We use cookies to help improve and maintain our site. More information.
close

December 04, 2017

Can Brexit still be stopped?

We think that the British health secretary, Jeremy Hunt, has it spot-on when he told his cabinet colleagues: you have a choice either between backing the compromises offered by Theresa May, or risk Brexit. This is in response to the various efforts by Brexit hardliners to impose further red lines on the process, such as no ECJ oversight during the transition period, a demand that equates to the rejection of the transition because this issue is non-negotiable for the EU. We treat these interventions by people like Nigel, now Lord Lawson, the former chancellor, or Ian Duncan-Smith, the former Tory leader, as noise.

Hunt's intervention is a sign that the government is now pulling the ultimate threat to the hard-Brexit: back the compromise position of the prime minister, or risk Brexit. It is the first time we have heard a cabinet colleague mentioning that Brexit might not happen. And the mechanism for a Brexit reversal is a fall of the government and a new election before March 2019, with Jeremy Corbyn coming into to power. According to the Daily Telegraph Jeremy Corbyn said that he has not yet made up his mind on a second referendum, presumably because of a shift in public opinion. If you read this with the story in the Guardian that Tony Blair is actively supporting a referendum through the Labour Party, it is very clear that the Labour Party is the probable vehicle through which Brexit can be stopped.

As always, we find it interesting that the German media, like faz.net, find this prospect so enticing that this was their lead story last night. We have always argued that one of the reason German industry is not panicking over Brexit - as they should -  is because deep down they believe it is not going to happen. 

Various UK newspaper columns over the weekend made the point that the really difficult task ahead are the trade negotiations - as opposed to what is happening in Brussels right now. Juliet Samuel notes in the Daily Telegraph that the UK was dangerously unready for the next phase of Brexit, but she holds out the hope that it should be possible to identify a certain number of service sectors, for which the UK can offer to uphold regimes of regulatory equivalence - meaning that they can continue to trade as though they are in the single market.

In his FT column, Wolfgang Munchau writes that the EU will not go much beyond a classic goods-only trade agreement. If the UK wants third-country status through Brexit, the EU will treat the UK as a third country - it is as simple as that. Since the UK is not prepared for this stark choice politically, the question becomes whether the parliament might reject the Article 50 deal on the grounds that a £50bn settlement would only buy a lousy zero tariff agreement. So we may still get to a point where the UK faces a stark choice between a hard Brexit - and reverting back to the EU. 

One of the most persistent proponents of a Brexit reversal is Hugo Dixon who notes that all the various pathways will lead to a radical Corbyn government. The best hope is an early election, he writes, with a slim Labour majority (and reliance on an anti-Brexit party for support), so that Corbyn can be moderated, and cajoled into accepting a second referendum.

We note that both Dixon and Charles Grant premise their argument on the assumption that a two-year transition is insufficient for a trade deal. That would be the case for a trade deal with service components, but an EU level trade deal that focuses only on tariffs, rules of origin, and customs arrangements would be feasible in a much shorter period of time - if both sides want this to happen.

Show Comments Write a Comment

December 04, 2017

Could Poland open up the Posted Workers Directive again?

Just over a month after the European Council reached an agreement on the reform of the Posted Workers Directive, a Financial Times interview with Polish deputy PM and minister of economic development and finance Mateusz Morawiecki suggests that Poland might throw open the whole thing again. In the interview he voices the view from the countries in central-eastern Europe that the tightening of the posted workers directive (notably by reducing the allowed time for a posting from 24 months to 12 months, with a possible six-month extension) is a protectionistic move by the wealthier countries in Western Europe. France especially is seen as driving this because Emmanuel Macron made the reform of the directive one of his first major issues after taking office. Among other hard-hitting quotes, Morawiecki told the FT

"We don’t want to have a single European market where our customers purchase goods from technologically advanced companies from western Europe, while at the same time our citizens...have their competitiveness [in services] undermined through regulation,"

The issue is that wage differentials lead to brain drain, as qualified Eastern workers migrate west, but when lower-income Eastern workers also move west - or provide services temporarily such as haulage drivers - they trigger a backlash. And, all the while, eastern markets are open to high-value western exports.

The FT mixes information and interview in this story, and the information is that the Council compromise excluded transportation - pending sector-specific legislation - in order to overcome the opposition of the Eastern countries. But now the Council is trying to reach a separate compromise on how many days a driver can spend in a given country before being considered a posted worker. According to the paper the Commission proposes five days, while Poland, Hungary, Spain, and Ireland, would like a longer limit.

Meanwhile, Zsolt Darvas from Bruegel argues that the reform of the posted workers directive is not as significant as it is made out to be. Statistics about the use of posted workers show that the average duration of postings is just 98 days, and that a very small fraction of posted workers are actually from low-wage to high-wage countries. The regulation will have more impact on the use of temporary employment agencies to dodge the posted workers directive by using chains of subcontracting. And this brings us to the point Darvas really wants to make, which is that the posted workers directive is actually a distraction from the real problems in the European labour market, which are social security fraud, bogus self-employment, and undeclared work in the informal sector. It is these issues that the EU should be concentrating on instead of claiming the posted workers directive as a victory for the new pillar of social rights.

Show Comments Write a Comment

December 04, 2017

Has the Bank of England solved the productivity puzzle?

One of the biggest issues facing the world of economics is to come up with a more plausible explanation for the productivity puzzle than measurement error. In the Bank of England's blog Dan Nixon came up with the idea that the fall in productivity growth may be for real because the supposed benefits of IT are overcompensated by distraction, as absent-minded employees are wasting their employers' time on their smartphones and twitter accounts. The article cites evidence of the enormous amount of time lost due to inattention. 

Show Comments Write a Comment

This is the public section of the Eurointelligence Professional Briefing, which focuses on the geopolitical aspects of our news coverage. It appears daily at 2pm CET. The full briefing, which appears at 9am CET, is only available to subscribers. Please click here for a free trial, and here for the Eurointelligence home page.

 

Recent News

  • January 19, 2018
  • On the futility of discussing the German current account surplus
  • The Brexit revocation madness
  • Varadkar, the enfant terrible in the Brexit negotiations
  • January 11, 2018
  • The horse taming the dragon - really?
  • Budget contributions for market access?
  • January 05, 2018
  • Catalonia's government by Skype
  • The case for EEA membership
  • December 20, 2017
  • Down with the gown
  • How to overcome the political gridlock in Italy
  • Varoufakis is suing the ECB
  • December 15, 2017
  • Amendment 9 conundrum
  • The negligible GDP impact of the single market
  • December 11, 2017
  • A new era for the French right
  • Growing scepticism of a grand coalition
  • December 06, 2017
  • Ireland in search of its own path in the EU
  • Who owns the eurozone?
  • Gabriel's big speech
  • December 05, 2017
  • On the Labour Party's shift to the left
  • Catalan separatists forecast to lose elections
  • December 04, 2017
  • Can Brexit still be stopped?
  • Could Poland open up the Posted Workers Directive again?
  • Has the Bank of England solved the productivity puzzle?