Brexit heading for the cliff edge

Last Friday, Michel Barnier gave a stark warning about the lack of progress in the Brexit negotiations, but this week Boris Johnson has returned to work. Perhaps it was unrealistic for Barnier to have expected the UK to have engaged seriously with the trade-offs and concessions essential to a long-term agreement while the UK prime minister was ill.

Brexit is Boris Johnson’s big thing. He made it. Other Tory ministers have no leeway to make Brexit decisions without his personal imprimatur. He has purged from his party all significant figures who might advocate a different vision of Brexit.

The point of Michel Barnier’s intervention is that now Boris is back at work, he will need to give a clear strategic lead to the UK negotiating team. If he fails to do that, we will end up on 1 January 2021 with no deal and an incipient trade war between the UK and the EU – with Ireland on the front line. The scars left by COVID-19 will eventually heal, but those left by a wilfully bad Brexit, whether brought about deliberately or by inattention, may never heal.

This is because a bad Brexit will be a deliberate political act, whereas COVID-19 is a reminder of our human vulnerability. Boris Johnson signed up to a withdrawal treaty with the EU, which legally committed the UK to customs, sanitary and phytosanitary controls between Britain and Northern Ireland, so as to avoid controls between the north and south of Ireland.

So far, Michel Barnier says he has detected no evidence that the UK is making serious preparations to do this. An attempt by the UK to back out of these ratified legal commitments would be seen as a sign of profound bad faith.

Michel Barnier said that negotiating by video link was “surreal” but that the deadlines to be met are very real. The first deadline is the end of June. This is the last date at which an extension of the negotiating period beyond the end of December might be agreed by both sides. While the EU would almost certainly agree to an extension, there is no sign that the UK will. Tory politicians repeatedly say they will not extend.

This tight deadline would be fine if the UK was engaging seriously and purposefully in the negotiation. But, according to Michel Barnier, the UK has not even produced a full version of a draft agreement that would reflect their expectations. The EU side produced its full draft weeks ago. Without full texts, it is hard to begin real negotiation. So far, the UK has only produced texts of selected bits of the proposed treaty.

But the UK insists that Barnier keep these bits of draft UK text secret and not share them with the 27 member states. Giving Barnier texts that he cannot share with those on whose behalf he is negotiating, is just wasting his time.

It seems to me the UK negotiators are adopting this strange tactic because they have no clear political direction from their own side. They do not know whether these fragments of text are even acceptable in the UK.

In the political declaration that accompanied the withdrawal agreement, Boris Johnson agreed his government would use its best endeavours to reach agreement on fisheries by the end of July. Such an agreement would be vital for the UK fishing industry to continue to export its surplus fish to the EU. Apparently, there has not been serious engagement from the British side on this matter.

The other issue on which Barnier detected a lack of engagement was the so-called “level playing field” question. The EU wants binding guarantees that the UK will not, through state subsidies or through lax environmental or labour rules, give its exporters an artificial advantage over EU (and Irish) competitors. The “level playing field” is becoming a difficult issue within the EU itself.

In the response to the COVID-19 economic downturn, some of the wealthier EU states like Germany are giving generous cash/liquidity supports to industries in their own countries. On the other hand, EU states with weaker budgetary positions, such as Italy, Spain and perhaps even Ireland, cannot compete with this.

It is understandable that temporary help may be given to prevent firms going bust in the wake of the COVID-19 disruption. But what is temporary at the beginning can easily become indefinite, and what is indefinite can become permanent. Subsidies are addictive.

The reason we have a Common Agricultural Policy in the EU is that, when the Common Market was created 60 years ago, nobody wanted rich countries to be able to give their farmers an advantage over farmers in countries whose governments could not afford the same level of help. The same consideration applies to industry. Subsidies should be equal, or should not be given at all.

State aid must be regulated inside the EU if a level playing field is to be preserved. To make a convincing case for a level playing field between the EU and the UK, the EU side will need to show it is doing so internally. This will be a test for President Von der Leyen, as a German Commissioner. Which way will Boris Johnson turn on the terms of a deal with the EU? I think it is unlikely he will look for an extension of the transition period beyond the end of this year. He wants a hard Brexit, a clean break as he would misleadingly call it, but he knows it will be very painful.

He will probably reckon that the pain of a hard Brexit, or a no deal Brexit, at the end of December will be concealed by the even greater and more immediate pain of the COVID-19 slump. Brexit will not be blamed for the pain. But if Brexit is postponed until January 2022, the Brexit pain will be much more visible to voters.

The Conservative party has become the Brexit party. It is driven by a narrative around re-establishing British identity and is quite insensitive to economic or trade arguments. It wants Brexit done quickly, because it fears the British people might change their minds. That is why there is such a mad rush. It is not rational. It is imperative.

Read more

Argentina’s economy in serious trouble