Five concerns for the UK arising from the EU Defence Union

By David Banks. With thanks to The Bruges group on whose website this appeared previously.

There are five main areas which the EU has been pursuing in order to establish what it calls an ‘EU Defence Union’ across the 28 EU countries, including the UK.

  1. Procurement policy and incentives
  2. Finance
  3. Intelligence, Battlegroups and PESCO
  4. UK defeat over HQ
  5. Contradicting statements over UK involvement.

Since 23rd June 2016, the UK has made commitments in each of these above areas of defence with no debate in the British Parliament. Each one is described in more detail below:

  1. Procurement policy and incentives

The UK has agreed to…

    More power for the EU to enforce EU-wide tendering in defence contracts

    An expanding remit for the EU over defence industrial strategy and joint-built assets

    An expanding remit for the EU in purchasing and conduct of joint-owned assets

    Incentives for UK defence companies to engage long-term with the developing EU-wide industrial strategy

The only reason the UK is permitted to build its own aircraft carriers is by using an exemption to the EU Procurement Directive. The exemption is known as the security clause (Article 346) and is permitted when a member state feels there is a national security reason to reserve production for its domestic market. The European Commission is tightening application of the clause following a review in 2016 and has gained the consent of member states to do so. (EU Council Conclusions, 14 November 2016)

The EDA and EU Commission have a benchmark of achieving 35% pan-EU equipment procurement.

(EDA Benchmarks)

UK ministers have approved measures that allow the European Defence Agency to have a greater role in standardisation and certification. (EU Council conclusions in Security Defence, 18th May 2017)

These measures would amplify EU influence in the trading conditions of the defence sector and an additional tool for the enforcement of policy. For example, certification and mutual recognition of standards might be used as a barrier to entry to UK exporters in years ahead in the same way that EU ‘standards’ produce a barrier to non-EU exporters in other sectors. Conversely, certification and standards could be used as an incentive for UK manufacturers and policymakers to adhere to EU policy. Either way, the changes bring a measure of additional control to the European Commission.

The EU refers to EU defence industrial strategy as the European Defence Technology and Industrial Base (EDTIB) and has more recently started using the term ‘Single Market for Defence’. With the objective of ‘reducing duplication, the EU intends to integrate this market under coordinated joint projects and an EU-controlled policy environment. The aim is for the resulting combined EU defence industrial strategy to serve the needs of the EU’s ‘new level of ambition’ in a military context.

This above agreement on standardisation and certification is an additional method of directing the integration of the EDTIB beyond the two already mentioned previously: 1. enforcement of the pan-EU Procurement Directive and 2. financial incentives via the European Defence Fund.

The EU Commission could conceivably tell the UK after Brexit that ‘access’ to its newly coordinated ‘Single Market for Defence’ requires adherence to the Procurement Directive. Also, now that UK participation in the European Defence Fund’s imminent incentive programmes is being concluded, UK ‘withdrawal’ could be viewed by the EU as an act that warrants retaliation or requires UK concessions.

  1. Finance

The UK has agreed to…

    The creation of the EU’s first central military budget, the European Defence Fund

    The use of European Investment Bank money (16% UK shareholding) for the European Defence Fund

    The creation of a Cooperative Financial Mechanism (CFM) to augment the European Defence Agency

    The creation of a Coordinated Annual Review of Defence (CARD), a mechanism which sees the EU offer financial incentives for adherence to EU planning over member state defence budgets.

The European Defence Fund will begin with a budget of only a few billion euros, but this money will be dangled in front of policy makers and defence companies to steer them towards joint activity and a policy environment that is under EU authority.

Millions of euros have already been placed into an “unprecedented level of engagement” with defence companies including defence industry conferences in the UK financed by the EU Commission, which started in April (Southampton) and are continuing throughout 2017 (Bournemouth etc).

UK companies are being invited to bid for the first tranche of European Defence Fund money in June 2017, via an EU Commission / EDA programme known as PADR (Preparatory Action for Defence Research). The programme is even being promoted by the UK Defence Solutions Centre, a UK-Government-funded unit which was formed to boost output of UK defence companies.

