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July 14, 2017

We are entering the technical phase of Brexit

The three position papers by the UK government on various Brexit-related issues did not touch on the vexed question of finance, which will be the subject of discussion at the Brexit negotiations on Monday. But as the FT reports, the UK government has changed its position on the question, and now accepts the reality of a financial settlement. The paper quotes from a written statement by Joyce Anelay, a Brexit junior minister:

"The government recognises that the UK has obligations to the EU, and the EU obligations to the UK, that will survive the UK’s withdrawal — and that these need to be resolved."

The paper reports that Brussels views this statement as going beyond Theresa May’s previous comments, which only talked about a fair settlement. It quoted one source as saying that this change of position will avoid what would otherwise have been the equivalent of an electric shock. But the story also makes clear that this is not a substantive concession. Recognising the principle of a settlement does not mean that the UK will accept the EU’s demands. The EU’s legal case for a settlement rests on "reste à liquider", the accumulated unpaid commitment made by the UK as a member. The open RAL position is estimated to be €32bn gross and €20bn net at the end of 2019, plus an extra €10bn for pensions and other long-term liabilities.

Martin Wolf offers a devastating analysis of the state of play in UK Brexit politics, which he characterises as a complete shambles. We agree with his criticism that the UK government has failed to prepare the ground for the necessary compromises that will need to be in place for a deal to happen. He surmises that one of the reasons is the Brexiteers' failure to comprehend the disastrous consequences of a no-deal outcome. If there is no deal, a scenario he now deems as most probable, 

"the UK would then, in the view of its most important economic partners, have defaulted on its legal obligations. The EU is a creature of law. Members would view such a violation of UK obligations as heinous."

We disagree with the notion of a default on the legal obligations, because Article 50 explicitly states that the laws of the EU cease to apply if there is no deal. But he is right to say that the EU would take an extreme view of a no-deal Brexit, and would refuse association and trade agreements as a consequence until there is a financial settlement. Wolf concludes that the outcome is uncertain, but the no-deal scenario appears the most likely to him. Wolf is clearly in favour of a second referendum, but does not explain what would happen if the electorate rejected the terms. If the referendum were framed as a choice between accepting the terms or asking the government to revoke the Article 50 procedure, it is far from clear that the EU would accept it unconditionally. The fundamental problem with Bregret is the same problem of Brexit itself. You will not know what you are getting until you get it. We see no chance that the EU would accept a UK request to revoke Article 50 unconditionally. 

The three position papers published by the UK government relate to a number of technical and legal issues. They acknowledge that the UK is leaving Euratom, since this is implicit in the Article 50 trigger, but that the UK would seek an association agreement. It reiterates the position that the CJEU’s legal authority will end on Brexit, but makes the controversial point that this would also relate to cases in the period before Brexit.

Domestically, the UK government is facing the problem of a revolt by Scotland and Wales for the Repeal Bill, a bill that transposes all existing EU laws into UK laws on Brexit day. This is a serious threat because the bill paves the legal ground for Brexit under UK domestic law. If it were rejected, there would a legal vacuum. The problem is that EU laws interact with the devolved British state in complex ways. Scotland and Wales criticise what they perceive to be a power grab. We expect intense negotiations. The Labour party also wants to make a whole series of amendments, including to curtail the government's right to overrule the parliament in a number of legislative areas.

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July 14, 2017

Don’t be too complacent about the EU

Stefan Lehne and Tomas Valasek argue that there is a danger of complacency by the EU. The cyclical economic upswing is no doubt a good thing, but none of the deep structural issues that have hampered the EU in the last ten years have been resolved, and some are getting worse. In their long article, the authors touch on a number of important policy areas including: the eurozone, immigration policies and Schengen, growing opposition to trade deals, tensions in our immediate neighbourhood, and the impact of Brexit. One of the points they make is that the EU is simply facing too many crises and that the European Council in particular is not good at multi-tasking. There are various structural dividing lines in the EU - North/South and East/West, which have led to fragmentation. 

"... several years of crisis have eroded solidarity among the member states, and populists have reduced governments’ space for making compromises. Trust in EU partners and institutions has declined. Many countries seem to be going through a phase of re-nationalisation. Governments prioritise direct national interests and are reluctant to share further powers at the European level. Leaders are confused and divided about the future course of European integration. The old federalist vision of the EU is dead, but no new narrative has replaced it."

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