October 11, 2018
How to shrink the Irish border
We are in a critical phase in the Brexit negotiations, but we are certainly not close to a deal as some reports suggested yesterday. We recall similarly statements during the Greek crisis in 2015. It is the oldest negotiation trick in the book, aimed to put pressure on the other side in the final stages of a long and hard negotiation.
We still don’t see the UK parliamentary math stacking up in favour of an agreed Brexit deal, at least not yet. It will invariably shift, but until that happens we don’t see much room for manouevre.
The biggest news yesterday were reports suggesting the possible beginnings of such a shift. But it goes in two directions. The DUP has hardened its position after Arlene Foster's meetings in Brussels, and is now threatening to vote against the budget thus effectively ending its support for Theresa May’s minority government. We discount that threat because it would trigger new elections - not immediately but certainly in 2019. But the statement is also telling us that the DUP is not yet on board for a Brexit deal - to put this mildly.
On the other side May is talking to some 20-30 Labour MPs who are considering to support an agreement as they prefer any deal to a hard Brexit. Sebastian Payne argues in the FT that the parliamentary arithmetic is beginning to shift in May’s favour. The 20-30 Labour MPs are not beholden to Jeremy Corbyn, who is expected to impose a three-line whip on his MPs to reject the deal. All of these 20-30 MPs are willing, in principle, to break the whip. Payne also argues that the much-threatened Tory rebellion is likely to shrink to a small group of hardcore Brexiteers. Payne’s rule of thumb is that parliamentary rebellions usually shrink to a quarter by the time it comes to a vote. We also believe that the rebellion will weaken in the coming weeks and months, but to secure agreement May needs two things to happen at the same time: the number of Tory rebels must not be much larger than the number of Labour rebels; and the DUP needs to support her. May can hardly afford to lose the 10 DUP votes without securing off-setting support either from Labour or her own ranks. What complicates the matter further is that the demands of the Labour MPs and those of the Brexiteers are diametrically opposed. Whatever direction May moves towards, she will lose some support.
In his statement in the European Parliament yesterday Michel Barnier indirectly alluded to the big decision that has yet to be made, which is one between a customs union as the end state of Brexit and a free-trade agreement. If May pivots towards a customs union, she may gain more support from Labour MPs and the DUP. But that would maximise the Tory rebellion. We doubt this is the way she will go. If she moves towards an FTA, she might placate some her own rebels, but she may find it harder to keep the Labour MPs and the DUP on board.
Barnier gave details on some of the technical discussions that are currently taking place. We note that some UK newspapers are very confused about the three stages of Brexit - the transition period, a very likely interim period that involves membership of a customs union, and the yet undecided final state. The technical discussions on the Irish border relate to the latter. Barnier said the EU was willing to consider technical solutions to shift some of the border control formalities into companies. We very much agree with him when he talks about the need to de-dramatise the Irish border issue. It is of the kind of issues that appear to be huge in political discussions, but then disappear as you approach them. We believe that even in a scenario of a transitional phase ending in a WTO regime, the border can be substantially softened. Many of the technical points Barnier talked about like barcode scanning or veterinary controls can be carried out away from the border under any regime.
Both the end state and the transition modalities towards it are the big outstanding political problems - both for the UK and the EU. May will today gather her inner cabinet for a briefing on the latest development, another sign that there is movement in the debate ahead of next week’s summit.