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

September 26, 2018

EU doubling down on internal UK customs border

The reason why we have become more sceptical of a Brexit deal is the EU’s continued insistence on a customs border within the UK to avoid one on the island of Ireland. One can technically fudge regulatory controls, VAT declarations, and veterinary checks, but the reality of a customs border cannot be easily made invisible. It is one Theresa May's two red lines, and the one she keeps reaffirming time and again. In her ranking of acceptable Brexit options, no-deal ranks a distant second to her own Chequers framework, but it ranks above any third option. Yesterday she reaffirmed that the no-deal scenario is better than the Canada model. This statement may have confused the Eurosceptics in her party, but only because they have not thought it through. A Canada deal would require a permanent customs border inside the UK as it would unavoidably trigger the Irish backstop if it were agreed in its current form. 

Word has reached us that the EU is now firming up its opposition to Chequers in such a way that we see little chance of retreat. Michael Barnier and his team have commissioned a report that suggests the long-term costs of Chequers to the EU would exceed the short-term costs of a hard Brexit. 

Bruno Le Maire, the French finance minister, reiterated that Chequers would be the end of the single market and therefore of the EU. May’s own renewed pledge to offer the lowest corporate tax rates in the EU post-Brexit is probably not going to help boost mutual confidence. 

Reuters has the story that the EU is working to make on its own attempt to offer a Brexit plan - as demanded by May in her speech. But this plan will be akin to a Canada-style agreement with a few added bells and whistles. Crucially, it will require a customs border inside the UK. May will reject this proposal.

What might favour a no-deal Brexit is the relative proximity between a WTO deal and a third-country FTA. Except for cars, WTO tariffs are not particularly high in most product categories. The UK would have to pay a substantial political price for a mutual reduction in tariffs, which in any case benefits the EU27 more than UK because of its structural trade surplus. Most of the costs of a no-deal Brexit would come down to the frictional costs as a result of the sudden transition in 2019; but it gives the UK government the maximum potential to pursue an alternative industrial strategy. Apart from low corporation taxes, the UK could establish itself as the country for biomedical research due to looser regulations.

What the EU needs to factor into its calculations are the costs of the loss of the UK as strategic partner, and the impact of an economically unrestrained and unregulated competitor across the Channel. 

That a no-deal Brexit is now more likely than not is not because anybody specifically wants it, but because it may end up as the lowest common denominator. Sir Keir Starmer, the shadow Brexit secretary, underlined yesterday that Labour would vote against any withdrawal deal that is not its own. That is to be expected. Labour is not going to help May - though a handful of rebels might. The European Research Group also agreed to reject any plan that is based on Chequers.

It is possible that the two sides still reach a deal? For one, events might intrude. The UK might have a new government before Brexit – unlikely but possible. The mood in the UK population might turn against Brexit in a way that has not happened yet. EU member states may change their position once they acknowledge the reality of a hard Brexit which they have not yet. Also, Barnier’s calculations are based on the result of an economic model - the kind of which always overestimated the impact of the single market in the past - against actual losses of income and jobs. We keep noting reports, in the German media in particular, about a second referendum. A hard Brexit would come as a total shock.

The one avenue where we still can see a deal would be a shift in the Tory party’s view on the internal border. It is logically impossible to offer a backstop to both borders - the intra-Irish and the NI/UK border - since the customs border has to be somewhere in physical space. We see at least some possibility of technical triangulation, but it would require both the EU to compromise on the Irish border and the UK on the internal border. For this there is not much time. The EU underestimates the political sensitivity of the internal border issue to the UK, just as the UK kept on underestimating the Irish border issue for a long time.

The biggest driver for a no-deal Brexit could end up being May herself. With the EU rejecting Chequers, and with both Labour and the ERG united in rejecting any deal based on it, May might now conclude that it is in her best interest to let the negotiations run into the ground. Do nothing, keep rejecting whatever the EU proposes between now and the end of March - and step up visible preparations for a no-deal Brexit. If this is her calculation, she takes a huge risk.

Show Comments Write a Comment

September 26, 2018

Can Valls replay Macron in Barcelona?

Manuel Valls announced yesterday that he is running for mayor in Barcelona, a city where he was born but never lived, leaving his frustrated French political career and his MP mandate behind. There are some interesting aspects about this move. The first is that Valls seem to replicate what Emmanuel Macron did at the national level in France. He comes in as a political outsider and tries to use this as an advantage in a battle between entrenched parties. Running as an independent candidate he uses his high-profile career from France to bypass the bottom-up career path he normally would have to pursue in a traditional party, and to make good of his lack of visible credentials in the city itself. The move will give him plenty of publicity, too.

