The Deal is Already Done

This post is a follow-up to my first post about the trading relationship between the UK and EU post Brexit

I put a lot into the mix in that blog post, possibly a little too much for maximum coherence (I’m still a new blogger) but the following stands in terms of my conclusion:

“So, problems all around, UK economy not looking great but neither does the EU27 (as I might now refer to the remaining member states after Brexit if it happens) particularly if you include unemployment levels, especially youth unemployment . Any conclusion we can draw?

YES. Who wants to impair the economy of either the UK or the EU by unreasonable trade conditions after Brexit?

The truth is, neither party can afford it.”

In this post I take this theme forward, both in light of my own further thoughts and developments since my earlier post.

This post from Roland Smith at the White Wednesday blog prompted me to think again that it is not so much that the UK is in a uniquely weak position but that everyone is in a weak position.

IMG_0658
A view across to the new container terminal being built at Liverpool. Photograph taken by the author.

I would normally write thousands of words now before revealing the conclusion down at the bottom of the post. In this case, I’ll make an exception and reveal the punchline now:

I believe that there is already agreement between the Cameron Government and the European Commission and the main leaders of EU member states about what the post Brexit trade settlement and relationship will be. The reason for this is very simple, that there is not only a compelling need for one but it must also be concluded so rapidly that there is very little time to do this following a referendum result for leaving the EU.

In summary it relies on the following:

Damage to both the UK and the EU will be unacceptable in the event of breaking up without a viable deal. This is supported by statements from the IMF that Brexit has the potential to inflict regional and even global damage. Clearly this is not something that uniquely affects the UK, a point not too many (any?) commentators have picked up on. Normally it is only described how weak the UK is in a bargaining position when it comes to trade due to the size of the EU as a portion of our GDP.

The nature of the deal will by necessity need to ameliorate the impacts predicted by the IMF and indeed uncertainty causes damage itself. We don’t need to wait for a poor deal to see harm done, markets not knowing what post Brexit arrangements are for an extended period will harm investment and spending. That starts the instant a win for Leave looks likely, it doesn’t have to wait for the announcement of the referendum, let alone the announcement of the deal itself. This effect is amplified of course by all the doom laden predictions coming from the Government and Remain camps.  Cameron himself has made this problem worse in his drive to win the referendum at all costs.

So we can see the timescales are not years, months but likely days or weeks maximum (as we are only a few weeks away from the referendum as I write this).

In terms of timescales for a deal, we are potentially looking at 2 years for Article 50 negotiations to complete and that is only after they have been triggered. There is talk of months of preparation before the UK is ready to begin formal negotiations and that a grand tour of Europe (again) by Cameron or his successor will be undertaken to smooth the path in formal negotiations. I disagree and feel we will see no such thing.

Here’s why.

So called ‘leaks’ from the EU Commission indicate that the EU wants a speedy conclusion to Brexit talks. They are couched in terms of an ultimatum to the UK but that is likely a convenient dressing up of the practical view that a solution needs to be found very rapidly to prevent the aforementioned uncertainty in the markets. In fact the wording I saw was along the lines of ‘A speedy divorce, followed by negotiations over time’. Also, see the following tweeted by a pro Remain Twitter account:

EU Commission Ultimatum

This timeframe is plausible as Markets are closed. The fact that the UK ‘will be summoned’ when there is no such power for it to be so, indicates that this is already agreed and the whole thing will be stage-managed. Although this is not part of the formal (Lisbon Treaty Article 50) process, it is part of the need to manage the public and business perception that, although Cameron didn’t support it, the public has spoken… etc.

Yes I am that cynical and so should you be.

The only plan for leaving the EU, Flexcit from Richard North and team at eureferendum.com (campaign site leavehq.com) takes the same line as the ‘leaked’ commission plans. Namely to exit the EU quickly and with the absolute minimum of disruption followed by a phased withdrawal without the pressure of time and the highly charged post referendum circumstances.

The only viable way to achieve this is to formally leave the EU but effectively remain in it as much as possible. This will be achieved by UK moving from being a full EU member to being an EEA Single Market only member but with ‘continuation’ agreements in place to ensure that all programs, funding etc. remains firmly in place and, initially at least esentially unchanged.

Thus, there is a way for both Cameron and the EU states to come out with a market calming statement very early on, holding off those regional and global impacts.  The real work of implementation would then start of course, as the Sunday announcement is just that, an anouncement.  It may be that this latest EU ‘Deal’ is only agreed with the more powerful states, in the hope that the smaller ones will fall into line as they normally do.  I don’t think we should believe at all that the reality of Brexit has not been discussed between european leaders.

But regardless, the process for subsequently agreeing the deal is as per the EU treaties and this would of course take time. The UK would formalise it’s postiion and submit the Article 50 notification in due course and following our own parliamnetary proceses.

Those that argue for a ‘WTO Solution’ are asking for trouble for more than one reason but not least of all that removing the UK from the EU is not an overnight process and indeed it is not a process that can be done inside 2 years. Not only would the WTO option be highly damaging but the timescales required to agree the clean break from the EU implied by taking that option kill it stone dead. After all, we are integrated with the EU in far more ways than just trade.

In my next post I will flesh out the ideas presented above and provide links to sources for further reading etc. i.e. the multi thousand word blog post I find myself compelled to write!

Last Word: Right on cue, the morning I posted this article BBC Radio 4 Today was interviewing a German CEO of a German bank. When questioned about his thoughts on the impact of Brexit, he replied ‘some business may move but overall more a loss for both UK and EU’.

A deal will be done.