January 17, 2017
We have been noticing in our daily perusal of the British and the continental press a tendency for denial - by the continentals in particular - of all the bad things that are happening in the world. The Germans, in particular, still seem to believe that Brexit is a passing fad - that it won't happen once the British wake up and see reason. The journalist who interviewed Philip Hammond asked a question about whether Brexit can be frustrated - a question we would never hear in the UK. We noted a story in Tagesschau last night, approvingly quoting various German politicians who claim that the hard Brexit sought by the UK was just a bluff. The article quoted Jo Leinen MEP, a German Social Democrat, as saying that the threat of Brexit serves to scare the other Europeans. Sven Giegold MEP, a member of the German Green Party, said the UK was dependent on the single market more than the other way round (which is true but fails to recognise huge disparities among member states - Germany, for example, has much to lose).
What this tells us is that, as this stage, the UK is better prepared for the negotiations than the EU-27, who have not yet even begun to work through the implication of a hard Brexit for their economies, and in particular for financial stability.
Theresa May will today provide more clarity about the shape Brexit will take. The FT got ahold of extracts of the speech she will give today, in which she will rule out any form of membership or even an association agreement with the EU, or anything that would leave the UK "half-in, half-out". The UK would not seek to adopt any existing model.
We should always note in these discussions that these stated goals only affect the final Brexit arrangement, which is not necessarily what will happen when Brexit first becomes effective - presumably in July 2019. A transitional period would certainly imply a half-in, half-out arrangement. We find it hard to imagine a transitional deal that is not based on a customs union membership. It wouldn't be much of a transition otherwise. The FT quoted Michel Barnier as saying that the EU would be willing to agree a special relationship with the City, presumably as some people are beginning to think through the impact of a hard Brexit on the financial stability of the eurozone.
A broad tendency for denial is the underlying sentiment in the German press also towards Donald Trump. Germany was flabbergasted when he won, and they are now flabbergasted that he may do a few of the things he threatened to do. The normally sharp Berthold Kohler is so appalled by Trump's comments on Nato because he is now beginning to realise that Trump may well mean what he says. Trump cannot even remember the name of the person who called him from Brussels (it was Donald Tusk, not Jean-Claude Juncker as he suggested) - a sign that Trump could not care less about the EU. Kohler seemed genuinely shocked.
Perhaps the most glaring example of denial is the statement by Pierre Moscovici that a US administration hoping to dismantle the EU "is simply not possible". If that were true, it would be new to us. It may not be a good thing, but it is clearly possible. We don't think Trump wants to dismantle the EU, but to weaken it. This is already happening.