No surprise, no progress.

Theresa May travelled to the European Council meeting last week in the hope of persuading the leaders of the other 27 member states that sufficient progress had been made on the three sticking points of the Irish border, the “divorce bill” alias the EU’s exit payment and the rights of EU citizens living in the UK. Any gambler could comfortably have bet on her being disappointed. The language on both sides was very polite, but all that has been agreed is to talk about talks.

If Mrs May or other members of her government  had any hopes that a “divide and conquer” strategy would work, going over the head of Michel Barnier from the Commission, they must now be realising that it won’t work. For all the divisions within the EU, some of which we have mentioned here, when it comes to Brexit, there is unity. No trade talks until sufficient progress has been made on the three sticking points.

France’s President Macron said that there was still much work to be done on the financial commitment before trade talks can begin, adding: “We are not halfway there.” Such a statement can easily be married with the more positive tone from Council President Donald Tusk, whose denial that the talks were deadlocked contradicted a statement to this effect from Michel Barnier.

For anyone still muddled by contradictory reports in the media who is seeking final confirmation that the EU does not consider sufficient progress to have been made, this statement from the European Council says it all.

Mrs May is currently between a rock and a hard place. She may or may not decide to listen to the voices from within her own party telling her to walk away altogether, but one thing is for sure – she cannot stop the Brexit clock. Her loyalty to her own party cannot be questioned and she knows that any attempt to backpedal would result in the Tories tearing themselves to pieces.

On the other hand, she cannot ignore the concerns expressed by businesses. It’s not just government ministers and bloggers who are warning about aircraft not being able to take off after Brexit. Some UK airlines are preparing to warn their customers that flights booked after March 2019 may not take off and they will not pay compensation if planes are grounded. Meanwhile, the UK Chamber of Shipping has expressed similar concerns about the problems UK ports will face if there is no deal, calling such an outcome an “absolute catastrophe”.

EU sources continue to express their belief that eventually a deal will be struck, even though some people such as Owen Paterson, a former cabinet minister, have said that no deal is “inevitable.”

Who will be right? Unfortunately, Mrs May’s charm offensive has achieved little.  The EU is a very rules-based organisation and it is going to stick to the letter in the forthcoming negotiations. I may be wrong, and would be happy to be eating humble pie in 18 months, but I fear that unless our side really gets to grips with how the EU works, Mr Paterson may end up being correct by default.

Cough, cough, but no new insights on Brexit

There were at least two statements about Brexit during the Tory conference which show that some at least within the party appreciate the seismic change that Brexit involves. Firstly, Philip Hammond, the Chancellor, said that Brexit was “one of the most challenging tasks ever faced by a peacetime government in Britain.”  He is quite right there. Secondly, Jacob Rees-Mogg  challenged Theresa May’s assertion that her government would not be “defined by Brexit.” It “is the defining political issue of our time and and to pretend otherwise…is absurd”, he continued, comparing the changes Brexit would bring to the Great Reform Bill or the Glorious Revolution of 1688.

Again, all well and good, but we were expecting something more from the Prime Minister in her keynote speech, particularly more detail on what the route to Brexit was going to look like. Sadly, we were to be disappointed.

Mrs May reiterated that we would leave the EU in March 2019. No back-pedalling here or she is toast – and she knows it. She then continued “I know some find the negotiations frustrating, but if we approach them in the right spirit – in a spirit of cooperation and friendship, with our sights set firmly on the future – I am confident we will find a deal that works for Britain and Europe too. And let’s be clear about the agreement we seek.”

Oh no! Next came that awful phrase again “deep and special” – twice, in fact.  Please bury this one, Mrs May. It’s just as bad as “strong and stable” which the voters found so unconvincing in June.  It doesn’t reflect reality and sounds rather soppy. Mind you, what came next as she fleshed out this overworked cliché sounded rather familiar too:- “A partnership that allows us to continue to trade and cooperate with each other, because we see shared challenges and opportunities ahead. But a partnership that ensures the United Kingdom is a sovereign nation once again. A country in which the British people are firmly in control.” Once again, her statement begs the obvious question, “yes, but how are we going to get there?”

What is more, Mrs May ignored the unfortunate reality that negotiations on this partnership are not even going to be started any time soon. Yesterday, the European Parliament passed a resolution which stated that the “absence of any clear proposals has seriously impeded the negotiations”. The Parliament is “of the opinion that in the fourth round of negotiations sufficient progress has not yet been made” in the three key areas. Of course, the resolution is significant but merely a non-binding expression of opinion, not having been introduced by the EU Commission.

