We’ve not said much about Brexit in the last few weeks because reader comments on those posts have been exceptionally insightful, so we thought we’d hold back. Hence a bit of catch-up now.
While the progress of the Great Repeal Bill through the House of Commons is the big Brexit event this week, far more important was the impasse between the UK and EU negotiators in their third round of face-to-face talks at the end of August. The Brits thumbed their noses at the EU side by blowing off the first day, which occurred on a bank holiday Monday. While David Davis and his team did show up that day and made a short statement along with his counterpart, Michel Barnier, the talks, such as they were, didn’t start until Tuesday at 11:30 AM….which I guesstimate is about when a UK team would have been ready to go to work if they had taken the very first flight that morning out of London to Brussels.
Things did not get better as the week went on. There was a near-total dearth of any progress. The UK kept insisting that the EU include a future trade deal in this phase of the talks, when the EU has made clear from the outset that that is off the table until enough progress on the divorce issues are resolved, in particular the three teed up for this round: the movement of people, the so-called exit bill, and the Northern Ireland border.
The really embarrassing part of this UK effort to renegotiate the shape of the table is that the Brits might actually think their gambit might succeed, as opposed to simply grandstanding for the benefit of Brexit fans. If the Foreign Office were competent, a question that really is in doubt, it would recognize that the EU cannot negotiate these issues even if Barnier wanted to. Barnier and his team had to obtain approval for his brief from the 27 remaining EU members, which he got at the end of May, and he does not have the latitude to go beyond those parameters. 1
What is so disconcerting, even at this remove, is that the UK’s delusion hasn’t dissipated in the slightest. It instead has taken new, creative forms. For instance, the UK produced a series of position papers before the August session and seemed really chuffed about them. They were typically 12-14 pages each. The EU’s documents on the same issues, by contrast, had already been out and were typically over 100 pages. And that isn’t due to Eurocrat verbosity. These are complex issues. A 10-20 page document is a napkin doodle relative to the level of specificity needed.
And from a negotiating perspective, some of the papers were a joke. For instance, the one on a possible customs deal (which remember, the EU is not prepared to discuss right now) set forth two incompatible options. That’s not how you negotiate. You present your position and hopefully have some planned fallback options.
A Bloomberg editorial at the end of August poured cold water on the UK customs proposal for a different set of reasons:
The U.K. has now officially embraced the idea of a transitional deal to bridge the gap between exit in March 2019 and the conclusion of a long-term agreement. That’s crucial. There’s no chance of designing a final deal by that fast-approaching deadline.
Trouble is, it still isn’t clear what kind of transitional deal May and her ministers want. To work as intended, this interim arrangement needs to keep Britain’s existing obligations almost entirely intact. Over the weekend, Labour belatedly announced it has come around to this position. The government, so far, has not.
There’s no point in seeking a transitional deal that will be almost as contentious and complicated as the final one. To be done quickly, it has to be simple. More than that, it also has to put the U.K. in a plainly disadvantageous position.
Britain is the supplicant in this process, and the transitional proposal shouldn’t ask for favors, much less demand them. It should say, in effect, Britain will abide by EU rules until the long-term deal is done, even though it will no longer have a say in deciding what those rules are. That’s the price of being granted an orderly rather than chaotic departure.
The government’s paper on future customs arrangements suggests “two broad approaches” — one that requires a customs border with the EU, and one that doesn’t. Pending agreement on that eventual outcome, Britain wants “a model of close association with the EU Customs Union for a time-limited interim period.”
That could mean a lot of things. It would be better to say that Britain wants to remain a member of the EU’s customs union until the longer-term deal has been finalized. Even that, by the way, would not be as simple as it sounds. But a deal that leaves the U.K. half in and half out of the customs union would be much more complicated and does not meet the immediate need.
In fairness, Treasury Secretary Phillip Hammond has been pushing for something along the lines of an “off the shelf” transition deal, which is code for “something a lot like the status quo”. Theresa May, who increasingly looks like a figurehead, is expected to signal the direction the Tories will take on this issue in a major Brexit speech this month.
The result of two days of talking past each other in August (which should have been a week) is that the already not great interpersonal relations between the two sides have become more difficult. For instance, New Europe called them “increasingly bad-tempered negotiations“. The UK side also made statements to save face with its home audience that were clearly not helpful to the negotiating dynamics. For instance, from the BBC:
Michel Barnier said: “There are extremely serious consequences of leaving the single market and it hasn’t been explained to the British people.”
The UK has hit back, saying the EU does “not want to talk about the future”.
Brexit Secretary David Davis said it was “frightened” and the UK would not be bounced into a divorce bill deal.
The importance of the human dynamic is not to be underestimated. One of the reasons the Troika became so punitive towards Greece as its 2015 negotiations were failing is that the creditors felt, with some justification, that Greece was negotiating in bad faith. It would make commitments in the talks and then repudiate them less than 24 hours later when the team returned to Athens.
As Politico summed up the last round of negotiations:
Brussels had long warned the U.K. that Brexit could not mean keeping the privileges of EU membership without the obligations.
But after three rounds of formal negotiations, and a flurry of papers laying out where it stands on key issues, London’s approach looks less to EU leaders like the “cherry-picking” they warned against and more like a demand for a whole cherry pie — with a big scoop of ice cream on top to boot.
On every major issue, from rejecting the EU’s approach to a financial settlement to trying to fast-forward the discussion of a new trade and customs deal, and refusing to accept the jurisdiction of the European Court of Justice, the U.K. has laid out a vision of a post-EU future in which things only get better for Britain — and at no cost.
These disagreements are at the heart of an impasse that both sides fear no amount of negotiating will break: EU leaders and their negotiators insist that Britain must accept that there are negative consequences of leaving the EU while the U.K. government is intent on proving to its constituents that the country is better off single than attached.
