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September 19, 2018

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Chequers could be in real trouble as EU offers compromise on Irish border

We were never truly convinced that the Brexit negotiations would break down over Northern Ireland, or that the border issue was even the main problem. We noted a story this morning that Michel Barnier is now saying that he is ready to improve on the EU's previous proposals. We almost fell off the chair when we read the following quote:

"What we are talking about is not a border, neither on land nor at sea. It is a set of technical controls and checks."

Is this not what Theresa May has been saying all along? But there is still a big problem for her. If the EU is happy to fudge the border issue, as is now obviously the case, it robs the Chequers proposal of its claim that there can be no alternative. A Canada-type deal suddenly becomes viable.

The eurosceptics in the Tory party took a fraction of a second to recognise their chance. William Rees-Mogg, the chairman of the European Research Group, is saying that he and his fellow MPs will vote against the Chequers plan because they have a better one, and they now see a way how it could succeed. Their plan is essentially a clean Brexit with no special commercial ties other than a free-trade agreement, a little deeper than Ceta perhaps. In an opinion article in the Telegraph Rees-Mogg makes the observation that his group's proposals  

"were given further substance by the reports that the EU is considering compromise and technological solutions for its backstop proposal. This may extend to flows between Great Britain and Ireland, which has become important to them because of the volume of Irish trade that passes through the mainland, using it effectively as a bridge."

Their political bet is that, by voting down Chequers, they will be in a position to renegotiate the political declaration (though not the withdrawal treaty itself) ahead of March 2019. A no vote could have several consequences. It is not inconceivable that Theresa May and the EU could amend the political declaration in one direction or other. There could be a leadership challenge followed by new elections, with uncertain outcome. But the eurosceptics see an asymmetric game in their favour. There is little risk of a Brexit reversal. And parliament is more likely to accept a clean FTA than a no-deal Brexit.

The hard Remainers make a similar calculation - that a no-vote on a withdrawal treaty would lead to a second referendum. We think they miscalculate the odds as they miscalculated every step in the Brexit process so far - the vote itself, the behaviour of the economy post-referendum, and the political sentiment.

We thought it was interesting to see how the Labour leadership is looking at the trade-offs that lie ahead. In a Guardian story about a clash between Jeremy Corbyn and his Brexit spokesman Sir Keir Starmer we noted an interesting snippet of information. As is almost always the case in good journalism, it comes at the very end of the story. It said that Labour strategists were sceptical about a second referendum because it would pitch one group of Labour supporters against another. Fear of a second referendum might unite the Tory Party around the Chequers proposal. Labour also wants Chequers voted down, not to undo Brexit but to achieve a customs union deal instead. We find this quote from an unnamed Labour strategist very interesting: 

"The only way that her deal is going to get voted down, is if some of the European Research Group vote against it – and they’re not voting against it if they believe one of the options then is a second referendum. The surefire way to get the ERG to vote with the government is to talk about a second referendum." 

The chances of a deal are rising as the EU is now, for the first time, contemplating compromises. There is simply too much at stake for the EU as well. The impact of a hard Brexit would be undoubtedly worse for the UK, but the point that is often overlooked is that the EU has a much lower pain tolerance, since nobody on the continent voted for Brexit.

While the Irish border is quickly dissipating as a potential obstacle to a deal, immigration policy is not disappearing. Yesterday’s report by the UK government’s migration advisory committee suggested that EU workers shall in future be treated the same as workers from non-EU countries, and recommend to set an annual income of £30,000 as a threshold for employment in the UK. This means that the UK would be endorsing an immigration regime that allows almost every German worker in, and almost nobody from eastern Europe. The EU and the UK may choose not to raise this issue at this point, but there is no way the EU could accept such discrimination for any preferential trade scheme such as Chequers. The Canada option is the only one consistent with an autonomous immigration policy. And, on this point, the Labour Party is also not aligned with the EU’s position. Diane Abbott, the shadow home secretary, is in favour of a different scheme that prioritises workers from Commonwealth countries. 

Our other stories

We also have stories on the legitimacy of the spitzenkandidat model; on the EU’s investigation of the suspected German car cartel; on Macron’s decision to reorganise the health sector; on his loss of another cabinet minister; on Greek pension cuts pushed back to the last minute; on the deep reasons behind the ECB's forward guidance; and on a very German political farce.

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