The yet-to-be started Brexit negotiations look to be getting off on a tit-for-tat footing. After the new Prime Minister took the provocative step of appointing Boris Johnson as Foreign Minister and David Davies as its chief negotiator, the European Commission has responded in kind by naming Michel Barnier as Chief Negotiator in charge of the Preparation and Conduct of the Negotiations with the United Kingdom under Article 50 of the TEU.
Jean-Claude Juncker, President of the European Commission, has been particularly hard-line in his posture towards the UK. For instance, at one point, he said if Cameron’s replacement was pro-Leave, he should invoke Article 50 the day he came into office, and if he was opposed, he could take a couple of more weeks. That remark illustrates the fact that Juncker isn’t all that skilled a bureaucratic infighter: he regularly overplays his hand and then gets reined in by more influential European leaders.
But the appointment of Barnier looks to be a particularly astute move. First, in contrast to the role of the EC in the Grexit talks, where it was a secondary player by virtue of not being a funding source, the Commission legitimately is one of the lead actors. Second, Barnier has extensive international experience, having been France’s minister for agriculture, then its foreign minister, and also a member of the European Parliament. He has also served two terms at the European Commission. In his second post, as head of the single market commissioner, he negotiated post-crisis reforms. The memories of the tough stance he took there has the City in fits. From the Financial Times:
The UK government’s cool response to the decision reflected heightened concerns that the commission will be an awkward negotiating partner. An official statement did not mention the Frenchman by name and was drafted to suggest that the commission was the least important of three interlocutors in the Brexit talks.
“We look forward to working with representatives from the member states, the council and the commission to ensure an orderly departure of the UK from the EU,” a UK spokesman said.
Some City financiers were even more scathing about the appointment. One chairman said: “My initial reaction was ‘Oh, God.’ It’s clearly provocative.”
“I can’t see how it could be worse,” said another senior banking industry figure, who has worked in Brussels. “It’s incredibly provocative. This is Juncker’s revenge on Britain.”
Bloomberg painted a broadly similar picture:
Some in the U.K. may consider Barnier’s selection to be a provocative move, or a sign that Juncker wants to reduce the influence of the City of London as part of the Brexit process. During Barnier’s time as European commissioner, the British government clashed repeatedly with the EU over issues from a cap on bankers’ bonuses to the location of clearinghouses.
He frequently had to rebuff U.K. claims that his policies were hurting London’s financial-services industry and causing a shift of business to centers in the euro area. Although the bonus cap was one of the most high-profile measures to come into force during his time in office, Barnier had favored a less radical move.
At the same time, he issued warnings that Britain had to accept EU financial regulations in exchange for access to the bloc’s single market.
His appointment is “very dispiriting news for the U.K.,” said David Buik, a market commentator at Panmure Gordon in London. “He has been very, very difficult to deal with over all financial regulation and particularly unsympathetic with the U.K. in the banking arena.”
This move is consistent with our prediction, that the Continent see Brexit as an opportunity to take a piece out of the City. Barnier apparently does not accept that London’s dominance is necessary or desirable. And years of negotiating on financial regulations means he won’t be readily snookered.
With that said, as is typical with matters European, Barnier is clearly a leading player, but there is some ambiguity as to the extent of his authority. Bloomberg notes:
Appointing Barnier is also Juncker’s opening move in a struggle for power on the Brussels side of the negotiations. While the European Commission will be asked to carry out much of the technical work, it’s for national leaders to set the parameters of the discussions.
The European Council, which represents the EU’s 28 nations, has already appointed Belgian bureaucrat Didier Seeuws, aide to former EU President Herman Van Rompuy, as its lead Brexit negotiator, and the divisions of responsibility are still to be worked out.
Seeuws is also very seasoned. From the Guardian at the time of his appointment:
A veteran Belgian diplomat with long experience of complex EU negotiations, Seeuws, 50, is described as exceptionally hard-working and combining an impressive grasp of technical detail with considerable political savvy….
Seeuws was also Belgium’s deputy ambassador to the EU and is credited with negotiating a breakthrough on the European patent system, an issue that had been deadlocked for more than 30 years….