And we have more fresh proof of how deep the denial in the UK runs. City AM today has a report, Hammond gives City first glimpse of government’s Brexit position on financial services. Among other things, the article describes how finance players are getting to be unhappy that the EU has not presented its position. Wowsers.
Apparently City AM and pretty much everyone living in the Brexit haze did not get the memo from Bank of England governor Mark Carney, to prepare for a hard Brexit.
First, there is the “What about ‘no’ don’t you understand? problem. The EU is not talking about any of this stuff until enough of the departure issues are resolved. Second, the EU has every reason to delay. Big financial firms are wedded to their profits, not countries. The day after the Brexit vote, the big international banks started to work on getting additional licenses in the EU. They’ve also been lining up office space. Third, the UK labors under the delusion that the EU needs the City of London. The Continent is not so enamored of finance or capitalism generally, and its needs can be served out of Frankfurt, or Amsterdam, or New York. Fourth, even if the EU were to want to play nice with London, services deals take much more time to negotiate than trade deals, so the odds that the EU and UK could work out a financial services pact by the Brexit date are low.
And the UK is taking steps that will make any deal on financial services even more difficult. From City AM:
Hammond spoke hours after a Lords committee was warned that the EU Withdrawal Bill would raise “major issues” for the sector from exit day.
The bill would give the powers to “correct deficiencies” in EU law, which means equivalence could not be relied on, said Cambridge professor Eilis Ferran.
“We will already be doing surgery on the body of EU law, so we’re not going to match on exit day,” she said.
The mention of “equivalence” is yet another tell that plenty of people in the UK who ought to know better are sticking their fingers in their ears and refusing to hear what the EU has said. From a February post:
The Financial Times obtained access to a European Commission document that puts paid to a pet proposal for how the City could have its cake and eat it too in a Brexit, that of the implementation of an “equivalence” regime. We had been skeptical that this arrangement would be approved by the European side. Our view appears to be correct.
While this had not been fleshed out in any detail, the UK proponents argued that London could be permitted to service customers on the Continent more or less as before if UK regulations were deemed to be “equivalent,” since the EU had already allowed for that with some financial services.
Moreover, as we pointed out, even an equivalence deal would be shaky, since the EU can withdraw the right to operate under equivalence rules with a mere month’s notice if they deem the other country’s regs to be not equivalent. So what was the UK’s fantasy as of early this year? Per an earlier Financial Times’ story:
TheCityUK argues that issue can be dealt with by the UK negotiating a long term deal that would establish the principles on which equivalence was founded and also creating a mechanism to resolve disputes.
As we pointed out:
This is tantamount to asking the EU to overturn its legal system to accommodate British bankers. Na ga happen.
So here we have the EU having already nixed the notion of equivalence, while we have the UK side saying that they fully expect to change UK laws relating to financial services to be less consistent with EU rules, and by implication, they expect the EU to bend. I can’t come up with words adequate to describe the depth of the pathology at work here.
Clive gave a related sighting from the August bank holiday weekend:
I have the tiniest smidge of sympathy for May because the party her leadership is supposed to corral in to some semblance of coherent, logical thinking (a necessary precursor to a strategy which isn’t a dingbat delusional) is in a world of its own. I spent the holiday weekend at my mother-in-law’s and went to a garden party hosted by her neighbour who is a bit of a leading light, as so often haughty well-heeled women are, in the local constituency Conservative Party Association. The Constituency itself is hard line swivel-eyed Brexit-land.
I attempted to engage some of the other guests (a lot of party members) in conversation about what compromises they were willing to make for Brexit, what the trade-offs should be, what the electoral implications were and so on.
On immigration, I asked if low-wage low-skill industries like agriculture were, in their opinions, acceptable casualties to deterring net migration, if so, what about food security, what about the agri-businesses which owned a lot of the industrialised food production who were big conservative party donors, what about if EU migration was simply substituted for non-EU migration and the like. It was like I’d thrown a glass of tomato juice down their dresses / shirts. To their way of thinking, it was all delightfully simple and pleasantly consequence-free, you merely leave the EU and these things sort themselves out.
On the CJEU, I asked if we weren’t to fall under its jurisdiction, then surely we’d have something akin to it, as most if not all “trade” treaties rely on some sort of ISDS. Nope. The marvellous British system of justice would be just fine. It was the Best In The World (TM).
In the end, I got told to stop making conversation awkward as people were beginning to stare. I listened in on their conversations, they were merely talking the Brexit book with self-reinforcing beliefs that we just need to tell the EU to sod off.
Little chance, then, of May being able to get anywhere with that lot. Daily Mail land isn’t a handy cheap-laugh metaphor; I just spent the weekend there.
Based on Clive’s intel, I would not be hopeful about May taking a realistic position on a transition deal. It would be better if I were proven wrong.
______
1 In a display of cognitive dissonance, David Davis has made statements that show he does understand that Barnier’s hands are tied in terms of the order in which issues are to be negotiated. And this should not be a surprise, since the EU has said from the outset that the sufficient progress had to be made on the separation matters before it was prepared to talk about future arrangements. Yet Davis whinged as if Barnier could defy his marching orders. From Politico:
Davis also publicly declared a frustration that U.K. officials have voiced privately for weeks — their view that the EU27 are being overly rigid in their demands and have given Barnier and his team no flexibility to compromise. Again repeating his line that the EU’s rigid sequencing of the talks (divorce first, future relationship second) makes no sense, Davis implored his interlocutor to put “people over process.”
“For weeks”? They woke up to the fact the EU was serious that late in the game?
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Excellent summation, as always.