According to the EU Commission and EEAS, the Cooperative Financial Mechanism “will strengthen the European Defence Agency” as a central EU defence capabilities tool. The mechanism appears to be separate to the European Defence Fund. It is designed to manage member states’ money in a joint budget and will be spent on EDA research projects, military units conjoined under Permanent Structured Cooperation and joint assets.

This added financial firepower for the EDA overrides many years of policy by UK ministers who argued that the EDA’s scope and budget should be restricted. (European Defence Agency ministerial steering board, 18th May 2017)

The UK Government has a 16% (EUR 39 billion) stake in the EIB, the same as Italy, France and Germany (the four largest shareholders). The EU Commission is changing the lending criteria of the EIB to ensure it supports the European Defence Fund. The EIB is an instrument of the EU and operates in adherence to EU policy. There has been no confirmation of whether the UK will withdraw from the EIB, but to remain a shareholder would mean a level of participation in EU policy. The EIB has placed funds into infrastructure projects in the UK including Crossrail and the Manchester Metrolink.

The UK’s consent to EIB funding for UK defence industries provides the EU with additional locks on UK participation in EU defence policy and on its EIB shareholding. These additional locks were made after the UK’s referendum on EU membership and add to the task of unravelling these links after Brexit.

  1. Intelligence, Battlegroups and PESCO

The UK has agreed to…

    An increased size, scope and infrastructure of the EU’s military intelligence agency as a central ‘hub’.

    Participation in a 2019 EU Battlegroup under EU Council control. Approval given pre-referendum. No confirmation from MOD about whether it is cancelled or continuing.

    Drop objections to Permanent Structured Cooperation (first version of permanent military unification) by willing member states. MOD will not confirm whether the UK is staying out or not.

The European External Action Service (the EU’s ‘foreign ministry’) has put forward plans to grow the role of its intelligence agency known as the Single Intelligence Analysis Capacity (SIAC). (EU Council conclusions in Security Defence, 6 March 2017 and 18 May 2017).

SIAC is composed of the EU Military Staff Intelligence Directorate and the ‘civilian’ EU INTCEN. The EU Council agreed to develop them as an EU “hub for strategic information, early warning and comprehensive analysis”.

Member States, including the UK, have been asked to consider initiatives and ways to interact with these plans. (Security and Defence Implementation Plan, 14 November 2016).

The UK was scheduled to lead an EU Battlegroup in Jan-Jun 2019. The MOD will not state whether Britain’s participation will be cancelled or proceed.

The UK has agreed to…

 The reordering of EU agencies to include ‘permanent planning’ of EU defence missions and a ‘coordinated military command chain’.

    The creation of a permanent military HQ with staff responsible for strategy and operations. It was kept as a non-executive function of the EU, but executive power over EU military developments rests with the EU Council and EU Commission.

    Drop its objections to the wordings that describe the new HQ (May 2017) because previous approval in March 2017 had made later objections invalid.

The EU Council, with UK consent, has agreed to reorder the European External Action Service to “develop the necessary structures and capabilities for the permanent planning and conduct of CSDP missions and operations” with “distinct but coordinated civilian and military chains of command”.

These will work under the political control, strategy and leadership of the EU Council’s Political and Security Committee.

(EU Council Conclusions, 14th November 2016, with UK ministerial approval. Confirmed by EU Council heads of government conclusions, 15th December 2016)

The plans include the creation of an operational HQ, the Military Planning and Conduct Capability (MPCC). While the UK made an issue of the MPCC being prevented from having executive powers, this was a pointless fight as the executive power over the MPCC’s deployments already resides with the EU Council.

(EU Council Conclusions, 6th March 2017. Confirmed by EU Council conclusions, 18th May 2017)

  1. Contradicting statements over UK involvement.

The UK has agreed to…

    Participate in measures that apply to UK defence without the approval of Parliament, nor even a debate.

