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”:
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