I find myself following the tos and fros of Brexit with increasing incomprehension. I keep thinking that either something is going on that I’m too uninformed or stupid to understand, or, the entire UK establishment has fallen into a black hole of delusion and stupidity. Some random thoughts:
Its pretty clear now that there are only two alternative scenarios likely – the hardest of hard Brexits, with consequent chaos for the UK, or a complete capitulation by Britain in the form of accepting a ‘transitional deal’ whereby they accept in its entirety all EU law and the authority of the ECJ. As the latter would be political suicide by May and her cabinet, I don’t think it is in any way likely. I simply can’t see how any sort of reasonable fudge deal could be made in the time available given the political realities.
A key point which I think some overlook is that many establishment Brexiters actually welcome the notion of a chaotic exit. They are true believers in disaster economics and will see it as an opportunity to profit personally and to reshape the UK in the form they want – which is some sort of idealised uber libertarian vision from the early 19th Century when buccaneering Eton types swaggered over the world, doing deals and generally crapping over inferior ethnic folks everywhere. They may well feel that they can put the full blame on the EU (why not, as thats what they’ve been doing for four decades) for the economic collapse that would almost certainly follow.
I was watching an interview recently with Adam Posen of the Peterson Institute, who is very well connected with the usual neolib/neocon koch brothers types (I can’t find the link right now, its on youtube). I would imagine he is well positioned within the right wing establishment to know what sort of private conversations are going on. I got the impression from his talk that he is aware of the sort of fantasies circulating among the establishment right wing in the UK and was warning against it. I find it sort of interesting that the pragmatic international hard right seems somewhat appalled at what is about to happen with Brexit and seem to be vainly trying to make their English brethren see sense.
From the EU side, I think there has been two noticeable trends which bode ill for the UK:
1. The key EU leaders have ‘moved on’ from Brexit, they see it as a fait accompli. They have essentially already discounted the damage it will cause and see the priority as moving on. This is particularly important as it seems clear that neither Merkel nor Macron will expend one ounce of political capital to force through a deal that would help the UK.
2. Related, my perception is that there seems to be a hardening of opinion in Eastern Europe. This will mean that any potential deal of the type floated by Blair on free movement will be vetoed firmly. I don’t think there is any scope for a tightening of migration rules that might give Britain a face saving way out.
3. The UK seemed to have some idea of using the Irish border as a negotiating chip – trying to use it (and the Irish government) to leverage some sort of deal on customs and free movement. I get the strong impression that the Irish government has accepted that there is no appetite in the EU for a special deal over the border – there is no possibility of a fudge. As per usual, the Irish government will go searching for a big cheque from Brussels as compensation for losing out on political objectives. Its hard to read the current Irish government as many of the relevant ministers are new in their jobs, but I get the impression that they will see a hard border as a price worth paying if they can negotiate sufficient compensation from Brussels. This will turn what London may have seen as a bargaining chip into yet another huge political and economic problem for them to contain.
Your points 1 and 2 are spot on. Basically, the attitude on the continent is “Brexit? Your problem, not ours.”
All of Brexit is essentially a huge Tory party infighting, which tried to drag in best part of a continent – but they now plainly refused to play ball.
On the Irish question, this was a really good article I read earlier this week http://www.nybooks.com/articles/2017/09/28/brexits-irish-question/
I’m curious how the border issue might pan out purely “technocratically” (to use the article’s term) in the event of a hard Brexit. From the NY Books Article it says:
but later on:
The Wikipedia article on the border says it’s 499 km long, with more than 200 public roads crossing it and minimal signage. Isn’t it going to be a big effort to build up and staff it on each side? Or might the EU send Ireland a large check for their troubles as PK suggests? Is this really not a big deal to arrange in the grand scheme of things?
The border is notoriously porous – there are roads that cross it half a dozen times over a few miles. I’m old enough to remember when smuggling was one of the major pastimes in the border areas, and a major source of income. Despite highly intense security, it proved almost impossible to seal it off. When I was a child, for example, there was hardly a single shop in Dublin selling TV’s – nearly everyone bought smuggled ones from Northern Ireland, where they were significantly cheaper.
In the event of a hard Brexit, the sealing off with of almost all border roads will become essential. The big issue is agriculture – NI milk and beef will no longer be ‘EU’ so it will have to be cut out of the supply chains if the Republics huge agriculture sector can continue to sell in Europe and most particularly to Asia (Ireland is a huge supplier of milk solids for baby formula). But with a dropping sterling, the Irish government will have little choice but to put in customs checks to stop border shops getting wiped out as everyone drives to Newry or Enniskillen for shopping.
In reality, a customs stop on all roads will be almost impossible – there may be no choice but to block off many roads (which during the troubles was a very contraversial thing – there were cases of locals repeatedly rebuilding roads and bridges blocked off by the military for security reasons).
See my somewhat cranky comment at the bottom; I think they’ll fake it – just make no effort to enforce a nominally international border. The smuggling you talk about should be tiny in comparison. Ireland will be the back door to/from the EU.
How that will actually work out I have no idea, but it’s the only solution I can see
There is concrete difference between a small vulnerable country, which Ireland was before entering the EU, and the Ireland of today that it inhabited by foreign multinational trading corporations and also has some substantial trading businesses itself, especially in agricultural and pharmaceutical products.
There is a vast difference between individuals smuggling sugar and TVs, as my relatives did very successfully, and trying to by-pass the entire legal and logistical framework of EU law and enforcement. Ireland will not be allowed to flaunt or ignore these regulation and customs if it wants to continue trading with the EU. To flaunt EU agreed laws and customs would, once again, leave Ireland outside the EU as a small, vulnerable backwater linked with what could become an increasingly isolated UK.
In other words, for all the inevitable economic damage that Ireland is going to suffer (thanks torys), the downside of flaunting EU regulation is out-weighed by any meagre advantage that Ireland might enjoy as a smuggling nation acting on behalf of the UK. The UK won’t pay Ireland anything extra to Ireland for being a back door conduit (Ireland should just feel privileged) and the EU isn’t about to let the UK jettison agreed EU laws and customs whilst benefiting from those same laws and customs.
