Time ticks down but no Brexit divorce agreement in sight
London: Europe’s leaders are expected to deliver a polite but firm “must try harder” rebuff to British Prime Minister Theresa May on Friday, after she made a personal plea over dinner on Thursday for Brexit talks to move to the next stage.
More than six months after Brexit was officially triggered – a quarter of the way to the final deadline – there is still no agreement on the “divorce bill” that Europe has demanded Britain must settle before discussions about their future relationship can begin.
Fears of a no-deal scenario, where the UK leaves the EU without any trade, customs or regulatory framework to take its place – a scenario most economists view with horror – are growing.
On Thursday evening MrsMay was due to stand up in front of Europe’s leaders in Brussels and plead the UK case, after a week in which – depending on whom you ask – talks ground to a halt or continued to move at “lightning speed”.
According to Whitehall insiders, Mrs May’s message (to be delivered in about 10 minutes, over dinner), was that it was time to cut the UK some slack.
She believes she took a huge political risk with her speech in Florence in late September, and went as far as she could, defying damn-the-torpedoes Brexiteeers in her own party by promising to pay Britain’s debts to the EU and anticipating a two-year transition period in which nothing much would change after Brexit technically took place in March 2019.
The insiders say she has gone as far as she can, publicly, given the resistance within her own party and the fact she leads a minority government – and that the EU must recognise this reality.
The view from Downing St, and the government’s Department for Exiting the EU, is that many of the deadlocks in Brussels over the so-called divorce bill that is the first stage of Brexit are due to EU inflexibility, because they could only be pinned down once they could move on to discuss Britain’s future relationship with the EU.
Privately, officials claim to be smashing through negotiations with a hidebound Brussels bureaucracy. But working groups on many of the issues are now coming back with the message that they have hit a roadblock.
But the consensus from Europe’s leaders, in a meeting on Friday morning after Mrs May has left Brussels, is almost certainly to be that not enough progress has been made to move on to talk about the future.
At the start of Brexit talks, the EU asserted that before any talk about a future relationship could begin, Britain must agree on how much it will pay to settle its obligations to the EU, what it will do to guarantee the rights of EU citizens in the UK and whether the Irish border will stay open enough to avoid a return to the Troubles.
They are not willing to bargain these away against a future trade deal, but want them locked down as the baseline for the next step.
But behind the scenes, EU negotiators concede that they can’t quarantine all these issues, and some of them can only be signed off and settled once it’s clear what will follow Brexit.
On the record, the UK government is relentlessly positive on Brexit. Brexit secretary David Davis said on Wednesday that talks were moving at “lightning speed”.
But observers are worried.
“Sometimes I wake up in the morning and think we are all doomed,” says Jonathan Portes, professor of economics at King’s College, London, when asked his prognostication. “I think, surely this is so f***ing stupid, we can’t possibly let our politics push us into a [no-deal scenario].
“I try to be rational, the forces of economics and rationality are strong enough for us not to do something so obviously against our interests and the interests of the [other] EU 27. But the politics are pretty unpleasant.”
Professor Portes says he still believes the most likely scenario is that the UK and EU will reach a deal – first a “mini-Brexit” deal for March 2019, which will continue the status quo as much as possible, then a “maxi-Brexit” some years later once there is a trade deal to take its place.
However he says the major problem with reaching that point is Mrs May’s lack of political capital – squandered in this year’s ill-fought election.
At some point, before she has a trade deal, she has to go to the British public and her own party and say how much Brexit is going to cost.
“It may be that May is not strong enough politically to make an offer [to the EU] that she can deliver to London,” Professor Portes says. “Then you have a problem. If someone says ‘I’d like ideally to give you 10 pounds but I can’t put that in writing because my wife will kill me’ then what am I supposed to do? I’m not going to start bargaining about whether it should be 10 or 15 pounds, I’m going to say ‘come back when you and your wife have sorted out a negotiating position’.”
“If I’m the EU, why on Earth would I make concessions when you’ve just told me you will not be able to make an offer even in the right ballpark because you’re not strong enough at home?”
This week the OECD issued a new report, essentially renewing its analysis that Brexit has already put the brakes on the UK economy, now one of the slower movers in Europe. The OECD pointed out that real wages in the UK are still below those of a decade ago, and Brexit is not likely to fix this – indeed it’s likely to make it worse.
On migration, the OECD pointed out that immigration in to Britain – for many, a problem that spurred the referendum result – had in fact helped lift living standards, productivity and GDP in the UK.
Anti-Brexit forces are talking about a parliamentary vote or even a second referendum to halt the process, if it becomes clear it has jumped the rails.
But Mrs May – who opposed Brexit – will now not countenance a U-turn. As far as the government is concerned, insiders insist, Britain will leave the EU no matter what.
Meanwhile, Australia is patiently waiting in the wings, doing what it can to lay the groundwork for a trade deal with the UK once the exit happens.
The reality is, both sides privately concede, that such a deal would be more symbolic than game-changing. Australia’s economy is already pretty open, and much more focused on Asia than the UK. Existing barriers to UK trade would more likely be finessed than eliminated in any deal.
But the limited scope may mean a deal can be quick and simple, providing a much-needed political win for both sides, and fringe benefits for business.
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