The second interesting aspect is the cross-boarder nature of this political career move. This is unprecedented in the 25 years since the EU granted to all its citizens the right to vote, and eligibility for office, in local elections. With Valls we have a high-profile politician frustrated in his political career at home running for a municipal office in another EU country. When it comes to cross-country political careers, Daniel Cohn-Bendit comes to mind. But he was not a high-profile politician at the time and his story is clearly a different one. But Valls' candidacy may be the beginning of a new trend of cross-border moves.

Barcelona is not just any city. It is cosmopolitan, interesting in its own right, but also the battleground for Catalan separatists. The mayor of Barcelona has a key role to play, so there is much more at play. This is one of the reasons why Valls chose Barcelona over his French constituency of Essonne. Valls already stepped onto the political scene in Barcelona last year after the failed independence attempt by the Catalan separatists. With his candidacy as an independent he campaigns in favour of a civic Catalan identity within Spain. There is a strong constituency for that position in Catalonia says Oriol Bartomeus, a professor at the Autonomous University of Barcelona. Ciudadanos is expected to support Valls’ bid.

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

  • May 31, 2019
  • Salvini’s frightening strength
  • The significance of Corbyn’s latest flipflop on the referendum
  • August 20, 2018
  • ... and a subtle shift in EU policies towards both Russia and Turkey
  • Nothing to celebrate about the end of the bailout programme
  • Support for Brexit holding up
  • November 09, 2017
  • From street protests to road closures
  • What Russia wants
  • January 31, 2017
  • Project fear against Italexit
  • On how not to frustrate Brexit
  • April 25, 2016
  • The death of the Grand Coalition
  • Insurrection against TTIP
  • Juppé to benefit from Macron hype
  • On optimal currency areas
  • Why the Artic region could be the next geopolitical troublespot
  • From a currency to a people
  • February 07, 2019
  • Forget Tusk - the real action is elsewhere
  • On David Malpass and the Trump legacy
  • May 28, 2018
  • A no-confidence motion that could backfire
  • The political repercussions of a historic referendum in Ireland
  • Why the lack of an international role for the euro matters
  • September 15, 2017
  • Juncker dragged into the Catalan fray
  • What to say in Florence
  • How to fill the gap left by the British MEPs
  • January 05, 2017
  • French Socialist primaries - old wine in new bottles
  • Le Pen's hard ecu
  • Will Tusk get a second mandate?
  • Themes of 2017
  • April 25, 2016
  • The death of the Grand Coalition
  • Insurrection against TTIP
  • Juppé to benefit from Macron hype
  • On optimal currency areas
  • Why the Artic region could be the next geopolitical troublespot
  • From a currency to a people
  • April 26, 2019
  • How Brexit has given rise to different perceptions of reality
  • The EP, not Madrid, will boost Spanish clout
  • How realistic is a Gaullist Europe?
  • September 17, 2018
  • About the new partnership between Russia and China
  • EU ponders Irish backstop protocol to help May
  • February 07, 2018
  • A short note on bitcoin
  • July 04, 2017
  • On the CDU’s programme
  • Macron defines his presidential style
  • Why do we criticise modern macro?
  • November 28, 2016
  • And now what Monsieur Fillion?
  • The inescapable logic of an interim agreement
  • On Germany's foreign policy post-Trump
  • How to lose against the populists
  • April 25, 2016
  • The death of the Grand Coalition
  • Insurrection against TTIP
  • Juppé to benefit from Macron hype
  • On optimal currency areas
  • Why the Artic region could be the next geopolitical troublespot
  • From a currency to a people
  • April 01, 2019
  • Meaningful IV
  • Caputová elected: a turning point for central Europe?
  • October 02, 2018
  • Whatever it takes - diesel version
  • Is Macron's European discourse too simplistic?
  • April 06, 2018
  • Schleswig Holstein collapses Spain's strategy against Catalan separatism
  • On the implausibility of conspiracy theories in the Skripal case
  • October 09, 2017
  • UK is starting to prepare for a no-deal Brexit
  • Why Germany will resist meaningful eurozone reform
  • April 12, 2017
  • Macro in a state of denial
  • Where Schulz is vulnerable
  • Schäuble’s three party tricks
  • October 17, 2016
  • Ceta is dead for now
