Brexit: Circling the Drain?

Brexit: Circling the Drain?

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   September 14, 2018  
 
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Brexit: Circling the Drain?

Due to managing to take a bit of holiday (and that meant not keeping up with the news) and being distracted by CalPERS (that will hopefully tail off by the end of the month) I have been neglecting Brexit. Even though I am writing this post in the form of an update, it is as much a forcing device for reader to tell me about stories and issues I may have missed that would affect some of the tentative conclusions below.

As this very far remove, I don’t see anything that has happened in the last two weeks that would change the very high odds of a crash out next March.

The EU graciously offering some token concessions is not tantamount to a softening of position. The new “we are gonna have a deal” date is now November, moved back from October. This is not a surprise; some commentators have opined that the negotiations could go as late as January….if there were actual negotiations, as opposed to the EU having to figure out what to do with UK inaction followed by obviously unworkable offers.

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Jean-Claude Juncker making positive noises about Checquers is awfully reminiscent of his behavior during the 2015 Greece negotiation, where he would regularly try to play a more central role in the dealmaking than he really had, only to be slapped down or quietly pushed to the sidelines. Juncker has been looking statesmanlike compared to 2015, but that is also not hard with the likes of David Davis and Boris Johnson setting a baseline.

Another rumor, that the EU would let the UK largely out of the “defining the future relationship” seems dodgy. If you recall early on, many Tories, including some noisy Ultras, were insisting that the UK not agree to the Brexit bill unless it also got an “iron clad” trade agreement along with it. Someone apparently pulled them aside and told them it was impossible to get a trade pact done in anything less than a few years, with “five” a realistic minimum.

Shorter: quite a few people on the UK side were noisily of the view that the UK should firm up its trade deal as much as it could before Brexit because it would have more negotiating leverage then than during the transition period. Since all the exit agreement would include is a political statement of intent, it’s not binding.

However, the idea that the UK would manage to get an exit agreement done but decide to omit or fudge the “future relationship” part would seem daft, until you remember that we are already well into asylum territory. The UK needs to come to an agreement as to what sort of trade/legal relationship it wants with the EU going forward. If it can’t get that done in the context of a transition deal, pray tell how will it ever sort that out?

It makes every sense for the EU to be as gracious-appearing as it can be, not just for appearance’s sake, but for the historical record.

The Chequers plan is dead, yet May keeps flogging it. Even EU business leaders are telling the UK to get real. From the Financial Times earlier this month:

  • German business leaders have raised the alarm over the state of Brexit negotiations and are urging the UK government to soften its position ahead of make-or-break talks with Brussels in the coming weeks…
  • Mr [Joachim] Lang [director-general of Germany’s BDI industry federation] also voiced criticism of the UK position as set out in London’s recent Brexit white paper, in particular with regard to its proposal on trade. Among other points, the paper calls for a post-Brexit scenario in which the UK remains part of a single market for goods with the EU, while excluding the free movement of services, capital and people.
  • “The UK says it wants to keep the free movement for goods but become independent with regard to the other freedoms. We believe that cannot work,” said Mr Lang. Separating goods from services and the flow of people and finance, he added, was simply not possible in the modern economy.
  • “When we sell a piece of machinery today, we don’t just sell the product. We also sell services, data and maintenance,” he said. “You cannot pick one freedom but leave the other three on the sidelines. That simply does not work with modern industrial goods. We are not selling a piece of chocolate.”
  • His stance was supported by Bernhard Mattes, the president of Germany’s VDA car industry federation, which represents groups such as Volkswagen, Daimler and Bosch. Mr Mattes told the FT: “When you sell an industrial good you don’t just sell iron, steel and plastic — there is always a service that comes with the product.”

Honestly, this is all you need to know about the Checquers plan. As with every half-baked UK idea, it does not solve the problem it purports to solve. But these barmy proposals allow British pols to present themselves falsely as being oh-so-reasonable and depict the EU as obstructionist when they reject them.

No progress on the Irish border. No surprise, but this is yet another “crash out is coming” indicator.

Possible fading cred of the Ultras not likely to make much difference. Over the weekend, Richard North described how the Ultra’s alternative to May’s Chequers plan was widely ridiculed by the UK press. On the one hand, finally having the media willing to treat the rabid Brexiteers with scorn is long overdue. However, even in decline (if that is really happening), they still have enough votes in Parliament, and enough loyalists in the heartlands to be able to thwart reasonable outcomes, and in particular, a retreat.

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Yves Smith
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