June 20, 2017
How to soften Brexit?
The Brexit talks started yesterday with a focus on procedure. The UK has unsurprisingly dropped its irrational demand for parallel trade negotiations, and now accepts the EU’s timetable for the sequencing of the talks. The two sides set up three working groups: on the financial settlement, on citizen’s rights, and on other legal issues. The UK will present an offer on citizens’ rights next week. The two sides will negotiate for one week each month. Northern Ireland will be dealt with directly by the deputy negotiators.
This was not the confrontational start of the negotiations that some had expected, and there now seems to be on the UK side a desire for talks to end successfully. There is a still a lot of ill-informed debate about soft-vs-hard Brexit, which ignores the fact that the EU has accepted Theresa May’s negotiating mandate seeking a formal exit from both the customs union and the single market. We think that the probability of a change in the negotiating mandate is next to zero. What we think possible is an agreement on a sufficiently long transitional period, with the current arrangements in place, during which the EU and the UK would negotiate a closer partnership deal including a comprehensive FTA.
We note two comments this morning. George Soros notes that economic reality is beginning to catch up with false hopes. The moment of truth for the UK economy is fast approaching. UK households will have to adjust their spending downwards, and many households will discover that they have incurred too much debt, and will need to deleverage. This economic reality will inform the future of the Brexit debate.
George Eaton goes into the politics, and notes that Labour’s commitment to ending free movement of labour should not be overinterpreted. They are prioritising the economy, not immigration. Free movement may end officially, and be replaced with something nearly identical. He notes that there is an overwhelming majority of opinion in the UK in favour of Brexit, but only a minority is in favour of a hard Brexit. This political reality will inform the UK’s negotiating position.