Friday, October 20, 2017

EU leaders mustn’t squander this Brexit momentum

Published on CapX
This week’s meeting of EU leaders concluded with the verdict that there had been insufficient progress in the negotiations to move onto discussion of a future trade deal. That was to be expected. But the Brexit talks finally appear to have some momentum.
Why, then, are EU27 leaders ready to waste almost two months, until the summit of December 14th to progress further? That is when they will hopefully decide to start talks on Britain’s future trade relationship with the EU and a transition agreement to avoid a “cliff edge” scenario when the UK leaves the EU in March 2019.
During those two months, they will at least sort out their vision for the transition and a mandate for Barnier if discussions ever get to trade. This feet-dragging is another example of the EU27 hoping that the UK may not leave after all when they should be agreeing on what their objectives and red lines are at the negotiating table.
Before Europe’s leaders met in Brussels yesterday, the summit conclusions had been amended – at the request of France and Germany – to make clear to the UK it is by no means guaranteed that there will have been “sufficient progress” on the financial settlement, citizens’ rights and the “Irish border, as requested by the EU side.
The latter shouldn’t be an obstacle and is being discussed to create a political understanding that there can’t be a hard border. But the border issue cannot be resolved until the trade relationship is being discussed.
On citizens’ rights, a lot of progress has been made and the UK made further concessions yesterday, clarifying that EU citizens settling in Britain will no longer need to have Comprehensive Sickness Insurance and that post-Brexit family reunification would be possibleafter all. Still, the EU27 insist on a role for the European Court of Justice. Here, the EU has already watered down its initial firm demand for the UK to completely submit itself to the court. Now it only wants Britain to agree to “pay due regard to” ECJ judgments. 
The money was the tricky part before this week’s summit. And it remains tricky now. But even here some clarity is emerging, and it is becoming clear what the sticking points are.
While the UK has made clear that it is happy to pay for its share of the final two years of the EU’s long term 2014-2020 budget, it’s not convinced it should pay up for what can be considered the EU’s “debt” – or “reste à liquider” in Brussels talk. (Over the years, the EU has ignored the fact that it was never supposed to go into debt.)
Britain also thinks the EU’s pension liabilities for its eurocrats are only one third of the EU’s estimate, which would mean Britain would only need to pay 3.5 billion euros instead of around 11 billion euros.
Meanwhile, Angela Merkel’s government’s stance is far from consistent. Having prevented Michel Barnier from making a gesture to the UK after Theresa May’s Florence speech, it has now started a charm offensive.
One German government source declared: “We believe that a whole lot has already happened and, regarding an issue which is of particular importance to us, that of the rights of citizens, we’ve advanced considerably”, adding that “I believe that the big questions about the future relationship between Britain and the European Union are of far more importance than the current dispute about finances.”
Merkel herself stated yesterday: “In contrast to how it is portrayed in the British press, my impression is that these talks are moving forward step by step…I have absolutely no doubts that if we are all focused … that we can get a good result. From my side there are no indications at all that we won’t succeed”
A French government source also struck a conciliatory note, stating: “We must not give in to a confrontational mindset. We are not in a mood for punishment or presents.”
Furthermore, the German foreign ministry is working on proposals for a “comprehensive free-trade accord” with the UK. Merkel hasn’t signed off on it yet but the aim is to have a broad partnership in areas including security, counter-terrorism, agriculture, energy and aviation, basically including everything that Germany wants, omitting access for UK banks, something that the UK will without doubt put on the table. 
Is it the German fondness for procedure or is it because Merkel first wants to agree her “Jamaica” coalition with the liberals and the greens? According to the FT, “EU diplomats also think France and Germany see no harm in prolonging economic uncertainty that may make UK-based companies move to the continent.”
In any case it looks more likely now that the EU will effectively agree to start talking about the things that matter in December: the transition after Brexit and the UK’s future trade status. Theresa May is said to be pushing for an emergency dinner of EU leaders in November to prepare this.
Fourteen European trade and business organisations yesterday warned that an agreement on a period of transition after Brexit is urgently needed. They think a failure to reach a deal would send “costly shock waves” through established trade flows and supply chains. Signatories include the European Shippers Council, the Community of European Railways and the European Association of Automotive Suppliers, but expect this list to grow as we get nearer to 2018.
There’s broad acceptance that “no deal” would hit the UK hard. But more and more in the German media are raising the alarm the dangers for Germany of “no deal”. The Cologne Institute for Economic Research has stated that German companies’ supply chains would “burst” if there were WTO-tariffs, with the automotive, metal and chemical industries hard being hit particularly hard.
How happy would these industries be to see the German government refuse to start crucial negotiations over this until December, letting the talks break up over a few billions for the notoriously wasteful EU budget? The Brexit negotiations finally have some momentum. Why take two months off?

No comments: