Fasten seatbelts. A period of intense but often symbolic turbulence for the Brexit negotiations

Theresa May’s dinner with Jean-Claude Juncker on Monday started what will be a week dominated by the Brexit dialogue culminating in an EU Council meeting on Thursday and Friday. Yet, in truth, no one on either side expects there to be any kind of breakthrough let alone a ‘deal’ by the weekend.
On the original schedule, this was supposed to be the conference at which the EU would be able to declare that ‘sufficient progress’ had been made in the opening stages of the negotiations to allow the broader post-exit relationship between the EU-27 and the UK to be considered. It has long been obvious that this would not happen.
What this week is instead about is whether, in perhaps coded terminology, it can be hinted that sufficient progress has been made towards sufficient progress that deliberations about the ‘implementation period’ (as Mrs May likes to put it) or ‘transition period’ (as the remaining seven billion people on the planet would refer to it) can be initiated early in 2018. From there, at the December meeting of the EU Council, matters would move towards the future. In the meantime, it is a racing certainty that words such as ‘breakdown’, ‘deadlock’ and ‘stalemate’ will be heard and read frequently, not least because the British print press loves such phraseology.
What is the argument all about then?
In a word, ‘money’. In three words, ‘lots of money’. In theory, the financial settlement is but one of a tripod of outstanding urgent questions including the far more high-minded matters of EU nationals who are living in the UK (and UK citizens in the EU-27) and the Irish border. In practice, it is all about cash.
The question of the rights of EU citizens has always had an illusory quality to it. No country in the EU actually believes that the British actively aspire to suppress their nationals come 30 March 2019 and hard-wiring their rights into the final departure agreement is not that difficult. Likewise, while Michel Barnier might wax lyrical about the sanctity of the Irish border, the notion that anybody in Portugal, Greece or Finland is lying awake at night incapable of sleep because of their concerns on precisely how goods will move between Dublin and Belfast is, alas, a far-fetched one. The border is a difficulty for the British and Irish to work out how to fix in a fashion that does not make a mockery of EU legislation. The combination of two sets of blind eyes and some snazzy tech would be adequate.
Money, on the other hand, is a currency of its own. What the EU-27 want to test is how much Mrs May will put on the table to secure the sort of implementation/transition period of which she spoke in her Florence speech on 22 September, while she in turn wants to be sure of what she will be offered in this regard before making a public commitment which would be awkward to reverse. This is being referred to as an ‘impasse’. In private equity it would be regarded as normal business. In the best traditions of the EU, nonetheless, high drama and Olympic-level hurling of toys out of the pram can be anticipated before at some point (probably around 4am in Brussels), all the bluster and bluffing comes to an end, firmer numbers emerge and the political spin about them will be started.
So how likely is an agreement then?
Considerably more likely than not. The central questions are those of presentation and timing. The EU does not want to make it appear that departing its ranks is a comfortable and straightforward exercise. The UK, and the Prime Minister, aspires to end up looking like Margaret Thatcher and not Neville Chamberlain. It would also assist matters if the Germans could form a new government. If, as to be discussed further below, the ultimate understanding is not sealed at the December Council but in first quarter 2018, then the delay in striking a coalition deal in Berlin will be a big part in this story. The logic of an accord is as follows. The first is that while a disorderly UK withdrawal from the EU would obviously damage the UK more than the EU-27, it would do some harm on all sides. It would be an unnecessary and unwelcome jolt to a Eurozone economy that is in the early stages of a decent recovery after the better part of a decade of underperformance. There may be masochists as well as sadists at work in Brussels. There will not be any in the CDU-FPD-Green administration in Germany.
Secondly, the concept of an implementation/transition period is not one that should trigger any sort of angst elsewhere in the European Union. It means that for ‘about two years’, the UK will continue to contribute to central coffers and will shadow the entirety of EU law but cease to be at the table when decisions are made (or, more frequently, deferred) at Council meetings. There may be many in other national capitals who deem this a strange outcome, but not an objectionable one.
Finally, wiser heads in EU circles are not feeling quite as confident about themselves as they were almost six months ago when it became clear that Emmanuel Macron would become the next French President. The run of electoral fortune for the supra-nationalist cause has become less certain. The performance of the AfD in Germany exceeded expectations and has weakened Angela Merkel. The atmosphere between Brussels and Poland’s ruling Law and Justice Party has become yet more toxic. Spain is involved in an epic constitutional struggle over what to do with the renegade Catalonia. The Austrian elections might trigger the return of the far-right Freedom Party to office there. Elections in the Czech Republic on Sunday seem set to enable a billionaire nationalist populist to become PM. A ballot in Italy in spring next year has the potential to send shockwaves throughout Europe. The case for a comparatively smooth Brexit that simply takes it off the list of ‘things to do’ is compelling. If forced to place odds, BVCA Insight would offer there being a 60%-65% chance of an initial bargain by the end of December, a 20-25% chance before the end of Q1 2018 and only 15% of a train wreck.
What is the problem for Mrs May then?
The same as it has been for Conservative Prime Ministers on Europe for almost three decades: party management. If dealing with counterparts in Brussels can be complicated, holding together so-called colleagues in Whitehall and Westminster is often more challenging. Mrs May needs a deal with the EU that she can sell to all but the most absolutist factions in her fractious parliamentary party. The whole notion behind the early election in June was that she would be empowered in this regard, not only with the EU negotiating team but also Conservative MPs. Instead she appears enfeebled.
It is because of this that reshuffle speculation fever is raging. The Prime Minister stoked this herself with an interview conducted immediately after the Conservative Party conference. The ‘soft Brexit’ camp is openly calling for Boris Johnson to be moved out of the Foreign Office and ideally sacked. In response, the ‘hard Brexit’ lobby has taken aim squarely at Philip Hammond, suggesting that he and his officials at the Treasury are an obstructionist force with no confidence in the UK outside the EU. It is he, not the blond one, who should be walking the plank (although some Tories would lose both).
Mrs May is an extremely tricky place on this one. There is a perfectly solid argument that she should reach an accord with the EU first and then think about the shape of her Cabinet but the risk in doing this is that one of the ‘Big Beasts’ there forces a crisis by resigning ‘on principle’. Throwing out the Chancellor appears unlikely. Much of the business community would go nuts, there is but a month until the Budget on 22 November and he has enough allies to respond with the signatures needed for a no confidence vote in her leadership. What, if anything, to do with Boris and when is hence the political dilemma of the hour. All of which must make supper with Mr Juncker seem quite appealing.
Tim Hames
Director General, BVCA