    Participate in developing plans until at least March 2019, possibly March 2022 or even longer.

    Provide the EU with several new powers over UK defence and a new bargaining chip for the EU.

    Accept measures that mean a more complicated and time-consuming withdrawal process that the UK didn’t face before the first of the EU Defence Union agreements in November 2016.

    Provisional statements on PESCO (Permanent Structured Cooperation) while keeping open the prospect of UK participation in PESCO and the EU Council-controlled EU Battlegroups in 2019.

Each time new agreements are made, additional hours will need to be spent on severing EU ties and controls. New agreements are currently being formed in finance, intelligence, regulation, procurement strategy, joint assets, joint missions and research. This will impact upon several departments of government.

The duration of UK involvement might be expected to be until March 2019 (the anticipated end of Britain’s membership) and possibly March 2022 (end of a three-year transition deal which requires adherence to EU policy) and potentially even longer. Until then, even adhering to new EU measures (in finance, intelligence, regulation, procurement strategy, joint assets, joint missions and research) will add complexity to the UK’s exit negotiations, potentially extending the duration of the exit process.

Not a single one of these agreements at the EU Council has ever been mentioned in the House of Commons, let alone subject to a vote by MPs. All defence agreements at the EU Council take the UK further down the road of military integration and have had an immediate effect regarding UK participation. The EU Commission immediately embarked on a dialogue with UK defence companies about incentives to participate in EU defence integration projects.

EU Council conclusions are considered by the EU commission to have been co-authored by UK diplomats. Therefore, if a minister does not raise objection during an EU Council meeting, conclusions are considered to represent a joint direction, or consent, of all member states.

The EU Commission has stated that agreements the UK enters as a member state “must be carried out in full” while the UK remains subject to the EU’s treaties.

In addition, the EU has said it is not willing to even begin to discuss UK withdrawal from EU defence arrangements until a withdrawal agreement has been settled and “all other matters” agreed, because defence is “too important to be a part of the main negotiations”. This means the UK will be obliged to adhere to these rapidly developing measures for at least two years to 2019 and there is a real possibility of the UK being tied in for an additional transition period of three years up to 2022.

The Foreign Office minister Sir Alan Duncan wrote to the European Scrutiny Committee chairman in December 2016 to inform the committee of the plans and agreements the UK was entering, as is required under UK Parliamentary protocols. Sir Alan Duncan told the committee there were parts of the Security and Defence Implementation Plan (SDIP) which his team ‘liked’ and no decision had yet been made over the quantum of UK involvement and for how long. This may be contrasted with the Foreign Secretary’s October and November statements that the UK did not wish to prevent the EU27 from participating in agreements in which the UK had no interest itself in participating.

The European Scrutiny Committee marked Sir Alan Duncan’s letter and corresponding agreements as ‘politically important’ to have them discussed in the relevant Parliamentary Select Committees of Foreign Affairs, Defence and Exiting the EU.

Meanwhile, the EU Commission will know it may now employ all of the UK’s recent set of agreements in defence as a bargaining chip, a threat, a delaying tactic and a deepening ‘binding agent’ to EU membership. It is conceivable that EU officials will cite the example of UK defence companies who have the promise of European Defence Fund money as a means of influencing or undermining perceptions among UK observers or negotiators in the realm of defence.

Finally, an answer we received from the MOD (19th May 2016) said that the British government had not ruled out joining PESCO in spite of its control by EU Council and CSDP:

“Decisions on UK engagement with CSDP after we leave the EU, including with initiatives such as PESCO, will be part of the wider negotiations.”

A UK Rep spokesperson had earlier (18th May 2016) told us the UK might participate in the EU Battlegroups after Brexit, which is also controlled by the EU and CSDP.

Photo by Doppeladler

Brexit was never an economic proposition

If there is one universal truth about we eurosceptics it is that, aside from hating the EU, we cannot agree on anything. Over the last three years I have had more arguments with Brexiteers than I have remainers – and made more enemies on the Brexit side than remain.