Maybe a speech at a party conference is  not the best occasion for announcing a new initiative on Brexit to unblock the talks, but when exactly will the moment come? Her words on Brexit today could have been cut and pasted from the Florence speech, which was received politely by the EU’s leading lights who then pointed out that it gave little idea about the sort of deal Mrs May is seeking, both for the interim and longer term.

To be fair to the Prime Minister, she wasn’t at her best, having to deal with a persistent cough and – as if that was not enough – a moronic intruder who somehow gatecrashed the meeting, handed her a P45 saying “Boris made me do it.” However, the issue goes deeper – and affects not only the Prime Minister but, it seems, a considerable number of Members of Parliament – they still fail to understand what the EU project is all about.

During the German General Election, one politician, when asked about Brexit, said he regretted that the UK always viewed the EU as an economic rather than a political project, this failing to see its value – at least in his eyes. This man, whether by accident or not, has hit the nail on the head. It explains why we are  getting two different pictures from the UK and the EU side whenever they report on the current negotiations.

To put it simply, the UK negotiators (and, I would suspect, Mrs May), are viewing  these negotiations through this same historic mindset. The EU must want a trade deal with us because surely it would be foolish not to. Look at how their businesses would suffer without one. Therefore, if we complete the repatriation of the acquis by Brexit day, there should be no reason why should we not trade as before – well, more or less – as there will still be regulatory convergence.

The EU’s reply, reiterated ad nauseam by Michel Barnier, is that we will be a third country on 29th March 2019. We will be outside the EU’s political bloc, whose ongoing integrity matters far more than trade deals. If the EU was prepared to reduce Greece to poverty – and Greece wasn’t even talking about leaving the EU – why should it put trade before politics in the Brexit negotiations? To repeat, for us, it’s all about trade whereas for the EU, it’s all about politics. Even discussion of any interim arrangement needs to be viewed in that light.  The EU simply will not let us enjoy two years as an honorary member of the club while outside the jurisdiction of the ECJ  and refusing to continue to abide by the EU’s free movement rules. It is another terrible and overused cliché, but only when our politicians can learn to see how the EU project is understood by the likes not just of Barnier, Juncker and Verhofstadt, but also of national leaders such as Merkel, Macron and even Varadkar – and realise that they are all more or less of the same opinion – will we be able to escape the “having cake but eating it” mindset which has so bedevilled the negotiations from the very start.

There are grounds for hope that at least some MPs are belatedly beginning to understand the nature of the EU, so I have been told, but they need to spread the word among their colleagues pretty quickly if we are to have any hope at all of leaving the EU in March 2019 with any sort of deal worthy of the name.

 

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Paved with good intentions?

If Mrs May hoped that her speech in Florence would unblock the Brexit talks, she must be feeling somewhat disappointed. Yesterday, Donald Tusk, the President of the EU Council politely welcomed its “constructive and more realistic tone” but then went on to say, “As you know, we will discuss our future relations with the United Kingdom once there is so-called ‘sufficient progress’. The two sides are working hard at it. But if you asked me and if today Member States asked me, I would say there is no ‘sufficient progress’ yet.”

Mrs May’s speech, as we mentioned recently, was  optimistic in tone and stated very clearly that the EU had never really worked for us. It “never felt to us like an integral part of our national story” although she stressed her enthusiasm to work closely with it once we leave.

But what exactly would this new partnership look like? “The question is then how we get there: how we build a bridge from where we are now to where we want to be,” said the Prime Minister. Unfortunately, she failed to answer her own question, apart from stating that a transitional period would be needed and ruling out ongoing membership of the European Economic Area, even in the short term.

The speech encapsulated the problem with which the Government is struggling. Like Boris Johnson, Mrs May sounded very hopeful about the UK’s prospects post-Brexit. She is right to do so. We potentially have a great future as an independent nation. The problem is reaching this point with our economy intact. Daniel Hannan has recently joined in the trade debate. enthusing about the prospects for free trade once we’re out of the EU, but we keep coming back to the same question:- how are we going to leave?

It isn’t helping that our team, led by David Davis, accepted the EU’s preconditions that discussions on a wider future relationship, including trade, cannot begin until “sufficient progress” has been made on the Irish border issue,  the “divorce bill” and the rights of EU citizens currently living in the UK. Mrs May stressed that the EU needed to “be creative” in working out its future relationship with the EU, while David Davis insisted that there should be  “no excuses for standing in the way of progress”.

But even if the outstanding issues are resolved, and there is little sign of any meaningful agreement as yet, what sort of agreement exactly does the UK want? Michel Barnier, the EU’s chief negotiator, has called  for  “a moment of clarity” from the UK’s side. He is quite right to ask this question as there are plenty of us this side of the Channel who can’t wait to see the UK safely out of the EU but at the same time are in a quandary regarding how the Government proposes to  get us there. The hints in Mrs May’s speech about the sort of transitional arrangement she would like suggest somehow more or less staying in the EU but somehow not being subject to the European Court of Justice – in other words, still in “having cake and eating it ” territory and thus unacceptable to the EU.

