Who is really to blame for the Brexit deadlock?

Published on CapX 

After this week’s round of Brexit negotiations, a lot of the attention went to EU negotiator Michel Barnier’s claim that there still was “deadlock” over the so-called divorce bill, and that talks about the UK’s trade status after March 2019 couldn’t start until that deadlock had been broken. EU Council President Donald Tusk has already suggested that would only happen in December at the earliest.

Barnier initially had this timing in mind when he planned to require full agreement on the UK’s divorce before there could be any talk of the future relationship. In the final version of Barnier’s so-called “guidelines” from his masters in the 27 EU member states, however, only “sufficient progress”, a political concept, was required.

It seems the roles have been reversed and now it’s actually Barnier trying to convince member states to grant a concession to the UK while some of them resist. France, Germany and Romania are mentioned by The Times as the trouble makers.

We don’t know whether Barnier is only pretending to play the good cop here. Although apparently Theresa May had been “taking dictation” from the EU for her Florence speech, so it could make sense that he promised May something in return. That would then not be a concession to start “trade talks” but merely “exploratory trade talks”.

It’s also less than clear what France, Germany and Romania are trying to achieve. The EU is afteran agreement on how the financial settlement will be calculated, not after a precise figure. Germany reportedly wants the UK’s promises on financial settlement “in writing”. Moreover, it wants to have a new discussion on the mandate Barnier would get to negotiate the so-called “transition period” which Theresa May requested in her Florence speech and whereby the UK would keep access to the EU’s single market after March 2019. France on the other hand would be “slowing down the timetable behind the scenes” while at the same time “take more conciliatory lines in private because of the importance of Calais’ trading links to the country’s economy”. In any case, it looks like it’s not just the UK government that has been dragging its feet in the negotiations.

Perhaps Germany and France think that delaying a deal on money will somehow force Britain to pay more. That would be a risky bet. Linking money discussion with trade would on the other hand allow the EU side to “sell” trade access. People are getting nervous about this in Brussels. The EU’s powerful farming lobby is already warning about the Brexit hole endangering current EU agricultural policies, including huge subsidy payments to agricultural landowners. Britain would probably do a service to the EU27 taxpayer by not funding the EU budget so lavishly, given that any Brexit hole may focus minds in mainland Europe about the troublesome state of that spending.

At next week’s EU Summit, EU27 leaders are due to decide whether to move to trade talks. This week, a senior EU diplomat told Reuters that EU leaders don’t want to weaken Theresa May. Indeed, if she were to be replaced by a hardline Brexiteer Prime Minister, things would get more complicated for the EU27.

More fundamentally, there is no reason to despair. There was always going to be walkouts and drama during these negotiations and, after all, despite his rather gloomy tone, Barnier also said that after the Florence speech, there was “new momentum” in the talks. The Financial Timesnotes that despite the “standstill”, the EU side is actually “considering beginning work between the EU27 to “scope” transition terms — or start preparing their positions on the issue — before approving talks in December or later”.

Slowly, the doubtful partner in these negotiations is turning out to be the EU.

Sure, the UK government is haggling about the money, but EU27 leaders always knew that was going to happen, which is why they decided to only request “material progress” instead of a full agreement in order to move to trade talks. When it comes to citizens, the EU is refusing to grant UK citizens free movement within the EU – despite asking the status quo for EU citizens in the UK, something that Britain is happy to grant, apart from some very specific rights related to family reunification. The EU is also still sticking to its odd demand for the UK to accept ECJ rule despite the fact it doesn’t have a judge in the ECJ, although some compromise on that is getting nearer, according to David Davis.

Interestingly, senior diplomats apparently don’t see the Irish question, which is the third element related to the “divorce stage”, as an obstacle to making “sufficient progress”.

When it comes to the transitional period, the UK probably has provided more clarity than the EU by now on what it wants.

First of all, there’s the UK government proposal to join a temporary common customs union with the EU right after it has exited the EU and therefore also its customs union in March 2019. It hasn’t got the attention it deserves, but this solution would sort out the Northern Irish border question at least for the transition, as the UK’s tariffs would match Ireland’s. This would result in Britain to become similar to Turkey during the transition. Britain would effectively outsource much of its trade policy to Brussels. What’s not to like about this for the eurocrats?

The only thing the UK is demanding is that it is free to negotiate trade deals, which would then come into force the moment the UK leaves that common customs union. That would then also be when it has adapted its customs systems and has agreed technical solutions to achieve minimal disruption at the Northern Irish border. The EU hasn’t properly reacted to that, and oddly, Ireland even demanded such a solution in September, after Britain had already suggested it – although Ireland said this should be a permanent and not a temporary arrangement.

Secondly, the UK has even made a lot of progress on the question whether it is willing to accept the EU offer to keep full EU market access after Brexit it would need to take over all EU regulation and accept supervision by the European Court of Justice and the European Commission. This week, Theresa May declared that the UK may “start off with the ECJ governing the rules that we are part of” during the transition and that during this “strictly time-limited period” the UK will have left the EU and its institutions while “we are proposing that for this period access to one another’s markets should continue on current terms.”

Sure, there is Brexiteer resistance to this and there are lots of other details the UK government needs to spell out, but I’d argue that by now Britan has given a pretty clear picture of what it wants the transition to look like and I can’t really see many arguments for the EU side to disagree.

Half a million jobs would be lost due to a “hard” Brexit resulting in WTO-tariffs in the UK but 1.2 million would be lost in the EU27. Proportionally, the EU suffers a smaller hit but this is of course by no means politically acceptable in any way.  Is it so much to ask for the EU27 to also make up their mind and not unnecessarily drag out these divorce negotiations, thereby delaying the crucial negotiations on transition and trade?