Poker or Bridge? What does and does not matter as the Brexit negotiations move to a new stage
The latest round of the Brexit negotiations started, symbolically at least, with another meeting for David Davis, the Secretary of State for Exiting the European Union, and Michel Barnier on Monday. In truth, however, by the standards of August, the dialogue has been proceeding at the so-called ‘technical level’ continuously over the summer. A nearly 100-strong UK team have been in deep discussions with their EU counterparts and a number of formal documents have been published. Much of this work has either been ignored or dismissed as inconsequential by a media that is much more interested in stand-up rows or seemingly astronomical sums for a ‘divorce bill’ than details.
So where do we stand now and what is the likely timetable for the process as we reach the Autumn?
Ignore the anonymous apparent leaks and critical commentary
This is a long game with a very small number of political actors really in the know as to where it is headed. Almost every position paper issued by the UK has been met by some anonymous ‘source’ in Brussels dismissing whatever has been put forward as unrealistic, implausible or a “fantasy”. This then leads sections of the UK print press to be equally uncompromising in its own language.
It is all some distance from the sober facts of the situation. In virtually every case, these ‘sources’ are a set of individuals and institutions who are completely outside of the dialogue or far less consequential to it than they would like to be. This includes the office of the President of the European Commission himself and absolutely anyone connected with the European Parliament. These are as detached and reliable witnesses as the various candidates in the latest election to be the leader of UKIP (a contest which even for those of us who are extreme political enthusiasts has resembled the intergalactic bar scene in the original Star Wars movie). None of this stuff should be taken with any quantity of salt.
The next politically crucial period is the 10 days from 24 September to 4 October
The current round of talks represents continuity rather than something more spectacular. The aim is to make sufficient progress in the debate so that the EU Council at the end of October can agree that an official exchange can start on the longer-term nature of the relationship between the UK and the EU. The three main issues which will determine this are the financial settlement, the rights of those EU citizens who are currently resident in the UK (and by implication their UK equivalents in the EU) and the future arrangements around the border between the Irish Republic and Northern Ireland.
The definition of ‘sufficient’ progress is an art not a science and an immensely political art form at that. The context in which it will be made will be strongly influenced by events in a probably pivotal ten-day period from 24 September to 4 October.
The first date is important because it is the day that Germans vote in their federal election and unless the outcome is particularly complicated it should be clear whether Angela Merkel and her CDU/CSU alliance are likely to end up in coalition with the Social Democrats (again) or in a different combination featuring the liberal pro-business, free market Free Democrats. As outlined in BVCA Insight three weeks ago, the second scenario would make life a lot easier in London as the FDP is the most pragmatic German political force about Brexit.
The other bookend is 4 October because it is the final day of the Conservative Party Conference in Manchester and the Prime Minister’s closing speech to the faithful. This will be an event that is not only central to whether Theresa May can survive in office to see through the Brexit endeavour, as one would expect her to want to do, but will also compel the Government as a whole to show more of its hand in terms of what it wants from the transition/implementation period and thereafter.
The October date matters less than the political atmosphere around the process
The UK Government would obviously like a ‘green light’ from the October EU Council to move on to more substantive discussions about the future. It is, though, perfectly prepared for the possibility that this might take a month, or two, or even longer. There are plenty of players who might decide that it suits them to look as if they are being tough on the British at this stage of proceedings. Furthermore, the Irish border issue is devilishly difficult to deal with in the absence of some sort of understanding as to what the broader relationship between the UK and the single market and the customs market might be, questions which cannot be addressed let alone answered at the moment.
The reality is, nonetheless, than the exact timetable for moving to ‘Phase Two’ matters much less than the political atmosphere surrounding that discussion. Whether this next set of talks begin on 1 November 2017 or 1 January 2018, absolutely no-one believes that they will be concluded with the full future architecture between the UK and the EU established in every regard in the time that is needed for such an understanding to be sent to all EU members and approved by the EU Parliament.
Whenever ‘Phase Two’ is initiated, it will move at speed to the transition/implementation period of at least two years and in all probability three years before a final accord can be agreed and enacted. What matters is whether Phase One can be drawn to a conclusion in a reasonably constructive and consensual fashion so that the debate over the transition/implementation period is not poisoned.
The fundamentals remain the same. It is the range between ‘Switzada’ and ‘Canaland’
There are four credible outcomes to this exercise. Two of them – that the UK abandons Brexit or departs from the EU with no arrangements or agreements secured – cannot be discounted but they are at the extremes of the spectrum. Between them (as the European Economic Area or ‘Norway’ options involves free migration) are a range between the sort of relationship that Switzerland has with the EU and that which Canada has signed up to. Switzerland is a member of the European Free Trade Association, but is neither a full member of the single market not of the customs union. It has a core free trade agreement with the EU which allows it substantial access to the single market and then a large number of specific treaties on a subject-by-subject basis. Canada, by contrast, has a free trade agreement (which is substantial but not comprehensive) and not very much beyond that deal.
The debate about the transitional/implementation period and the final settlement is (bar events bringing one of the two extremes in to play) essentially about where on that spectrum the UK will be located. In neither case is permanent continued membership of the single market or of the customs union a politically viable outcome. The first requires accepting free movement as it stands and the second would preclude the right to negotiate other free trade agreements unilaterally, and either or both of them would involve a decisive role for the European Court of Justice. What the distinction between ‘softer’ or ‘harder’ Brexit means in practice is the divide between Switzada and Canaland.
And the question can be narrowed down further as well
Most of the political and business establishment in the UK would prefer Switzada to Canaland. To achieve this requires the EU to be convinced that although the UK will be outside of the single market, the customs union and the ECJ, it will not use its autonomy to undermine the single market by harsh barriers to migration or a ‘flame-thrower’ approach to tax and regulation, that it will not seek ‘bargain basement’ free trade deals that damage the EU, and that it will show some respect for landmark ECJ rulings of core importance to the operation of the EU. Is there the prospect of those guarantees being offered which strike Berlin, Paris, Brussels and others as robust but which does not mean the Conservative Party in Parliament explodes at the prospect? That is the real nub of matters.
Tim Hames
Director General, BVCA