When one is a party to a set of agreed laws and customs, one has both benefits and has obligations to these agreed laws and customs. One cannot expect to obtain the benefits and jettison the obligations. This is not how any contract can work in any society. As the article above states quite clearly, the UK is attempting to achieve just this sort of outcome, and the EU is not having any of it.
And they certainly aren’t going to oblige Ireland playing fast and loose with these laws and customs either.
The UK’s position was to “suggest” that Ireland (and especially the peace process) could be used as a pawn in their negotiations with the entire EU. The Dublin establishment recognised this and thoroughly rejected the UK’s position; many were more than a tad “miffed”.
Which leaves no solution to the problem of the border, short of peeling off N. Ireland and reunifying the island. A good outcome, if it can be done without violence. Can it?
Trying to use the border problem as a pawn would be slimy, so that might be what Varadkar was reacting to. Judging by what I see here, I think Britain is basically hapless; they don’t know what to do. They don’t even have experienced negotiating staff.
Germany was allowed to get away with deficits far greater than Greece’s, before the recent boom times. The EU makes exceptions if it has to, especially if they don’t have to be explicit about it. But you’re probably right that anything large scale wouldn’t be tolerated. If you see a solution that doesn’t involve bending the rules, we’d all like to hear about it. Otherwise, what do they mean by “creative”?
It’s unfortunate that Ireland is caught in a mess not of their making.
Thanks Vlade, thats an excellent article, although it should be pointed out that Fintan O’Toole has quite a few blind spots (the Irish satirical magazine Phoenix – not available online – did a particularly good take down of his writings last week). His biggest blind spot is his absolute refusal to give any credit to the Irish republican or nationalist traditions for anything – so far as he is concerned they aren’t even worth writing about apart from ritual condemnation. For example, he rather bizarrely attributed the lack of any anti-immigrant or racist political party in the Republic to the emigration experience, completely ignoring the obvious fact that the reason for this is that the Irish republican/nationalist traditions of both left and right have had a strongly anti-colonial and anti-imperialist stance, which has resulted in an Irish nationalist tradition which is almost unique in Europe as pro-immigrant and anti-racist.
One thing his article does not address is the impact Brexit is having on politics in Northern Ireland. The ‘middle’ has essentially been destroyed. The DUP in all their gory glory are now utterly dominant in the Unionist tradition, while SF can now legitimately claim to be the only real representatives of nationalism. I know long time observers of NI politics have said that in the past year or so there has been a real sea change, with people essentially ‘taking sides’. Anecdotally, I’ve heard quite a few stories of people who in the past would not be caught dead voting for DUP or SF who now would do so.
Well it COULD be that the politicians in charge of Brexit know that those two options are the only two possible and they’re “running out the clock” hoping that the inevitable “UK capitulates to the EU” can be sold as a “temporary, transitional” deal. I’m thinking that at least SOME of the clearer-eyed people are planning along those lines. Sometime temporary measures can last a LONG time…
I’ll second on “excellent summation”, if I might be so bold.
As for PK’s comments. Spot on. And good summaries of the boiling points.
For a while I though the Tories might just have had some devious master plan that they’d whip out at the opportune moment with which to stun their opponents; if not into submission, at least into chaos. Every passing day, and every utterance from any Tory, buries that thought deeper and deeper.
And I would think the EU negotiators will have noticed that May returned from her trip to Japan virtually empty handed on the trade front.
All in all, I’m glad that Yves Smith does these explanatory essays: After the big debate here on Greece, and reversion to the drachma, we learned to listen.
Clive makes this vivid comment: “It was like I’d thrown a glass of tomato juice down their dresses / shirts. To their way of thinking, it was all delightfully simple and pleasantly consequence-free, you merely leave the EU and these things sort themselves out.”
PlutoniumKun adds to this with his comment about buccaneering. I am reminded of Edith Wharton’s novel, The Buccaneers, about U.S. women sent off to make a good match in the English upper classes. They brought fortunes and healthy DNA. The upper classes had their traditions and manor houses in need of upkeep. Looting and looting.
The syndrome is deep seated: In the U.K., it is mainly the English elites, as we see from the reactions in Scotland and even in Northern Ireland. In the U.S. of A., this same consequences-free, buccaneering world is the realm that our elites inhabit. Hence we have climate-change denial, free-market fundamentalism, and endless attempted solutions to the “servant problem” (slavery didn’t quite work out).
I noted how many times in the essay Yves Smith seemed to shake her head (rhetorically) at the blunders. Yet when the culture is so deeply corrupted and when the economics is one of loot-and-move on, aren’t we seeing what happens to people who grift for a living? What’s so different between Brexit and the attitudes of the Brexiteers and, say, the current crisis at Uber?
DJG – “loot-and-move-on” – thank you for that. The actions of the UK government (not to mention the British Empire) summed up in four words.
Good post, Yves, and thanks for reinstalling the comments section.
Excellent take as usual and I don’t have much to add to your core arguments.
One minor point though. You keep saying (as do others) that EU position papers are 100s pages and this supposedly proves that the EU side is much more prepared. I have no doubt that they are more prepared and that they have the advantage of a coherent negotiation stance. However, the only position papers that I can find (at https://ec.europa.eu/commission/brexit-negotiations/negotiating-documents-article-50-negotiations-united-kingdom_fr) are generally only a few pages long. They are very clear and much more on the point than UK ones but they are certainly not 100s pages long. Or are there papers out there that I have missed ? If yes, I’d be glad if you could direct me to them.