The crucial bone of contention is the mode of leaving the EU. Anything that it not “hard Brexit” is denounced. There are many who believe that Brexit is simple and that there is no cause for delay. I wish that were true. Worse than that, though, are those who know it not to be simple but maintain the pretence that it is. I have no time for intellectual dishonesty.

I am also less enthused by Brexiteers who insist that Brexit is an economic miracle waiting to happen. It isn’t. Trade is a fiendishly complex endeavour and we will doubtlessly have to march double time just to get back to where we are. All of our present trade relations are via the EU and restoring and optimising those links will take time.

Personally I see no reason to make an economic argument for Brexit. It is not an economic proposition – and if there is one thing we can all agree on it is that Brexit is ultimately in the interests of democracy. The economy is entirely secondary.

At one point I might have made the case that Brexit will bring about cheaper food, clothing and much else – but I now have serious doubts about this. Trade in the modern global system is a lot like whack-a-mole and not every thread is one you necessarily want to pull on. There are no sweeping unilateral measures we can take and and every measure we do take will have consequences. Everything we do must be done carefully and with due consideration as to the potential fallout.

If Britain is to make a success of Brexit we will need to seek out sector specific alliances and work through the multilateral system and use collective pressure to bring about the changes we want to see. There is only so much we can do unilaterally.

This is why I believe an Efta EEA Brexit would be the more intelligent path in that Efta with the UK would make the fifth largest bloc in the world and one which could bring to bear considerable pressure on the EU to drop some of its protectionist measures. In some circumstances we are more likely to achieve EU reform from the outside. Failing that, Britain is going to find it difficult going it alone.

There are some who still believe we can pick up where we left off with old allies but the old rule is still the same; twice the distance means half the trade. To an extent the internet and trade in services breaks this rule but New Zealand and Australia are in a different sphere of regulatory influence. We on the, other hand, will still be in the EU’s gravitational pull come what may.

More to the point, any alliances we make must be toward addressing particular problems – and our most pressing being that of the migration crisis where all our efforts must be focussed on those trade measures which best eliminate the push factors in Africa. We are going to have to coordinate our efforts with the EU and we will still need close cooperation in order to make an impact. We may leave the EU but we cannot turn our backs on Europe.

I take the view that Article 50 talks and any subsequent trade talks must not be viewed as a chance to get one over on the the EU. If we play that game we will lose. We have to take a more collaborative approach and for the time being we are in a mode of damage limitation. We should leave the radicalism until we have left the EU. Brexit is radical enough for the moment.

The short of it is that we need to be more honest and realistic about what Brexit will achieve economically. We are certain to take a hit and it is insulting to pretend that we won’t. We all knew Brexit would have economic consequences – and if we are honest, none of us cared. We would have voted to leave regardless.

Primarily our future prosperity depends on fixing our politics here at home. That is what Brexit is about. Our politicians continue to abdicate from their responsibilities, handing to Brussels enormous areas of policy while they tinker on the sidelines. We continue to kick the can down the road on serious economic reform and and we have only really dabbled in “austerity”. Since our politicians have been incapable of making the hard choices, we have forced their hand. Vanity spending will have to be cut, electoral bribes will have to be slashed and white elephants will have to go on the barbecue.

In this we will have a reckoning with the wastrels, posers and charlatans of Westminster. We will have some almighty rows and we will tear the status quo apart. That is primarily what I voted for. I am under no illusions that it will come at great cost, I am as worried as any remainer about what it holds for the immediate future, and I am troubled by the wrong-headed approach to Brexit. All I know for certain is that this is a thing we must do and there can be no turning back.

At heart I am a libertarian. I take the view that every entitlement from government comes as a moral cost – and everything we get from government comes at the expense of certain liberties. There is no greater means of controlling a population than to make them dependent on government.

