Deal, or No Deal

Theresa May has announced that Article 50 will be triggered on March 29th, in just a week’s time. We (this blog’s authors) usually agree but on the issue of the Brexit negotiations our views are sufficiently different to warrant separate passages. We’ll present them both and then show that they are not necessarily in contradiction.

May v SturgeonAre we really heading for a “Tory Hard Brexit”?

We are, according to Nicola Sturgeon, who always inserts “Tory” as though it were an expletive. Yet Theresa May says she wants a close and friendly relationship with the EU and a mutually beneficial deal. Which way are we headed? 

Imagine yourself a UK negotiator at the Brexit talks – you may be a Leaver or Remainer at heart but you waCheesent a good deal for your country. You could open the negotiation like this: “Please, what do we need to do to remain in the Single Market”? Or, you might begin with: “When we leave, trading between the UK and EU is going to be the same as with China, the USA and others; or would you like a better deal for your cars, cheese and wine?” 

If you asked the first question you might well get the answer: “Give us £50 billion, and for the rest the Cameron deal still applies.” You would then spend two years wheedling and pleading for a few minor concessions. If you take the seconGunmend approach you might get a frosty answer but it’s likely that worried Continental manufacturers and farmers would become like allies behind enemy the lines, Resistance fighters against the EU and their own governments’ intransigence over a trade agreement.

On the whole WTO tariffs are quite low, far lower than they were when we joined the EU and often dwarfed by currency variations, but for some areas, like cars at nearly 10% and processed foods at even higher rates, they are a barrier to trade. Our market for EU goods in these sectors is big (the UK is Germany’Confrontations largest car-export market) and so are their trade surpluses; if necessary we could use the huge tariff income to offset problems for our own exporters. This is not what the Tory hard noses are aiming for however, they want free trade or as close as they can get.

So, if we ask for little we may get nearer to what we want than by pleading for a “soft Brexit”.

Or are we painting ourselves into a Corner?

The Prime Minister seems to have painted herself into a corner over Brexit, perhaps under pressure from the hard-nosed extremists in her party, by repeatedPainting corner-1ly saying that no deal is better than a bad deal. If this is no more than an initial negotiating position then it has as many weaknesses as strengths, notably provoking resentment and resistance from her opposite numbers in the rest of the EU. Of course she must
be careful not to put Britain in a very weak position in advance of the negotiations. 

The government has not offered a good reason for rejecting an interim solution, such as remaining in the Efta/EEA block, to which Britain already belongs as a member of the EU. This would retain access to the single market with many fewer problems than the WTO/No Deal alternative and give a longer period to negotiate a mutually beneficial deal.  Because such an interim arrangement would involve a lot less work and trouble for all those involved, it would rouse fewer negative sentiments and indicate a willingness to negotiate seriously for a mutually beneficial outcome.Good deal

Of course there are ‘hard’ forces on the other side too, not least the European Commission, which sees Brexit as a threat to its federal agenda. But even for them no deal may be worse than a hard deal with mutually beneficial components.

At present the macho men (and women) have had most of the running, it will be interesting to see who takes the lead when negotiations begin formally. It’s hard for us bystanders to understand why the machos have to take ownership of the field in advance and so risk spoiling the negotiations before they begin. Macho

Donald Tusk, President of the European Council, is pointing out, in non-specific terms, that concluding negotiations with no deal would be bad all round. He argues that it would be especially bad for Britain and many of us, outside the hard Tory right, would agree with him. Tusk reads “no deal is better than a bad deal” as a threat and says he will not be intimidated.

It seems that the EU has been preparing thoroughly for the negotiations while the British government has been relying on its conviction that it will be all right on the night and so failing to prepare for there being no deal at the conclusion, after two years; an outcome made more likely by their initial posturing and lack of imagination and preparation. Alright

Can these views be resolved?

So, we have two views of the negotiations that seem to be at odds. Yet even with a hard-Brexit as their starting point our negotiators might sooner or later have to say, “Okay, okay; this is too difficult in the time, let’s agree another EFTA/EEA variant. We must have at least the following concessions to satisfy our voters or it’s going to get rejected and we’ll have no deal, the worst outcome for us all.” But if we start with, “We want to stay in the Single Market but can we please have an EFTA/EEA deal with the following knobs on …?” the EU’s negotiators might become men of steel with hearts of ice as happened to Cameron last winter.

Professional negotiators on both teams must surely have studied game theory and will understand, for example, the Prisoner’s Dilemma.Prisoners_ Dilemma There is a mathematical demonstration which shows the Dilemma is best solved in “a world in which diplomacy trumps conflict”, in other words if both sides try to screw the other there is a high probability of generally bad outcomes whereas cooperation will minimise these risks.

Reasons to be cheerful

Whatever the posturing we hope both sides will understand what is really at stake and put their citizens’ interests first. There are many signs that attitudes have changed since last summer. When British voters decided by majority that they wanted to leave the EU its leaders were shocked and many responded aggressively, but their own dissatisfied citizens were emboldened. So it has become increasingly clear that “real politicians” across the Continent – that is, those who have been elected and may be dismissed by their citizens – are facing up to the real world. For example the re-elected Prime Minister of the Netherlands, Mark Rutte, had to adapt his views to win his electors’ approval. The German Finance Minister, Wolfgang Schauble, also realises the importance of London’s financial industry to the whole Continent, he may want to diminish that eventually but not fall over a cliff. A string of other national leaders are also now saying there needs to be a deal that’s good for everyone.

Here are some comments from the recent World Economic Forum in Davos in January: Davos

Mark Rutte: “There has been a huge shift in thinking because this whole idea of an ever closer union is now really buried. It’s gone. What you now have is a Europe which has to be relevant and not the sort of project which has a momentum of its own.” “If we continue about talking that we are step by step moving towards some sort of European superstate, that is the fastest way to dismantling the European Union.

Wolfgang Schauble: “We have to minimize the damage for the United Kingdom and Europe. The German government will work in the negotiations always in this direction, to minimize any risk for both of us,”

Pierre Moscovici, European Commissioner for Economic and Financial Affairs, Taxation and Customs: “The way to combat populism is to be popular, be popular and you can solve issues.”

Reasons to be fearful

By contrast the EU’s political appointees with guaranteed jobs and luxury pensions may wish to give the UK a beating but they’re likely to be overruled. Jean-Claude Junker continues to behave like a truculent teenager. He believTintines that by punishing Britain the others will realise it’s not worth leaving and “fall in love with each other again and renew their vows with the EU”. What a way to build a community of cooperating nations.

Meanwhile in the Brussels Brexit task force meeting room EU officials have mocked up a poster depicting the self-harm they think the UK will be inflicting on itself unless it thinks again about leaving.
They haven’t given up hope of cornering us into submission, or perhaps we’re doing that ourselves as argued above.

And finally

No one can be sure of the outcome of the negotiations, not even how long they will take in practice. Nor do we know what kind of EU we shall be negotiating with before the formal Article 50 process ends: will it be more integrated, or multi-speed, or even have lost some more members by then? This week there will be a summit meeting in Rome where leaders of the 27 and the Commission hope to agree their future. It may produce more hot air than practical solutions, as at the previous summit in Bratislava (see our post, State of the Union-4 (The Bratislava Declaration)).


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