To be fair to Greece, according to Varoufakis’s memoir, and this is his view buttressed by his recordings of the meetings he had, he was prepared to stand fast but Tsipras and some, what could be designated as fifth columnists in his government, reneged over agreements V made. Sometimes it took more than 24 hours to backtrack on what had appeared to be agreed. But then, members of the Eurogroup lied in the group meetings, contradicting what they had told V privately. From V’s point of view, Dijsselbloem was an egregious dissembler and liar. Varoufakis respects Schaeuble seemingly because he views Schaeuble as a straight talker. I emphasize that these are Varoufakis’s own views, but they have the ring of truth.
I would have hoped he would resign earlier than he did, but it seems that he kept hoping against hope. He was unrealistic about his own party and some of his colleagues. That said, while the actions of the Troika toward Greece were deplorable, it could be argued that Tsipras brought his situation upon himself.
Spot on. Varoufakis was actually looking to negotiate a deal that would have allowed for Greece to pay off what was realistic and write down the rest. The elephant in the room was the fact that the ECB in swapping Greek bonds for ECB bonds had embedded in the bonds structure the impossibility of them being written down! This was because in order for banks to fulfill Basel asset to capital ratio requirements the banks needed to have tier 1 assets (i.e. the ECB bonds with no possible write down) in order to avoid a need to go to the capital markets. So when it came to negotiating with the Greek government, trying to say that the Greek government were negotiating in bad faith compared to the troika doesn’t hold water. The troika’s negotiating position was ‘we know that there is no way that you can every pay off this debt, but we going to keep squeezing your country because we prioritize our banks over the population”! In other words a big middle finger to everything that the EU infrequently pays lip service to such as democracy and improving the well being of everyone in the EU.
We said from the outset that Varoufakis was never going to get that deal. The Europeans made clear that they were going to implement the current Memorandum
And the biggest impediment to a writedown was not the banks but the European government, who were the biggest creditors to Greece. They were willing to extend maturities and lower interest rates, which is an economic writedown, but they had already pretty much exhausted what could be accomplished that way (for instance, bonds from one set of lending didn’t have any payments till 2020 and another till 2022, I’m sure there were no principal payments on them till then, I think that was true re interest too).
With the payments so attenuated (the maturities stretched out to at least 2060), the Europeans would recognize any losses gradually, as the bonds matured. If they did writedowns, not only would they recognize the losses immediately, but they would have budgetary impact.
In fact, the game was over as of late February, less than a month after Syriza took office. As we wrote:
https://www.nakedcapitalism.com/2015/02/benchmarking-greeceeurogroup-bailout-memo-process.html
And I hate to tell you, that is not negotiating in bad faith. If someone has all the cards and tells the other side they can only negotiate a deal at the margin, that is not bad faith, that is a statement of their position.
And things said in private are not part of negotiations either. Statements like “I agree this is unreasonable” and other statements of personal sympathy do not mean concessions are forthcoming.
With all due respect. The ECB had an exposure north of €104bn to Greece because they bailed out the banks holding Greek debt. They did that by swapping Greek bonds for ECB bonds with Tier 1 rating because they couldn’t be written down. This allowed the banks to get these near non performing assets off their books and improve their Basel ratios. Yes, the ECB exposure would have left the governments scrambling for the funds to cover the ECB exposure because if they didn’t cover it, the banks holding the ECB bonds would have been required to write down these bonds because they would no longer be Tier 1 assets.
As for the negotiations, if one negotiates in a manner where the goal is to help the other party to become solvent and be able to pay off their debts, you’re nothing but a mobster or a loan shark. The only way to resolve the Greek economic situation is to write off significant parts of the debt and helping Greece to get back on to sound financial footing. Stringing out interest payments over 50 years it’s going to do anything. That’s what most of the western governments have done to the hilt since Bretton Woods and now the whole world is awash in debt! All they are doing is creating a situation where when the ball drops it’s going to be even more painful. From what I’ve read about the negotiations its clear that Varoufakis was trying to resolve the situation, Tsipras was primarily interested in staying in power and remaining a member of the establishment and the EU, again not giving a toss about its member countries, was more interested in its own survival even if they that required that they do the equivalent of economic waterboarding one of its members.
Please read my comment below. If you send a negotiator and he agrees to something, it is bad faith to unwind what you’ve committed to. The only way you get to retrade a settled deal point is rarely, and even then by groveling and making a concession.
Moreover. Greece kept acting as if it could undo the commitment it made in February, which is signed to get some short-term funds and committed it to the general outlines of a deal.
The fact that Varoufakis had the economically correct argument does not mean he was going to prevail.
Interestingly enough, some of the more thoughtfull people who originally backed Brexit are coming to see how totally incompetent and idiotic treatment it’s getting. The problem is that the majority of the Tory party lives in its own world (which looks very much like mid to late 19th century see one JRM for a nice example), and the sane part are not sane enough to be willing to go against the party. At least not yet. And that to me is fundamentally the major issue. Will part of the Tory party rebel, when they are really staring down the abbys, or will they just, in the best British tradition (remember, this is the country that still celebrates one of the most idiotic military actions ever – charge of the Light Brigade) jump into it with a cry of “for Queen and the country”?
As one of those people, I would add that the sheer degradation of political will and debate was patent before the referendum.
Anyone could see that as prissy hubris, but the status quo was family blogged anyway. The situational engineers just have a new opportunity to express their inadequacies.
I voted out because I had as little faith in the ‘institutions’ that led to the shuttered shops,piles of rubbish and people sleeping on bust mattresses in the streets of Athens as the sclerotic necrosis that passes for our polity.
Maybe I didn’t factor in quite how homeostatic our elites are, but then, not many do.
had i any realistic hope uk could have managed brexit, i’d have voted to leave.
i didnt so i voted remain (i pretty much predicted how it would go in commemnts here 18 month ago or so). i even made some drinks money out of that
There is a lot of truth in the old saying that if you want to know how dinner will turn out, ask who is doing the cooking.