This is the paradigm we have had ever since World War Two. It has crushed our self-reliance, it has weakened our entrepreneurial flair and it has corroded society in all manner of pernicious ways. It has made Britain a spoiled, selfish and lazy country. It has made us a command and control economy with a cosseted middle class propped up by state spending and our whole economy is a house of cards. A Ponzi scheme. And Ponzi schemes always fail.

This is why Brexit is a revolution. It is the economic and moral revival we have been unable to secure by other means. We will prosper from Brexit not because of any direct consequence of leaving the EU but by tearing down the ossified structures of yore and rediscovering ourselves.

Shortly before the referendum I was out talking to people about Brexit. I asked a lady why she was voting to leave. I told her that we probably would take an economic hit but her reply was quite simple. “Something has to change”. And that is what gives me confidence.

We were not hoodwinked by the Boris bus, we were not fooled by Russian interference or computer algorithms. We went into this with our eyes wide open. Let us not patronise or pretend. Let us say it out loud that this is not an economic venture. This is purely political and the economy must be subordinate to political concerns – otherwise we might as well go the whole hog and abolish elections.

I did not vote for Brexit to spend £350m on the NHS. I don’t think Brexit is a free trade miracle. I just know that our politics is spent and if our politics is spent then so is our economy. We cannot fix the economy until we fix our politics. Let no man or woman interfere with that. If we do not see this through then we are not deserving of prosperity.

Reflections one year on from the referendum

The morning of 24th June is a day I will never ever forget. By 4AM, I had given up any idea of sleep and was watching the results of the referendum on my computer as they were posted up on the BBC website. I had always believed that we could persuade our countrymen that we would be better off out of the EU, but David Cameron had gone for a quick cut-and-run campaign to minimise our chances of success. However, as soon as I saw the relative totals for leave and remain, my heart leapt. We’re going to pull this off after all! Less than two hours later, the number of leave votes passed the crucial 50% mark. “We’ve done it! We’ve done it, We’ve done it!” I shouted at the top of my voice. It was not yet 6AM and normally I would be much more considerate towards my neighbours, but after sixteen years of campaigning for our country to leave the EU, my overwhelming feelings of joy momentarily got the better of me.

Thankfully, my neighbours have never complained. Perhaps they are sound sleepers. Perhaps the soundproofing of our late Victorian semi is better than I thought. Whatever, I don’t think I will be giving a repeat performance!

I spent much of the rest of the day in a daze. We’re really going to leave! It was hard to take it in. This was the greatest day in our country’s history since the end of the Second World War and I felt a great sense of pride in having played a part, albeit only a very small one, in achieving this memorable result.

One year on from that incredible day, the memories are still fresh in my mind, as I’m sure they are in the minds of many other leave campaigners, but in the meantime, what a roller-coaster we have endured!  There was the court case brought by Gina Miller, the uncertainly about whether Mrs May’s European Union (notification of withdrawal) bill would make it unscathed through both houses of Parliament, the sense of relief when Article 50 was finally triggered in March as the Prime Minister had promised, the reluctance of the economy to tank in spite of the predictions of George Osborne’s “Project Fear” and most recently, the shambolic General Election which was meant to increase the Government’s majority but instead left the Tories turning to the DUP in order to maintain any sort of hold on power.

In spite of the chaos, the Brexit negotiations have started and we are still on course to heave the EU in just over 21 months’ time. Media reporting seems to have plumbed new depths since the election results were announced and it has been hard to distinguish the wood from the trees. Terms like “hard” and “soft” Brexit are bandied around often without any explanation, leading some concerned leave supporters to equate “soft “Brexit” with  not actually leaving the EU at all.

From what I can gather after reading complete articles, including actual quotes, rather than just the headlines, there are very few politicians who actually want to stop Brexit. Many more are concerned about the implications for UK businesses if we don’t end up with a decent trading arrangement. Such concerns are actually quite reasonable and do not in any way imply that they want us to stay in the EU.  Soundings from Parliament after last June’s vote indicated that the overwhelming majority of MPs accepted the result and would not wish to frustrate the will of the people. The General Election has not significantly altered this.