La Libre Belgique newspaper described Seeuws as a “fine intellectual machine”, citing a Belgian source as saying he was “tactically very strong. He knows how to put himself in everyone’s shoes, and sees straight away what the chances are for a short or long-term agreement.”
Seeuws will reportedly manage the more delicate side of the talks, on the nature of Britain’s future relationship with the EU, while an “article 50 taskforce” set up and managed by the European commission will work on the more immediate, hands-on business of extricating the UK from the EU.
Seeuws is thus more conciliatory than Barnier. And we’ll see if the Guardian’s take on who does what is correct, or whether, as Bloomberg indicates, the allocation of responsibilities is in play. Given Barnier’s depth of experience in financial services, it’s almost a given that he will wind up being the key player on those parts of the talks, just as the City fears.
In the meantime, some UK papers are trying to put a happy face on this development. For instance, an editorial at the Independent, Michel Barnier will be a tough Brexit negotiator, but he’ll meet his match in David Davis, included this section:
In the “informal” period of discussion that has already begun with Theresa May’s visits to Berlin and Paris, the hope is that much groundwork will be established that Mr Barnier will not be able to undo.
The second factor is the degree to which the European side (broadly speaking) holds fast to the notion that there can be no easy access to the single market without an agreement from Britain on the free movement of labour. That is, of course, not what many British voters meant by Brexit – even though it might suit the Government well enough.
Mr Barnier has made his own view clear: Britain must accept freedom of movement “without exception or nuance” if it wants to keep its access to the single market. How far that is a mere opening gambit and how much a firm declaration of policy will become clear next year.
This is hopium. Merkel herself, as well as all of the other EU leaders, have made clear that there will be no negotiations prior to Article 50 being invoked. And they have every incentive to hang tough, since they want the UK to come to grips with what it is about to set into motion before pulling the trigger. They would clearly prefer that the UK find some way to back out of Brexit, and not making the process any easier advances that aim.
Similarly, Merkel has also repeatedly stated that having access to the single market means accepting the “four freedoms” which includes freedom of movement of EU citizens. And Merkel also said that countries that are outside the EU will have a less favorable arrangement than members. Thus all Barnier has done is make a pointed statement of his principal’s position.
As vlade said via e-mail:
For Leave to work, the UK’s diplomacy would have to be exceptional. All evidence points out that it’s exceptional-ly weak. And I don’t mean just on the trade front but in general.
British officials seem to greatly overestimate their skill as well as their bargaining leverage. This is a prescription for bad outcomes.
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So, EU puts in two very experienced diplomats who spent most of their life negotiation non-trivial stuff in scenarios where a number of sides were at the table.
UK puts in David Davis, who fails to understand how EU works or how trade negotiations do.
Yes, it’s eat your own dogfood for Brexiters,but please don’t spatter the country in the process.
I see the results as (let’s assume A50 will be invoked in a reasonable timeframe)
– DD spending six+ months trying to beat his head against EU, failing to understand that UK red lines have nothing to do with EU red lines.
– some amount of realization that there’s only 18 months left strikes, and panic starts settling in. Blame game starts, with UK firing the first shots.
– EU hardens its stance. For six months blame game continues, while nothing gets resolved.
– UK wakes up to having only 12 months to negotiate, and starts panicking, suggesting more unworkable and not thought out stuff.
Two end-game scenarios:
– 6 months to go, and it’s clear no agreement will be reached, DD is fired and replaced by someone who effectively agrees for UK to stay in EEA, with no concessions, full contribution (forget Thatcher’s rebate) to EU, in exchange for passporting the City. In effect, UK rolls over. It technically exits EU, at the cost of losing even more sovereignty. Practically, nothing much changes. This is right now my central scenario (I’m an optimist).
– UK falls out of the bed entirely, drops out of EU, and chaos ensues – the companies that assumed “WTO” option left already, the ones that didn’t aren’t prepared to deal with it. EU doesn’t have enough capacity to deal with it either.
I find the central scenario quite plausible indeed.
But there is also the timing question. Theresa May said no article 50 this year. But then, 2017 begins and so does the French presidential campaign. Won’t May say that they cannot negotiate while this is going on ? Then you have the German election in the fall then the Italian one at the start of 2018…
Given this, isn’t there a good chance that article 50 won’t be triggered before 2018 ? That would have the added bonus to put the finish line in 2020, close to the general election which would give the Tories one last chance to run easily on an anti-Europe platform….