PK, I think your key point may well be spot on. Unfortunately.
https://www.theguardian.com/commentisfree/2017/sep/14/vote-leave-britain-single-market-tories-labour-brexit
Thank you Yves, this overview could turn out to be very timely indeed because we might be seeing some fireworks soon. I’ve been keeping an eye on the (small) world of liberal / soft Brexiteers and it’s abuzz with (and alarmed by) rumours that the delay of this month’s round of negotiations is due to the fact that May is about to try to bypass the A50 process:
According to this twitter-thread by LeaveHQ, May will appeal to EFTA members to recreate the EEA in the UK’s preferred configuration (no freedom of movement, better access for financial services).
This, quite excellent, piece by Richard North on eureferendum.com (another soft leave shop from some of the same people) sets out the rumour as follows:
Also this week we finally heard that the treasury is now preparing for a no-deal scenario. They should have been doing this from the beginning of course, but the timing of the announcement is significant and the idea they weren’t preparing before or even find it acceptable to even imply that is just farcical.
Of course, there is nothing in and of itself inauspicious about the UK government approaching EFTA members. In fact, since any “successful” Brexit hinges on either a very lengthy transition through the EEA or simply becoming party to the EEA agreement through renewed EFTA membership, the UK should have approached them right after the referendum. Doing so now is probably too late and an announcement like this is too public (ie they’ll be seen as negotiating in bad faith, precisely one of the issues you flagged above).
This move would also show the UK is still oblivious to the fact that other countries have interests too and that those interests do not necessarily align with those of the City of London (again something that falls into a pattern you highlighted). On top of that the UK also still fundamentally does not understand how the EU (and international trade in general) works: any renegotiation of the EEA-agreement would of course be on the EU’s terms (and even an “off-the-shelf transition” depends on Brussels’ goodwill). The timing of all this is also completely impossible.
North also implies that the influential libertarian thinktank Legatum Institute actually wants talks to fail (more of his thoughts on them here). Either to implement and profit from thatcherite reforms and fantasy free trade or to just make money of the collapse (trough currency- and property speculation, I’d imagine). That theory goes a long way of explaining the Government’s actions: The oblivious matrons of dailymail-land from that little vignette, have always been easy marks for outfits like that.
All that said, if you are going to leave the EU, involving EFTA to achieve single market membership and so potentially solving some of the thornier issues of the A50 process is the right move. She’s just going about it precisely the wrong way and far, far too late at that.
The problem is that by treaty, the UK is not permitted to enter into any trade deals while it is in the EU. I believe the treaties don’t even allow for negotiation. If my memory is right, the EU would need to give a waiver of some sort but even that would take time and would require unanimous approval of the member states. At a minimum, the EU will probably require the exit tab to be settled before any new deals are cut.
I have a question about UK motives in dealing with the EU in the manner it has chosen (if that is the right term, since many paths have been tried, but not chosen, due to fear of riling the Brexit waters further). Is there, in the minds of Conservative Party negotiators and their leading lights, a hope that the US will ride to the rescue of British banks and industries and make up for any losses due to Brexit? The long-standing Atlanticist “tradition” is based upon both American support and its betrayal of Britain after WW2, as we moved in on their colonies and ensured the Bank of England would not be competition for our banking gangs. Are they relying on that, or is there a more global scene they envision? I am woefully uninformed as to UK latitude after Brexit (NOTE- I am personally in favor of a total restructuring of the EU to meet working-class demands throughout Europe, but “exit” cannot do that, as it only favors the elites who are positioned to gain from any result.)
I can’t answer that in detail, but my feeling is from reading pro-Brexit outlets is that indeed there is a somewhat delusional streak running through some of the UK establishment that the US will look on the UK with particular favour (as you note, you can only believe this if you ignore history).
But I think the strongest motivation among some business types is the notion that the UK has a sort of historic tie with the former colonies and that it can regain its role as a sort of European Hong Kong, a free wheeling business place that will attract free floating capital from around the world, but most particularly from Asia and the Middle East. For all sorts of reasons, this is entirely delusional, but it does seem to be a widely held notion.
Thank you – seems logical from their point of view to hope for an independent role in global trade and financial shenanigans, as that has been their role since Thatcher. I can’t imagine the US moving in to “save” them without a steep price, and the EU will exact the same, so their “earnings” will have to be higher than that threshold.
I don’t disagree about how incompetent the UK negotiation has been but its sort of irrelevant because the EU have made it clear that they are only interested in preserving the EU. So they ain’t interested in negotiating anyway.
So there are only a couple of options:
1. A last minute Norway deal for say 7 years where the UK will keep paying into the EU budget.
2. Hard brexit where the UK should just say unilaterally all EU folks in the UK can be UK citizens and the UK will continue to allow all EU goods into the UK at least for a transition period and see what the EU do in response. Then the EU can be blamed for bad things.
Basically the EU and UK are just arguing over who will take the blame when bad things happen as whatever happen there will be a big cost to brexit which in 30 years we will know if it was worth it. . -)
Along with others, thank you to Yves and others for their usual intelligent input.
Just one or two points to add to those already made – we are rapidly approaching the season for UK party conference meetings. These will probably only seriously affect the behaviour of the Conservatives this time around. All the leading Tories will want to parade their credentials in front of the party membership. Expect this to encourage much playing to the gallery and competition who can sound toughest in standing up to the European ‘bullies’. May will want to try to strengthen her position if she can while the candidates to replace her will want to boost their popularity by denouncing ‘Brussels’. There has even been talk that some are already jostling for position to be the obvious successor to May’s immediate successor – it really has got that unstable.
