Saturday, 28 January 2017

Damp squib Brexit

You might have noticed that this blog has not been all that kind to Mrs May of late. She has set herself up for a fall and seriously increased the risk of a trainwreck Brexit. What should be noted though is the conciliatory tone coming from the Member States. I think for the moment that it's generally accepted that a bungled Brexit is a lose-lose scenario for all concerned. I seriously hope that will shape the outcome.

By now the aviation industry, the automotive industry and the entire haulage and freight sector have said that their red line is tariff free entry and "frictionless customs". Even David Davis hopes to get an agreement which gives us the same benefits as single market membership. If the government has understood this much then we are still looking at extensive integration even if we are not calling it single market membership.

The reason we have "frictionless" customs is because customs authorities make certain assumptions based on the various front and back end systems which guarantee a degree of conformity to a standard. If that is not the EU standard then it will necessarily be the global export standards and those systems, if not part of the EU framework, will effectively be the same thing but re-badged as British. It will have to be a whole economy approach rather than sectoral.

For the time being we haven't the domestic capability to take on many areas of policy so a long phase out period with an option to extend will be required. So the concept of the single market as a transitional mechanism is not necessarily dead - we'll just be calling it something else. Britain will seek to maintain its passenger rights and there is no question of an immediate breakaway from REACH, and there is zero likelihood of taking back fisheries and agriculture in a single bound.

What form the agreement will take is anyone's guess at this point but the fact is that we will be asking a lot, so we can expect the EU to lean on us to ensure our immigration system is flexible and remains fairly liberal. The real question is whether the government has understood how much it will be asking to retain. If it has not yet fully comprehended the depth of integration, that will become apparent during negotiations. This is when the hardline Brexiteers are whacked with the reality of our predicament.

No doubt a late realisation will waste time and we most likely will need to extend talks - which will mean surrendering a good deal of leverage. I think Theresa May will pay for that in the polls. This is where the EU will play hardball on settling the bill and setting the terms for further cooperation. By this time it will dawn on the government that the EEA would have saved them a lot of trouble.

One thing is for certain though, Mrs May is in for a big surprise if she thinks we will no longer be making payments to the EU and though we very well may leave the single market, her promise of not being "half in, half out" and "not holding on to bits of membership" will come unstuck.

So long as reality does intrude then there is a good chance we will be bound by the EU for a long time to come. It will be a wanton act of self-harm to pursue any other avenue. Mrs May might well be spectacularly out of her depth but she is not electorally suicidal. Yes, I know, I'm being optimistic!

I have previously suspected this might well be the direction of travel. Politically the single market is a tainted concept so it'll really be down to the government to try and sell a huge compromise as a full exit. I think we can expect a lot of spin about how we have maintained a high level of cooperation in the interests of friendship and though the Brexiteers will be privately enraged, they will fall into line and back the PM and congratulate her on a job well done. They'll do that in any scenario - even if the EU takes us to the cleaners.

What we can expect to see is Mrs May caving in on a number of key areas, taking an unnecessary hit, not least the European Medicines Agency just to demonstrate that we are going all the way out. This is where politics will override good sense.

What this does mean is that we will still be heavily dependent on the EU regulatory framework for a long time, possibly permanently and if we want access for UK services I expect we'll make heavy concessions on fishing rights and financial services. It will mean that we won't have the free hand in trade that many Brexiteers expect and demand - and our global obligations make relaxation of standards legally and politically difficult.

In effect, the complexity of Brexit is the ultimate firewall against full separation. It may be our stated intent to leave the single market but the Hotel California effect will be just as relevant where we will be less bound than Norway but more bound than Switzerland. We'll go the long way around, patching the holes with future concessions and eventually forced by circumstance to relax any curbs on freedom of movement. I have a feeling that the Brexit process is not going to settle for more than a decade after the conclusion of Article 50.

In that respect remainers should take some comfort in that the hard Brexit the Brexiteers think they are getting will be nothing of the sort and very probably it won't be the catastrophe they expect it to be. What our approach does mean though is a far riskier exit process and we will pay a higher price than we ever needed to. We are creating more uncertainty than is necessary and there will be a price for that.

Between now and then though, accidental Brexit is still on the cards, and we should be alert to that very real possibility. We also stand to make a pigs ear of Brexit by way of failing to secure proxy access to EU deals and bungling when we attempt to replicate them. The toryboy fixation on fantasy alliances and bilateral deals, particularly over the Atlantic, means that we will likely not see an integrated or coherent trade strategy. We will neglect more pressing strategic concerns while failing to exploit the multilateral opportunities available to us.

As I see it, we are are unlikely to see Britain thriving as it should for a long time. The current government is not up to the job, the opposition are nowhere close to taking power and we will have to put up with the Tories for a while yet. It will take a change of government then a change back to the Tories for the system to expunge the dross - particularly the Brexiteers. By then we should have obtained some kind of institutional knowledge in trade and will have made a few mistakes to learn from.

Ultimately, Brexit has been driven by people so blinded by determination to leave the EU they never had any vision as to where to go next save for dismal clich├ęs about "trading with the world" and an Anglospheric alliance. It is that lack of vision and the complete obliviousness to the developments outside of the EU over the last two decades that will mean Brexit is a damp squib.

Having said that though, I have never been especially convinced by the Brexiter arguments for leaving. I have always seen Brexit more as having a profound effect on UK domestic politics and policy making, and to a large extent economics takes a back seat. Brexit most certainly has exposed the incompetence of our establishment and it has not gone unnoticed that Westminster is in a pretty shabby state. If we have the sense to do something about that then all of this will have been worth the trouble. I hope we don't pass up the opportunity.

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