Of course, with David Cameron not having made any preparation for our voting to leave, the government and civil service are on a sharp learning curve and we still await evidence that they have got on top of the brief which the electorate gave them a year ago. Our biggest concern must surely be a chaotic – or more likely sub-standard – Brexit rather than no Brexit at all.

The main reason why I remain confident that Brexit will happen in some form or other  lies in the nature of the Conservative Party. The Tories were given a nasty shock two weeks ago. They went into the campaign expecting to flatten Labour. Instead, they only just limped over the finishing line. Most Tory MPs voted to remain last year, but the vast majority of the party’s activists and supporters are strong leavers. The Tories  hoovered up quite a few UKIP votes on a platform of leading us out of the EU. Given these issues, any backtrack on Brexit would precipitate the worst crisis the party has faced since 1846 when it split down the middle over the repeal of the Corn Laws. They dare not go there.

What is more, the party will be keen to renew itself well before the next General Election in 2022. While removing Mrs May now would only add to the sense of  chaos which has prevailed since the General Election, it is hard to imagine she will still be in power in March 2019, perhaps not even in March 2018. If the party is seeking a dynamic new leader to revive its fortunes, given the ultimate say will lie with its predominantly Thatcherite Eurosceptic activists,  Mrs May’ successor is likely to be an MP with proven Brexiteer credentials.  The party faithful will not make the mistake of choosing another Cameron.

This will not make his (or her) task any easier, but still gives me hope that in March 2019, that historic vote which brought us so much joy a year ago will be translated into reality and we will finally achieve that goal for which so many of us have been striving for so long.

Brexit – the Irish angle

Nigel Dodds, the Deputy  leader of the Democratic Unionist Party who leads the party’s MPs in Westminster, responded  to the recent Queen’s Speech by saying, “Let me make it very clear – I believe when people voted in the European Union referendum to leave the European Union that they voted to leave the single market and customs union. And I believe that Northern Ireland must, along with the rest of the United Kingdom, do likewise.” He added, “We must not get into a situation where we have borders erected between the island of Ireland and the rest of the United Kingdom.”

The status of the border between Northern Ireland and the Irish Republic – the only land border between a newly-independent UK and the EU – is  one of three issues which the EU wants to settle before trade talks can begin. Professor Anthony Coughlan, the veteran Irish Anti-EU campaigner, has proposed that the best way of resolving this problem is Irexit – in other words, the Republic of Ireland should leave the EU as well. He argues that is is logically the best thing to do, even though it is “unpalatable” for many in the Republic.  “If one quarter of the Irish people and one fifth of Ireland’s land area are going to leave the EU because they are part of the UK, has the rest of the country any real alternative but to follow, however reluctantly?” he asks.

It is the Republic, not the UK, which will be the big loser from Brexit if it stays in the EU, he argues. “Dublin and London want to maintain the common Anglo-Irish free travel and trade area. But if the Republic opts to stay in the EU when Northern Ireland and Britain leave it, it is the Republic of Ireland, not Britain, that will be putting the common area at risk. London has Dublin over the proverbial barrel on this.  It can bend Dublin to its will if it so wishes.  There is no international law or moral right to a free-movement facility like this between two different sovereign States.”

He also highlights the problems caused by the EU’s desire for closer military integration, a subject which Donald Tusk, the President of the European Council, highlighted as a priority three days ago.  “If the Republic remains in the EU when the UK leaves, it means that it will become part of an EU military bloc under German hegemony.  That can hardly be in the security interests of the UK.