The UK is driven by internal politics. If they ever get out of their echo chamber (and as vlade indicates having Davies as lead negotiator is a big negative in this regard), they’d appreciate what a mess this is. I’m told that very powerful people in the Tory party want to undo the Brexit and believe the recession that is due to start will soften Leave voters up. I think that’s another fantasy, that if the Tories walk away from Brexit, it will come at a meaningful political cost.
With that in mind, May could use the French election excuse, but she knew about the elections when she promised early 2017. And UK voters don’t view EU politics as a reason for delay. So it would be seen for what it would be, a thin justification for more stalling.
It seems to be generally assumed that the UK is in an inferior negotiating position as it works it’s way through brexit.What I do not see is any recognition that exports to the UK are twice as high as exports from the UK to the EU. In other words the EU has as much or more to lose if things go badly.
There are only two reasonable/sellable delay reasons:
– legal challenge on who can invoke A50
– settling NI questions (much more so than Scottish, unless Scots starts civil disobedience)
Arguably, especially if the parties involved don’t really want to invoke A50, either or both of the above can be dragged out for years..
Yes, either of those could drag things out. And I keep forgetting that the issue of breakup, that most Leave voters don’t want the UK to dissolve, is the best excuse for the Tories to beat a retreat from the whole idea.
I think that the only way that May can set up a stalling strategy – if that is indeed what she wants – is to use an internal UK issue as the stumbling block.
Ideally, this would be over a constitutional issue. Article 50 explicitly states that a member state withdrawal from the union would be “in accordance with its own constitutional requirements”.
The most obvious candidate is devolution. Scotland and Northern Ireland voted remain. I’ve not seen much discussion about Northern Ireland in the British press. But one of May’s first visits, following her PM appointment, was to Edinburgh for a meeting with Sturgeon. The two women then gave conflicting outlines of their hopes for Scotland’s relationship to the rest of the UK.
The issue seems to have gone away for now, but I think it’s notable that this meeting between May and Sturgeon happened so early on. If there’s some hardening of public opinion against Brexit (e.g. with consumer goods becoming more expensive following the Sterling crash), and especially if some of the Brexit Tories start to wobble, then I think it’s very likely that devolution will reappear as a priority.
My own expectation is that the UK goes for the EEA much faster than in 24 months, paying a higher contribution, but this is understood as transitional to a properly worked out WTO solution say for 2023; the continued contribution specifically allows and buys time for the UK and business to plan their future.
Having said that, we can wonder whether Europe needs 1/ various flavors of EEA 2/ the EU and 3/ the Eurozone; maybe EEA + Eurozone suffice. There could be a new treaty to deepen the Eurozone with the EEA becoming a customs and standards union covering the whole area.
Ockham’s razor: entia non sunt multiplicanda praeter necessitatem.
The problem is that the UK can only go for the EEA if the members of the EEA negotiate. And its quite clear that none of them will do so until the exit is complete – and even then, they will exact a very high price.
Except there is no default to WTO rules, so your second end-game is even worse than you suggested. See here for details:
http://www.nakedcapitalism.com/2016/07/brexit-huge-spanner-in-the-works-negotiation-of-new-uk-trade-deals-verboten-till-exit-complete.html
The two year timeframe can be extended but only by unanimous vote of all EU members. But Donald Tusk has said an exit can be done in two years. We’ve stressed the new deals are another matter entirely.
Oh, I know that WTO is a massive disaster.. If WTO was even contemplated, UK companies would pretty much have to start preparing for it right away (or start preparing the move out of the UK). The logistics would be as bad if not worse than for Greece to get out of EUR.
I’m not even contemplating the extension, as that’s clearly a fairlyland stuff.
I think that’s quite a succinct summary.