Given this timing it seems inconceivable May is preparing any sort of climb-down at this stage (or indeed at any point until after the autumn 2018 party conference). An ‘autumn surprise’ this year, in which the UK tries to seize an advantage by moving the goalposts of the discussion is very possible – ‘let us not talk about Article 50 negotiations any more, they are obviously not going anywhere so let us approach the matter from a completely different angle (EEA talks?)’.
On questions regarding the UK and the US it is worth recalling the role of Dr Fox who is now responsible for negotiating trade deals for the UK. He has links with an organisation called Atlantic Bridge which is worth researching.
Dr Fox had to resign as Defence Secretary in disgrace a few years ago when it emerged that he was allowing a friend of his to arrange meetings with arms companies outside the usual official channels and the friend was taking money for arranging these meetings. One of the roles of the Civil Service is to organise Ministers meetings (it is a way that the Civil Service can oversee Ministerial activity to prevent corruption). Fox’s friend was not a civil servant.
It is said that Fox is close to US pharmaceutical companies who consider that the buying power of the NHS enables it to obtain unreasonably low prices for its drugs. It is good that British ministers are so above corruption that they would never consider making any decision in return for any sort of corrupt inducement, because of course one would otherwise worry that Fox might abuse his position.
Thank you NT for bringing all this overblown nonsense of this post and the comments down to earth. I’m a Brit who voted to Leave this hideous construct the EU . Just read Juncker’s outburst about moving forward with more ‘integration ‘ and making the Euro ( a piece of total fakery ) stronger. I’ve had my wobbles over the last year , but Juncker’s speech brought me right back to the reality of why I voted to leave this neo Marxist enclave . Those of you who are American and comment on this site have little understanding of what it feels like to live inboxed Europe any more than I do to live in a country with aTrump as the president.
neo-Marxist…. lol
People in Europe were similarly upset when we predicted what would happen in Greece and we were correct. You can shoot the messenger all you want. That is not going to change the disastrous outcome.
As for more integration, most of the proposals ALSO involve more democratic accountability at the EU level. That would end the big negative of the EU, that the technocrats don’t answer to voters.
As for the Euro, what do you care? The UK has its own currency.
@NT: “So they ain’t interested in negotiating anyway.” (The EU – I’m not sure where in the column this will end up.)
I’m glad to see someone else saying that. It does seem obvious. In fact, it appears they’re promoting a “hard Brexit,” to discourage other exits – and there’s quite an admission in that.
No, this is a complete misrepresentation of the EU position. They are prepared to negotiate on all substantive issues. For instance, there is a large range of possible outcomes for the size of the exit tab and how it is to be paid. To say the EU is not willing to negotiate is flat out false. It has set out some hard lines, but contrary to your claim, they are hardly unreasonable. The big ones are that any deal has to fit within the general parameters of other deals the EU has done with non-EU members, and that if the UK is to have access to the Single Market, it must accept the “four freedoms”.
Having red lines is bog standard in negotiations. The problem is that the UK has refused again and again to listen to what the EU red lines are and has acted as if it can get a privileged deal, when it already had a privileged deal as an EU member.
Excellent article and excellent points made by all – so nice to be able to read you all again.
I have one question: the 10-12 page UK papers you refer to, are they the published ones? Because most of the ones I have clicked through to were 4-5 pages including a full front page, a half-page executive summary and a half blank last page, i.e. effectively 3 pages of substance at best, which has led me to conclude that the UK government is clueless, but if there are longer ones, maybe I need to revise my opinion.
OTOH, I have not attempted the EU ones as I expect them to be unintelligible….
They do run typically from 10 to 20 pages and the occasional one such as this on “safeguarding” the “positions” of EU nationals gets a whole 24 pages (UK A4 size printed equivalent).
But they’re still largely gibberish.
Like this peach here:
Oh, so now we’re talking ID cards are we ? And on what infrastructure, maintained by what procedures and validated by what data delivered in what timescale would that be hosted on ?
Plus, of course, we wouldn’t want them to be treated like second class citizens, now, would we ?
(Holds head in hands and starts to cry a little)
There are suggestions that these papers are not being produced by career civil servants, many of whom want nothing to do with Brexit, but by consultants from outside the civil service (including Legatum) or by people who have been recruited from the ‘outside world’. Although there is nothing in principle wrong with the latter, the salaries being offered are reportedly quite low by private sector standards so unlikely to attract particularly able people in mid-career.
Hey ho.
That figures; they remind me of the makework that we give in interns at my TBTF to keep them occupied, give them a sense of involvement but try not to be too obviously patronising. And not have them work on anything important lest their slight tendency to naivety gets the better of them. Maybe the department for exiting the EU is adopting the same approach.
It would certainly explain the Enid Blyton vibe I get from reading them. I keep expecting to stumble across the bit where we all get back to the farm in time for tea, with lashings of ginger beer.
Lashings of ginger beer – lovely
This might amuse. Maybot = Mrs May
“Dear Robocorp,
I am writing to express my extreme disappointment with the Maybot 2.0 that you sent us as a replacement for the non-functioning Maybot 1.0 that we returned to you in June. This faulty device is working no better than the previous version and if I was a cynic I would suggest that you merely sent back the non-working Maybot 1.0 to us with a new badge and a new set of AA batteries. I will be reporting Robocorp (Cayman Islands) Plc. to Westminster Council Trading Standards and we will not be buying any more of your shoddy substandard and dysfunctional products.
You can forget trying to sell us the Antique Clockwork Reesmoggbot as it is so out of date that the parts are no longer available and it has been out of warranty since 1789.
Yours Sincerely,
The 1922 Committee.”
I am afraid I cannot give the proper attribution to the author as I do not have it.
You mean green cards (US lingo)? The quoted text is indeed odd, but foreign nationals in any country are usually required to carry something like that. British nationals who remain in the EU would surely need something similar, even if granted the right to stay.