Scan through our website and read the comments on earlier articles and you will find a few people doubting if Brexit will ever happen and fearful that Mrs May is going to betray us and call the whole thing off.  While fully appreciating the anxiety of such people, I do not believe this to be remotely possible. The slightest hint of back-pedalling on Brexit and Mrs May would immediately face a leadership challenge. What is more, the Tories garnered much of the leave vote in last June’s  General Election because they promised to deliver on Brexit. Following the better-than-expected showing by Labour under Jeremy Corbyn, a botched or half-baked Brexit means electoral meltdown for the Tories and they know it.

Mrs May and her team are therefore under great pressure. There is no turning back, whatever some sections of the press may say – or indeed, secretly wish for. One possible scenario is that Mrs May and David Davis may pull out of the talks, blaming EU intransigence and falling back on the “no deal is better than a bad deal” position – in other words, the so-called WTO option. Iain Duncan Smith, among others, has been urging the government to prepare for no deal.

It probably won’t come to this, but we can expect a rocky road ahead in the next few weeks, especially as much of the business world does not share the optimism of Mr Duncan Smith or Professor Patrick Minford that the WTO option, coupled with a more or less total elimination of tariffs, is going to be beneficial. In the long term it may be, but the shock it would deliver to UK businesses in the immediate post-Brexit period would be immense with, among other things,  the likelihood of a massive stack of lorries on the M20 building up the moment we leave, unable to clear French customs due to a lack of the necessary paperwork.

So the Brexit clock keeps ticking and M. Barnier keeps reminding us that we will become a “Third Country” in just over 18 months time. Given it’s now more than 15 months since the Brexit vote, we are only six weeks or so away from the halfway point between the referendum and the result we sought. We can but hope that some sort of clarification or change of tack will take place soon or the dream for which so many of us campaigned for so long may turn out, in the short term at least, to be more of a nightmare. The road to Hell, they say, is paved with good intentions. The road to Brexit may turn out to be very similar.

 

Government “Future Partnership” paper – collaboration on science and innovation

Scientists and the academic world predominantly supported remaining in the EU during last year’s campaign. Some of them are still most reluctant to come to terms with Brexit, fearing that our educational and scientific institutions will be out on a limb, unable to collaborate with their European colleagues while being  denied access to the sources of funding which they enjoyed prior to Brexit.

This latest Government paper, entitled a “Future Partnership” paper as opposed to the “position papers” which came out two weeks ago, attempts to provide some reassurance.

Whether it will succeed is another matter. The paper begins by cataloguing our collaborative ventures and lists some of the non-EU bodies through which collaboration will still be possible on Brexit. Then follows the usual wish list, summarised by Paragraph 13:-

“It is the UK’s ambition to build on its uniquely close relationship with the EU, so that collaboration on science and innovation is not only maintained, but strengthened. Therefore, as part of the new, deep and special partnership, the UK will seek an ambitious science and innovation agreement with the EU that will support and promote science and innovation across Europe both now and in the future.”

Great stuff, but the desire to continue co-operation is nuclear research and the EU’s space programme is just that – a a desire.   It points to non-EU participation in the EU’s Horizon 2020 research programme.  “We want to continue to work closely with these EU bodies” is a repeated message but will the EU want to work closely with us? At the moment, discussions on areas such as this seem a long way off. Recent statements by Michel Barnier, the EU’s Chief negotiator, suggest that until there is some significant movement on resolving the issue of avoiding a “hard” Irish border,  the scope of talks is not going to be broadened.

A reasonable divorce bill?

Mrs May, so we were told last Sunday, has decided to agree a £50 billion divorce bill with the EU, although the UK’s Chief negotiator, David David has denied this, saying that it was “complete nonsense”.

Accounts appeared in several papers suggesting that the government would be paying between £7 billion and £17 billion for three years after Brexit, but that payments would cease by 2022 – the year of the next General Election.

There is a sizeable group of Brexit supporters who believe that we should pay absolutely nothing to the EU after we become independent. “Not a a penny to the blackmailers!” says one comment to the article cited above. Others would not take such a hard-line position, maintaining that we should honour our obligations to the end of the current seven-year budget cycle, which ends in 2020.

Whatever, it is hard to justify the figure of £100 billion which the EU is demanding. Our current net budget contribution amounts to somewhere in the order of £10 billion and was not predicted to rise that much up to the end of the EU’s budget cycle or beyond.