As an aside, it is interesting that Professor Coughlan, looking at our current situation from across the Irish Sea, takes a far more measured approach than some of the ridiculous headlines we have seen in the press recently. “The fundamental point to grasp about the post-UK-general-election situation is that Brexit is going to happen, whether under Theresa May, Jeremy Corbyn or someone else. The UK is going to cease being an EU Member State.  The only issue still open is how long this will take.” Absolutely. What is more, a recent communication from the European Council on the subject of relocating the EU agencies currently based in the UK (the European Medicines Agency (EMA) and the European Banking Authority (EBA)) says the same thing:- “As the United Kingdom has notified the European Council under Article 50 of the Treaty on European Union of its intention to leave the Union, it is necessary to move the two United Kingdom-based Agencies to other locations within the Union’s territory.” Whatever the rhetoric, the EU is gearing up for Brexit.

Yes, we are going to leave, even if the timescale and route of our exit are still uncertain. As far as the impact of Brexit on the Irish Republic is concerned, the next few years will be very interesting. The country has recovered from the Great Recession better than the other so-called “PIIGS” (Portugal, Italy, Ireland, Greece and Spain). Unemployment stood at 6.4% and youth unemployment at 12% in April, compared with more than 20% and 45% respectively for Greece. Furthermore, the Irish housing market, which took a battering in the Recession, has recovered. Nonetheless, the country is one of few in the Eurozone which may return to deflation. Given that the €uro has been the  culprit for all of Ireland’s recent economic woes, the chance to escape its straitjacket may become more appealing as Brexit draws nearer.

 

 

Can it really be done?

In just over 21 months time, we will hopefully be leaving the EU. With the exception of military matters and the European Arrest Warrant, Mrs May’s objective appears to be for the UK to enjoy a looser relationship with the EU than that of any other European country which is not a member state, apart from countries like Belorus and Russia.

After all, all four EFTA countries (Switzerland, Norway, Iceland and Liechtenstein) are part of the Schengen area while several micro-states including Monaco, San Marino and the Vatican City use the Euro. Turkey is part of the EU’s Customs Union while Norway, Iceland and Liechtenstein are, of course, part of the European Economic Area.

Can we realistically expect to reach a greater degree of detachment than these countries by March 2019? The Government has not gone into any detail about how it proposes to achieve such a radical divorce in a very short space of time, but the Bruges Group published a booklet earlier this year, entitled  What will it look like? How leaving the single market can be made to work for Britain. Two of the authors, Robert Oulds and Dr Lee Rotherham, are CIB Committee members.

The problem with staying in the European Economic Area by rejoining EFTA is that it would not resolve the customs clearance issue. We do need a customs agreement with the EU, as a lack of a deal in this area is the biggest problem which our trade with the EU would face. (Just to reiterate, a customs agreement is totally different from remaining in the customs union which, as we have pointed out, is irrelevant as far as Brexit is concerned.)

By contrast, standards compliance rarely causes delays. Another red herring is the issue of access to the EU’s financial services market. It can be accessed from outside the EEA, as the authors explain.

The key to a successful trade deal lies in identifying the potential problems early on, which the authors seek to do in this publication.

With the terms “Hard” and “Soft” Brexit bandied about without everyone being agreed on what this means, the authors claim that there is no such thing as a truly “Hard” Brexit. but  there are significant obstacles to be overcome. Nonetheless, a trade agreement between the EU and the UK, focused on tariff reduction and clearing customs, could take just 18 months to complete.

The authors explain why UK’s bargaining position is stronger than many commentators believe. Given that David Davis has already had to concede to his EU counterpart’s demands that talks on a trade deal cannot begin until other exit arrangements have been agreed, any strong cards in his hand will, I am sure, be most appreciated.

 

 

On the EU side, there has been some posturing too

Mrs May and some members of her team have gone on record to say “No deal is better than a bad deal”, but realistically, “no deal” was never an option. The worst scenario would have been an incomplete, partial deal and with neither side wanting a cliff-edge scenario in March 2019, even this would not be anyone’s preferred option. For all the dire warnings of Yanis Varoufakis, Greece’s former Finance Minister, the UK is not Greece.  We would suffer more than EU-27 from a non-deal, but it would not be in the EU’s interests to be obstructive and prevent an agreement being signed.