The point is that they would suddenly BE foreign nationals, where they weren’t before (exactly – the EU is a hybrid animal). That’s strange, but this kind of thing doesn’t happen too often. As long as you can avoid the nightmare that accompanied the partition of India, you aren’t doing too badly.
Granted, the Tories can be counted on to screw it up somehow.
I have read of the length and detail of the EU position papers. It may be that they publish only summaries and save the full versions for their own teams and their UK counterparts.
One kink in this dilemma: the Irish border is not a solvable problem, within the rules. Hence, putting it up front in the negotiations is a form of sabotage.
Going way out on a limb, here: Ireland and Britain will fake it, putting in a nominal but unenforced border – as suggested several times. Based on reporting here, that’s really the only solution. That should be interesting; it would immediately be a smuggling superhighway, a way around customs stations at the British ports. This would work for goods, not so much for people, who would be vulnerable to identity checks. It would do wonders for Ireland’s and N. Ireland’s economies; they’re suddenly a main conduit for trade between Britain and the Continent.
It’s been particularly, umm, amusing to see politicians wiggling on that particular hook. The most outrageous was the Irish prime minister, Varadkar, saying that it was Britain’s problem, not his. That’s the reverse of the truth; for him, it’s a big problem, a big slice of a shaky economy; for May, it’s pretty small – or would be, if she weren’t dependent on the Unionists for her majority.
I hope there are behind-the-scenes negotiations between the two governments – after all, they have a long relationship – and considerable water between them and Brussels. If not, May is even more incompetent than she appears.
Ireland’s economy is not shaky. They’ve turned the corner, and in any case their GDP per capita is a whopping 50% higher than the UK’s. Only Luxembourg is richer in the EU.
Exports to the U.K. used to represent 50%, but now they are down to 15%. Still significant, but your patronizing attitude to the Irish is at least decades out of date.
The Irish have benefited tremendously from the EU. To think there is some special relationship with their former colonial masters against the EU is the same delusional nonsense the English seem to have convinced themselves of.
Inflation is just starting to hit the UK—the drop in the pound is pushing import prices higher, and more significantly, hospitality and food service companies are having to raise wages to attract staff (and are often getting lower qualified staff that require training). Is the Government worried? Just today the minister of immigrant said “since the referendum, the Prime Minister, the Home Secretary and I have been clear that we want EU citizens in the UK to stay and have made protecting their rights a top priority.” A statement worthy of Month Python. The number of mortgages approved by British lenders has been dropping, and the housing market is slowing. Toyota said the other day that it had received assurances from the UK in March that it would be able to export tariff-free to the EU after Brexit—but is no longer getting those assurances, which may change its production plans. The EU is rolling out the welcome mat for financial services. There are other early—and I’d stress early—signs of what Brexit will mean, even if the Brits manage to kick the can down the road for a two-year transitional period—a two year delay will do nothing to reassure businesses and EU workers in the UK, it will simply give them more time to get out.
The xenophobes whipped up by the far right go on about “sovereignty.’’ Sovereignty over what? A pile of rubble? How does one negotiate a deal that will placate the irrational electorate?
UK Minister – “Doctor, Doctor you say I am going to die soon but I refuse to do so until you describe Heaven in better detail.”
Thanks for the article and comments.
I am intrigued by one aspect, touched on by oregoncharles above. The EU insist that the divorce bill and irish border are settled before talks can move to the new settlement between the EU and UK. However, the british side ask how we can settle the border issue without simultaneously negotiating the nature of the future relationship between the UK and EU, because this clearly affects future border arrangements. Leaving aside the obvious lack of general appreciation for he EU position in the UK, I think David Davis thinks he has hit on an a flaw in the EU negotiating position, in that it is clear to a reasonable observer that both questions must be linked for progress to be made. Whether or not the EU insistence on solving the border issues first is intentional sabotage or an emergent flaw could be discussed, but when David Davis insists that the EU must be more flexible, I think he is referring specifically to this problem. Taking into account EU red lines, this appears to be intractable, either by accident or by design.
The EU hasn’t asked for border issues to be settled, they have insisted that the UK provide proposals on how the unique legal and constitutional issues of the border can be addressed through Brexit. Northern Ireland is a unique situation within the EU because of the specifics of the Belfast Agreement (in addition to previous Anglo-Irish agreements on trade and free movement, which predate the EU treaties and still apply), which is an international commitment by the UK. The Irish government specifically requested that the EU insist that this be addressed at the earliest possible stage because of the potential for violence. Its entirely reasonable for the EU to point this out and to request concrete proposals.
I agree with PK above.
I assume (though without any hard evidence) that the EU line now is likely to be that the UK has indicated that it does not want to be in the single market or the customs union but wants a trade deal. Discussions on a trade deal could take many years but the Irish border issue needs to be settled by March 2019 (well before ideally) so it is essential to deal with the latter now. The trade deal discussions are less urgent so can wait. No doubt it makes this line more appealing to the EU that the consequence is to increase the pressure on the UK.
But the English did ask for it and, although they will doubtless try to blame others for the consequences of their own actions, that will cut very little ice in the EU.
It seems increasingly likely that Brexit will, in the end, be very similar to the EU’s relations with Norway and Switzerland. These two small, rich countries are subject to all EU rules with very minor exceptions. Yet they have no say in making these rules.
Their sovereignty is mostly a fig leaf to appease the backward (mostly rural and small town voters) who hold the respective balances of power. This may be what the Tories or Labour-under-Corbyn will have to swallow to stay in power.
The only realistic alternative today is a second referendum which rejects Brexit. The actuarial demographics of the small Brexit majority, heavily skewed to older voters, implies that voters still living in 2018 or 2019 will reject Brexit. Especially when the real economic consequences become apparent.
All it takes is a leader to come forward.