Of course, the EU is not only losing a member state but losing a net contributor to the EU budget. In only one year since joining in 1973 has the UK received more money from the EU than in paid in. Günther Oettinger, the EU Commissioner responsible for the budget, reckons that Brexit could make a hole as big as €20 billion in the EU’s finances.

During the last round of Brexit talks, Michel Barnier, the EU’s negotiator, was distinctly unhappy with the UK negotiating team’s three-hour line-by-line rebuttal of the EU’s expensive divorce bill. There does seem, however, little justification for the figure demanded by the EU.

Perhaps the most sober estimate of a reasonable divorce settlement comes from the Institute of Chartered Accountants of England and Wales. It has produced a report suggesting that the likely cost should end up somewhere between £5 billion and £30 billion. The most likely figure, £15 billion, would equate to be £225 for every person living in the UK in 2019.  This is roughly on a par with our net annual contribution to the EU budget – in other words, how much we pay after the rebate and agricultural subsidies are deducted.

The full report can be downloaded here. It includes spending which has been authorised but not yet incurred, which will be hard to avoid. ICAEW’s study puts this figure at £28 billion.

On the other hand, there are assets which we can cash in. We have a 16% stake in the European Investment Bank, estimated to amount to some £10 billion by 2019. With ownership restricted to EU members, our shareholding will need to be sold.

The authors also indicate that some additional expenditure will be needed to complete the Brexit process. After all,  for one thing, extra staff will need to be employed for what will be complex but one-off negotiations.

The report considers that the most contentious issue may be any ongoing commitment to infrastructure projects in the former Soviet bloc countries. After all, the state of infrastructure in the UK leaves much to be desired and given the claims that some UK workers, including teachers and nurses, are worse off now in real terms than they were five years ago, it would not be unwise for Mr Davis and his team to argue that charity must begin at home.

We have been somewhat critical of certain aspects of the government’s approach to the  Brexit negotiations recently, but when it comes to the divorce settlement, there is no question that it is the EU which is being most unreasonable in the sum it is demanding.

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Going round in circles?

It’s now the third round of Brexit negotiations. Last week, we were given what amounted to an aspiration list – five “position papers” following on from two the previous week which went into very little detail as to how the UK negotiating team intended to go about achieving its desired objectives. The papers also made a number of assumptions about the EU’s negotiating position which do seem at first glance rather unrealistic. In short, it doesn’t seem very clear what the UK government actually wants. By contrast, the EU has made its position clear from the very start.

The EU’s Chief Negotiator, Michel Barnier, is understandably frustrated and warned about the clock ticking. He recently told the UK to “start negotiating seriously.” We are now less than 19 months to Brexit day; 14 have already elapsed with very little achieved except a foolish agreement to submit to the EU’s negotiating schedule whereby sufficient progress must be made on the divorce settlement, the rights of EU nationals and the Irish border before issues such as trade can be discussed. A helpful summary of the full areas of disagreement can be found in this article.

As far as the UK government is concerned, there has been a recognition that a long-term trade deal cannot be negotiated before March 2019 so some sort of interim arrangement will be needed. Even this is going to be a challenge as the rather nebulous statements from the government insist that the Single Market is not on the agenda, necessitating a bespoke deal (or a change of mind). Labour, however, seems to be moving round to supporting membership of the Single Market.  It now agrees with the Government that a transitional deal is necessary but disagrees with it not only on the Single Market but on the customs union too. As Dr Richard North points out, Keir Starmer, the shadow Brexit secretary, has advocated the Single Market without offering any hint of how we would access it – in other words, no mention of the European Economic Area or EFTA.

Professor George Yarrow from Oxford University, has argued that the default position for a newly-independent UK is that we would remain within the Single Market and would not need to rejoin EFTA to retain access. Not everyone is convinced by his arguments and if he is wrong, a bespoke deal allowing the UK to remain within the Single Market or the Customs Union would require a new treaty – a very challenging prospect within this increasingly tight timetable.

Of course, there are still some voices arguing against any sort of transitional agreement and claiming that a “hard” Brexit will bring economic benefit, such as Professor Patrick Minford of Cardiff Business School.  We have also highlighted the Bruges Group’s paper What will it look like? which claims that it is possible to agree a long-term trade deal within the Article 50 timeframe.  This paper has highlighted the key areas on which an agreement will be required, but if the Government is considering this route, the Position Papers offered us not the slightest hint that this is their preferred strategy.

So it looks like this week’s talks will be little more than going round in circles. We will, no doubt, be given a very upbeat assessment of the talks by David Davis, but little real progress will be made as the Government does not seem to be offering any sort of road map to arrive in the promised land of Brexit while Labour has little idea either. Meanwhile, as M. Barnier keeps reminding us, the clock is ticking away and the cliff edge is getting closer……

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