To prove the point, it is now emerging that some of the tough rhetoric from the EU side which we heard in the immediate post-referendum period has turned out to be little more than posturing. Barely three months ago, it was widely reported that Spain would be given  a right of veto over the final deal with the UK and would have the full support of the other EU member states if it chose to take a tough line over Gibraltar. Recently, however, Alfonso Dastis, Spain’s Foreign Minister,  has stated that his country will not block any Brexit deal and that talks over Gibraltar’s future will be handled on a bilateral basis. “The issue of Gibraltar doesn’t have to be the first, nor the most important point during talks,” he said.

Another example of hot air is the EU’s apparent desire to remove the lucrative €uro clearing business from the City of London to somewhere within the Eurozone.  This would have been a political gesture rather than an economic necessity. After all, most clearing in the Saudi Riyal takes place in London without any heart-searching in Riyadh. Writing in City AM, however, Mark Field, the City of London’s MP claims that “All of the EU politicians and financiers I have spoken to understand that this is a risk not worth taking. They express no desire to prevent euro-denominated trades from being cleared in London and indeed privately rail against the notion that such business might be forcibly moved to Paris.” He also points out that “Most sensible players implicitly understand that if London is undermined, key participants in the financial services industry will move not to Frankfurt, Dublin or Paris but to New York, Singapore or Shanghai.” Absolutely. In or out of the EU, London  will remain Europe’s principal centre for financial services for the foreseeable future.

On the surface, however, it does appear that the EU has turned the corner after its recent problems. Its economy is performing better than at any time since the Great Recession of 2008 and eurosceptic parties in the Netherlands and France failed to make any breakthrough in recent elections. France’s new President, Emmanuel Macron, is a strong supporter of the EU and his triumph is encouraging the Eurozone to consider pressing on with further integration. Even Germany’s ever-cautious Angela Merkel recently indicated that she would “consider a common finance minister, if the circumstances are right,” adding “we could also consider a Eurozone budget if it is clear that we are really strengthening the structure of the economy and doing sensible things”. 

Donald Tusk, the President of the European Council, has also adopted a very upbeat note in his invitation to the EU’s leaders for the next meeting. “It is fair to say that we will meet in a different political context from that of a few months ago, when the anti-EU forces were on the rise. The current developments on the continent seem to indicate that we are slowly turning the corner. In many of our countries, the political parties that have built their strength on anti-EU sentiments are beginning to diminish. We are witnessing the return of the EU rather as a solution, not a problem.”

There is a big “but”, however. A recent survey by Chatham House, a foreign policy think tank, pointed to a wide gap between the opinions of the EU’s “élite” (defined as leading figures from politics, media, business and civil society) and the general public and even the élite is not as optimistic as Mr Tusk’s words would have us believe.  Only 34% of the public feel they have benefitted from the EU, compared with 71% of the élite while a majority of the public (54%) think their country was a better place to live 20 years ago, which in some cases means before their country joined the EU.

The study also finds 48% of the public wants the EU to hand back powers to member states, while only 31% of the élite are keen on this idea. Less than 1 in 4 of the general public support extra powers for the EU and even among the élite, the figure is a mere 37%. What is more, among the élite, almost one in two (46%) thinks that another country will leave the EU within the next decade. The figure for the general public is 58%.

While the groundwork for the survey was undertaken between December 2016 and February 2017 – in other words, before the Dutch and French elections – it still painted a rather fragile picture of the EU, suggesting that Donald Tusk’s comments may be somewhat over-optimistic. To prove the point, less than a week after Macron’s triumph, several members of his cabinet have already quit. If plans for further Eurozone integration do fall foul of public opinion, any revival of enthusiasm for the EU project among the general public may prove short-lived.

None of this reduces the challenges facing the UK government in the Brexit negotiations. Indeed some have argued that a strong EU may be more willing to grant a favourable deal to the UK than one which believes itself to be on the back foot. What we can say is that it is far from certain that the UK’s negotiators will necessarily spend all the next 21 months facing representatives of an organisation which is self-confident or even united.

Photo by D-Stanley