  • L’après-Hollande, c'est Hollande
  • SPD against Russia sanctions
  • Nissan to join customs union and other fanciful tales
  • April 25, 2016
  • The death of the Grand Coalition
  • Insurrection against TTIP
  • Juppé to benefit from Macron hype
  • On optimal currency areas
  • Why the Artic region could be the next geopolitical troublespot
  • From a currency to a people
  • June 10, 2019
  • How to create Brexit facts
  • The new Alde is already in trouble
  • January 31, 2019
  • EU will play hardball until February 14, and stick to backstop beyond
  • French left and right moves ahead of EP elections
  • Tighten the belts as the economy prepares for landing
  • September 25, 2018
  • Be careful what you wish for - second referendum edition
  • May 21, 2018
  • Another snap election in the UK? Tories are preparing
  • Merkel and Putin - the beginning of a beautiful friendship?
  • January 15, 2018
  • Is the section on Europe for real?
  • Can Drahos upset Zeman?
  • September 11, 2017
  • Turkey issues travel warning for visitors to Germany
  • How nasty is the AfD?
  • May 08, 2017
  • A message of hope
  • Barnier's not so easily agreed Brexit principles
  • The rebirth of the paranoid conspiracy theory
  • January 05, 2017
  • French Socialist primaries - old wine in new bottles
  • Le Pen's hard ecu
  • Will Tusk get a second mandate?
  • Themes of 2017
  • August 23, 2016
  • Sarkozy launches candidacy in a book
  • Rajoy plans to try again in October
  • Turkey recalls ambassador from Austria
  • April 25, 2016
  • The death of the Grand Coalition
  • Insurrection against TTIP
  • Juppé to benefit from Macron hype
  • On optimal currency areas
  • Why the Artic region could be the next geopolitical troublespot
  • From a currency to a people
  • July 11, 2019
  • Focus on election timetable, not prorogation...
  • ...and not on Darroch either
  • June 19, 2019
  • What the US-Iran standoff tells us about the EU
  • Is Germany withholding information on right-wing extremism?
  • May 28, 2019
  • Greens in EP boosted by numbers and national politics
  • May 07, 2019
  • … while Macron’s European troubles have already begun, and might get even worse
  • Don't discount a Brexit deal
  • Is Tsipras too complacent?
  • Costa - the fiscally responsible Socialist
  • April 15, 2019
  • Finland's far right changes the game
  • Brexit party drawing almost even with the Tories
  • March 28, 2019
  • Fidesz exposes EPP to barrage of provocations
  • How Berlin has turned the ghost of Aachen into a poltergeist
  • March 11, 2019
  • Ask what Europe can do for Germany - AKK's EU manifesto
  • February 21, 2019
  • Sound and fury, but Brexit reality unchanged
  • Supertanker Deutschland moves to join internet age
  • February 04, 2019
  • Watch out for the resurgence in Tory unity
  • The gilets-jaunes' effect on the European elections
  • What did he possibly mean by that?
  • January 18, 2019
  • Why Dublin won't yield on the backstop
  • Town hall debates vs street protests - who is winning?
  • January 04, 2019
  • Will the AfD become the Dexit party?
  • Romania's corruption problem in the spotlight of its EU presidency
  • December 12, 2018
  • 48 letters
  • A sense of deja-vu
  • November 30, 2018
  • May’s one and only trump card
  • Are the gilets jaunes as powerful as the 1995 protests?
  • Tsipras is dishing out more goodies
  • November 19, 2018
  • May’s pushback is kicking in
  • November 09, 2018
  • What to make of Merz’ pro-Europeanism
  • November 01, 2018
  • Is candidate Merz a keen pro-European?
  • Around the corner - Brexit edition
  • October 24, 2018
  • Can the eurozone be governed without a parliament?
  • EU to grant UK-wide backstop
  • Merkel flip-flops on diesel legislation
  • October 18, 2018
  • Disorder, disorder....
  • Tsipras sacrifices Kotzias - but what's the end game?
  • October 12, 2018
  • A deal so close, and yet so far
  • AfD leaves Germans speachless and helpless
  • October 08, 2018
  • A renewed willingness on both sides to cut a Brexit deal
  • Latvian politics in turmoil after huge populist gains
  • October 04, 2018
  • The Brexit Queen’s new dancing clothes
  • Ceci n’est pas une crise politique
  • October 01, 2018
  • After the referendum, more turmoil in Macedonia
  • What will happen if the UK parliament votes No?
  • Barnier's no-thanks works much better than a yes-please
  • September 27, 2018
  • Two ways out of the Brexit impasse
  • September 26, 2018
  • EU doubling down on internal UK customs border
  • Can Valls replay Macron in Barcelona?