The one thing I think in May’s favour is the issue around the formal declaration of Article 50. As the UK sinks into recession (this seems inevitable now) and sterling sinks, she may simply keep putting it off, and will (privately) welcome the EU’s refusal to negotiate until it is declared. She probably has enough political capital to keep the Brexiteers from complaining too much for a year or two, by which time the Article 50 timetable starts running into the election timeframe. She may then hope to fudge things somehow, perhaps by negotiating a face saving agreement over migration to declare victory and then say ‘the next election is about Brexit…’. Given the way things are going with European banks, she may feel that a deeply weakened EU in a year or two’s time may give her some sort of opportunity to do a favourable deal.
But if she is serious about it, and is forced to issue the A.50 notice, then clearly the UK government and civil service is simply not up to the task intellectually and logistically. The EEA option is absolutely the best thing they could achieve, and that would be at a very high cost financially (there is no way the EU will agree to it without a very substantially greater contribution than the current one). Much more likely is chaos, and/or a bizarre NAFTA type deal with President Trump (in which case, the UK would not just be the US’s aircraft carrier, it would be its links golf course as well).
I beg to differ. The press was vastly more gung-ho for Leave than the public at large, and my sense is if this goes beyond 1Q next year, they’ll go hard on May.
My gut is that’s also the limit of the EU’s tolerance absent a very good excuse, like they really had trouble hiring a negotiating team. And I have to think the Eurocrats can devise punishments for the UK, say via stringent enforcement of rules where members are normally cut a lot of slack.
I wonder about that – the press got what they want – not Brexit, but a Conservative government led by ‘proper’ Cons, not the wet Cameron type. As the financial implications (not least, a slump in the value of proprietor and journalists London homes, and rising costs of Alpine ski jaunts and trips to ones Tuscan villa) sink in, they may be less keen, especially if its seen to help out ‘wet’ Conservatives and Labour. I wouldn’t put it past major elements of the press to change their tune. ‘We Showed the EU we meant Business. Now Lets Show them how to Run Europe Properly’.
The EU of course have shown they mean business by putting in place a very good team. But they may get caught out by the legal complexities of what to do if the UK is stubborn about an Article 50 declaration. And events in Italy, etc., may prove a major distraction.
So I’m really not sure. I suspect that May will play the delaying game for all she’s worth. And the Conservatives (broadly speaking, including the financial establishment and the press) will see the value of unity for the time being.
The Brexiters in the Tory party are already voicing dissent – and The Tories only have a majority of 12 in the House of Commons. Brexit Tory MPs are notoriously able to get rid of sitting PMs. They won’t let her delay too long.
“But the appointment of Barnier looks to be a particularly astute move. First, in contrast to the role of the EC in the Brexit talks, where it was a secondary actor by virtue of not being a funding source”
You mean Grexit, no ?
Thanks, was up against our 7:00 AM e-mail deadline and thus didn’t proofread. Will correct.
Us brexiteers do have one ace card and I’d like to see it used. If the gloves are coming off then so be it – we mount a direct existential attack on the EU itself. We recruit other ‘defectors’. We tell the Swedes that we already have the Danes, Norwegians and Swiss on board and then approach the Dutch and maybe the Austrians and then go back and convince the Danes and the Swiss, maybe even the Italians. How about the “Associatiation of free european trading nations”, AFEurTraN. Voters will love it. Lets get some referenda rolling. Perhaps merely the threat of this strategy might be enough to slap these stuffy french buraucrats into line.
You mean, create another version of the EU, to compete with the actual EU?
And, this time presumably with the Brits in charge. I somehow doubt non-EU European countries will want to sign trade deals drafted by Davis, Fox and Johnson.
*Sigh*
1. That would take years and the UK does not have years
2. That constitutes meddling in domestic politics, which is generally resented and often backfires
3. The UK has been a huge pain in the ass in the EU, so it is not well liked and would be seen as a bad partner
The U.K., most Euroskeptic country in Europe, barely managed a 52% majority for leaving. What makes you think other countries would breach the 50% threshold?
I suspect that the movers and shakers in the City have SO convinced themselves of their indespensibility that they have NO conception of the fact that they need the EU more than the EU needs them. Of course the captains of finance can reasonably easily decamp for whatever European city becomes the new financial hub of Europe. But a large number of mid-to-upper-mid level banksters are going to be screwed. Upside down on their luxury flats when the market for luxury flats tanks. What’s that sound? the smallest violins in the world playing just for them.
