also the subsequent debates has been a tendency to exaggerate - whether it is the economic consequences of Brexit or the harshness of the deal the EU is going to extract from the UK. And they were always happy to wheel out a rent-a-quote continental politician to confirm that the deal would be very tough, and that it would take a long time. 

The Times and the Telegraph are leading with stories according to which the negotiations of a trade would take ten years, which is, of course, an arbitrary number pulled out of a hat because the EU has never negotiated a trade agreement with a former member. This view was expressed in a private meeting by Sir Ivan Rogers, the UK ambassador to the EU. Even if this agreement ends up as a mixed trade agreement, like the Ceta trade deal with Canada (i.e. in need of ratification by member states), there is no need to negotiate for that long with an ex-member state whose regulatory regime, at the point of departure, is 100% compatible with that of the EU. There are technical issues to be addressed, for sure, and the negotiations about the service sector and regulatory equivalence will be complicated - but not that complicated. The Telegraph quotes Michel Barnier, the EU’s Brexit negotiator, as saying it will take a lot less time, but clearly more than the 18 months of the Article 50 negotiations. This seems to be a realistic assessment to us. 

The Times has spoken to Norbert Röttgen, the head of the Bundestag's foreign affairs committee and once a rising star in the CDU. Röttgen also mentioned the ten years, and desperately tried to dispel the notion that we have been putting forward ourselves that German industry would seek to influence the debate. The only point where we agree with Röttgen is his dismissal of a sector-by-sector trade deal.

Most of Brexit journalism is pure noise. What people say today is not going to be relevant to the decisions they are going to have to take in late 2018 or early 2019. For starters, many of them will not be in power. By then, the reality of Donald Trump will have set in, and the EU will think twice whether it can afford to cut off the member state with the largest defence budget, and only one of two countries with half-decent counter-intelligence service (the other being France). And, given its massive trade surpluses, German industry will not simply lie low and allow the German government to cut off billions in trade. They reluctantly supported Angela Merkel on Russian sanctions because a big principle was at stake, but they are not going to be complicit in any policies to extract revenge or penalise an ex-member state. And, given the potential for systemic financial instability in both the UK and the eurozone, a hard divorce would be reckless. In our view the British government is right to dismiss these scare stories.

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December 16, 2016

The EU/Ukraine agreement and the Dutch senate

Mark Rutte yesterday got his European Council decision on the Ukraine association agreement, but this might still be sunk by the Dutch Senate, where the VVD-PvdA government coalition lacks a majority and needs the help of left-liberal D66 and Christian democrat CDA. The CDA in particular continues to be in doubt. The party's leader Sybrand Buma is quoted by Volskrant as saying on the same day that he was still inclined to listen to the voters as "just going ahead and ignoring the referendum" would increase the gap between politicians and the Dutch people. He will, however, not insist on party discipline for his senators. Sources within the CDA say the senators are likely to support the treaty now as they are pro-EU, but the leader of the senate faction has not reacted publicly yet. The paper puts the timeline for final ratification at "weeks". Next week the agreement will be debated in the Dutch lower house again, and only after ratification will it go to the Senate, where it might be voted on shortly before the general election. The issue at the back of Dutch politicians' minds, especially Buma as party leader, is that perceptions of whether politicians listen to voters are expected to play an important role in the general elections just three months away. 

The tone of Volkskrant's article goes with the narrative that ratifying the agreement would be ignoring the referendum, despite the Council's declaration claiming to have noted the Dutch voters' concerns "as conveyed by the Dutch PM", and to have addressed them. The paper still prefaces Rutte's geopolitical justification for ratifying the agreement with "Rutte defends ignoring the no vote..." We also note an online poll on Volkskrant's front page with the question "the additional statement on the Ukraine treaty is not enough: no is no" has readers agreeing by 64-36% with nearly 7,000 votes. These things are not at all scientific but they are representative of the mood of a self-selecting sample of motivated online readers, as well as because of the slant of the leading question, which must have passed an editorial filter.

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December 16, 2016

A short observation about the future of the EU

When people make the case that the EU is imploding, they are failing to make an important distinction - one that Gianni Rotta made when he answered a question by Judy Dempsey on whether the EU's architecture is collapsing. He says, correctly, that it is the wrong question:

"The architecture in Fatehpur Sikri, once the capital of the Mogul Empire, is still wonderful, yet the city itself is a fascinating ghost town. Lamanai, in northern Belize, was once a bustling Mayan metropolis; now, the ancient ruins attracts only tourists....The EU’s architecture was not perfect to begin with, yet the real trouble today recalls the long-lost fates of Fatehpur Sikri and Lamanai: the stones are still there, but the people left centuries ago."

The issue for the EU is not collapse, or formal dissolution, but irrelevance. It is about what you do, not who you are. This is why we keep on saying that Brexit has already happened on the ground because the UK ceased to be engaged in the EU some time ago. And this is not just a UK problem. With each EU summit, like the one last night, it is becoming harder to see what the EU actually does beyond issuing press releases, or agreeing on strategy papers.

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