Tuesday, April 18, 2017

The Brexit Situation is Developing Not Necessarily to the UK’s Advantage

Posted on April 18, 2017 by Yves Smith

We’ve been neglecting Brexit due to Trump going uber hawkish and the resulting barrage of news stories to sort through. And another reason is that the noise to signal ratio got even higher in the British media around the time Brexit became official.

Formal progress will be virtually nil till late May. The UK and EU have exchanged their opening communiques, with the EU’s a draft of the process for the negotiations, which need to be fleshed out and then approved by all the 27 remaining members of the EU, hopefully by the end of next month.

However, even with the exchange of missives and related snorting and pawing of earth, it is becoming plenty obvious that it is starting to dawn on Theresa May that she is not in a good position. Yet a fresh poll shows that popular approval for Brexit is at a five month high.

I hope readers will fill in any significant issues I have missed. Here are some of the high points from the last few weeks:

May has been retreating by inches. She’s been forced to admit that she’s lost her demand to have trade talks proceed in parallel to exit negotiations, something that the EU nixed from the Brexit vote. Among other reasons, we pointed out it was a non-starter under EU treaties. She’s also had to concede on another hardliner issue, that EU migration will continue during a “transition phase” that she insists on calling an “implementation phase,” as if the rebranding makes a difference.

Notice that this “transition phase” has more strings attached than May appears to have ‘fessed up to. The initial European Council guidelines stipulate that the UK must also adhere to EU laws, accept the jurisdiction of EU courts, and continue to pay EU fees.

Nevertheless, the Brexiteers are still firmly behind May, just as Trump’s supporters remained stalwart (at least initially) as he retreated from some of his major campaign promises.

The EU is almost completely united against the UK. This has happened even faster and more firmly than I expected, and I though I was being unduly dire. I had thought this outcome would come about regardless though how the EU was setting the order of negotiations.

The critical bit was putting the settlement of the financial exit tab first, which the UK depicts as an outrage (this despite the fact that Maggie Thatcher negotiated the UK paying lower dues than other member nations). First, this is one area where Eastern European countries, which on other topics are more predisposed towards the UK, are hardliners. Second, one of the norms of negotiation is to address the less divisive issues first so as to create some early successes and forge decent working relations between the two parties. Putting a fractious issue up front where the EU side is of one mind, and the only divergence among them is how bloody minded, will help cement relations among them to the disadvantage of the UK. 1

We had also stressed, and informed members of the commentariat had confirmed, that the UK had done a plenty to sour relations with Europe well before the Brexit vote. It constantly criticized Brussels, was difficult to work with, made too clear its belief that the English were racially superior to many of the Continentals, and whinged that it was being treated poorly when it had an extremely favorable deal. And then the UK would engage in disrespectful moves on top of that, like electing Nigel Farage to the European Parliament and making Boris Johnson Foreign Minister (I gasped out loud when I first read that).

A Guardian piece last weekend gives some fresh indicators. The opening paragraph is bad enough:

The EU is set to inflict a double humiliation on Theresa May, stripping Britain of its European agencies within weeks, while formally rejecting the prime minister’s calls for early trade talks.

The two agencies are the European Banking Authority and the European Medicines Agency. The Guardian says they not only employ roughly 1000 people in total but serve as a center for other activities.

The article continues to say that despite a charm tour by David Davies, not a single country agreed to support the UK’s pitch to negotiate trade in parallel with the exit talks.

This is despite an earlier analysis by Politico indicating that quite a few countries were “soft” on trade with respect to the UK and harder on other issues.

And the UK has no one to blame but itself. From the same article:

Senior EU sources claimed that Britain’s aggressive approach to the talks, including threats of becoming a low-tax, low-regulation state unless it was given a good deal, had backfired. “However realistic the threats were, or not, they were noticed,” one senior EU source said. “The future prosperity of the single market was challenged. That had an impact – it pushed people together.”

Another senior diplomat said initial sympathy with Britain had fallen away in many capitals, due to the approach of Theresa May’s government. “Of course, we want to protect trade with Britain, but maintaining the single market, keeping trade flowing there, is the priority, and so we will work through [the EU’s chief negotiator] Michel Barnier,” the source said. “Britain used to be pragmatic. That doesn’t seem to be the case any more, and we need to protect our interests.”

The EU is also considering other moves that are either sound negotiating measures or snubs, depending on your point of view, such as barring the UK from weekly trade policy discussions.

The UK is still in denial about its leverage with respect to trade. Brexit enthusiasts appear not to have advanced their analysis from the simple-minded “Europe runs a big trade deficit with us, therefore they have a lot to lose.” First this ignores that the EU can and will force the exit of some manufacturing from the UK, starting with Airbus parts, hitting UK exports. Second, when you adjust for the size of GDP, the UK does indeed have more to lose than the EU does.

More refined analyses confirm that high-level take. From Politico in early April:

In Berlin, officials say that, as negotiations begin, they have the upper hand. Brexit may have some limited economic impact on Germany, but the consequences for the U.K. could be far more devastating. And Berlin is sticking to its hard line that doing what it thinks is needed to keep the EU from disintegrating is far more important to its long-term interests than anything it might gain economically by bending to British pressure on trade…

German businesses leaders appear to be behind Merkel when it comes to the integrity of the European Union’s single market. “On the idea that German business might soften the German government’s stance: You can cross that off your list,” is how a German diplomat put it…

While Britain is Germany’s third-largest market for exports, Berlin is quick to point out that the British economy also depends on German companies, which currently employ almost 400,000 workers in Britain. And many of those German companies are already pivoting away from the U.K. According to numbers released by DIHK business association, almost one in every 10 German companies is planning to shift investment away from the U.K. to Germany or other EU countries.

Immigration collateral damage already starting. While the plural of anecdote is not data, there are more and more stories of immigrants departing, not just EU migrants but non-EU workers such as Philippines and India passport holders. Some of it is due to the rise in xenophobia; the other is uncertainty.

Proving the thesis is a Polish NHS worker who expressed her views was trolled so aggressively that she took a tweetstorm about her concerns down and turned her Twitter account to “protected”:

No comments:

Post a Comment