It will take some time for it to sink in, but eventually they will realise it. There is absolutely no good reason – none – for the EU to accept any deal which allows the City to keep its favourable status. The Germans, French, Italians, Irish, Polish and Dutch all have eyes on the jobs and wealth for their own financial capitals. The others are either neutral or will be enjoying the schadenfreude. The US might well see a more scattered financial system through Europe as being in their interests. The UK could only do a deal favouring the City if it gives something else – and what else can it give?
>all have eyes on the jobs and wealth for their own financial capitals
Yes and the problem with this… and why I say that although Brexit won’t happen this time around it will then come back really hard… is that whether in or out of the EU the same conflict over the City occurs.
And it’s not something anybody can “fix”. Greedy financial b*stards around the world want more pie than there actually is, and they always will. It has now occurred to me that the next Brexit might be flipped – the City will want it and the Country won’t.
The City (or to be precise, the activities associated with the City) isn’t just fat cat bankers – its thousands of well paid middle class office jobs doing all the day to day stuff the hedgies and so on don’t do. Its these jobs that the Dutch and Irish have their eyes on.
I’m not sure I can see a scenario where the City wants Brexit – I know a chunk of bankers wanted it because they hated the regulations coming from Europe, but most have now realised their error. They must be aware that while there may be short term benefits of being in a deregulated free market country, in the long run a Britain outside the EU has very little clout and gradually its business competitors and ideological opponents will use this to chip away at its position.
>I’m not sure I can see a scenario where the City wants Brexit
It’s pretty hard to imagine, I do admit. Actually, I’ve never seen a future quite so unimaginable as this one. All the things said about this — most every sentence makes sense, but no convincing story (to me) seems to be able to be generated from them.
I shed no tears in the banking Empire in London getting shaken and broken up slowly, either by delay or any other events. It will do a lot good in stopping or reversing the ‘financialization’ of Global Economy.
London Banking was a sanctuary for the global Banksters to arbitrage the rules between Nations. Remember AIG became undone by a few of it’s own in selling protective swaps prior to 2008!
No ‘deal’ about the City – no matter what price is paid, can be relied on. If the EC wants a contest – now or later – there will be a contest. The question of how much damage can be done is hoplessly complex. (In any case, chunks of the City have sreious problems whether the UK is in or out.) The point is this: the UK govt. cannot negotiate watertight security for the City; it should ask mainly for what is there – for non-EU provders of services – and leave it at that. The banking secto fiasco – in the Eurozone yesterday and today – shows that Brussles will happily cut off its nose to spite its face. Britain should expect no better in its own case. Whitehall must not rely on being able to negotiate sensible arrangements. Better a crash that can be blamed on them than a slow delibitating submission to the theory that the UK is the petitioner and the EU the petitioned.
A friend observed that since the Brexit vote, more than a thousand financial companies have applied to register to have a presence in Dublin, including on the Irish stock market. Such developments add to the vulnerability of the Irish economy when the financial sector collapses again.
Perhaps a silver lining to this cloud hanging over their country is that British elites will develop a more realistic view of themselves and the world, and perhaps adjust for the better. I hope that that optimistic outcome occurs, and that the human cost, to non-elites, won’t be too high.
I think it’s more likely that the British elites will double down on both the domestic looting, and their jingoistic reality distortion field.
Congratulations to Naked Capitalism! Although buried in the fine print, NC is alone among all the supposedly serious media to express the true bottom line. Namely:
“…they want the UK to come to grips with what it is about to set into motion before pulling the trigger. They would clearly prefer that the UK find some way to back out of Brexit,”
No EU country wants Brexit. The British Parliament does not want it. Ms May almost certainly doesn’t either. So she has appointed a team that is likely to come back to London empty handed. She will then have lots of aces and trump cards in her hand when she asks the British voters to think again, this time knowing concretely what the consequences of Brexit will be. A gentle but firm recession during the next year or two will strengthen her already strong hand.
There is another compelling reason for suspecting that Brexit will not happen. Comparing the Brexit vote by age group to the actuarial tables of British life insurance companies, one sees that the 52/48 ratio will be reversed by the next Parliamentary elections in 2020. Most Parliamentarians are looking forward to political career that go well beyond that date.