Föhrenbergkreis Finanzwirtschaft

Unkonventionelle Lösungen für eine zukunftsfähige Gesellschaft

Britain Still Believes in Fantasies on Brexit

Posted by hkarner - 23. Juni 2017

Date: 22-06-2017
Source: The Wall Street Journal By Simon Nixon

The government of Theresa May has far less leverage in the talks than it is willing to acknowledge

Prime Minister Theresa May and her husband Philip departing 10 Downing Street on Wednesday for the opening of Parliament.

No one should have been surprised that the Brexit talks began this week with an immediate capitulation by the U.K. government over the sequence of topics to be treated. Brexit minister David Davis had boasted during the recent campaign that the European Union’s refusal to discuss a trade deal until sufficient progress had been made on settling Britain’s outstanding budget obligations and securing the rights of EU and British citizens would launch “the fight of the summer.” That was revealed to be empty bravado, given that the U.K. needs a deal far more than the EU does. Yet even now that Britain’s lack of leverage has been laid bare, an air of unreality remains about much of the Brexit debate.

One fantasy that refuses to die is the notion that the EU might somehow be persuaded to water down the principle of free movement of citizens, thus allowing the U.K. to restrict EU migration while retaining its membership in the single market. This idea first surfaced during David Cameron’s doomed attempt to rewrite the free-movement rules before the Brexit referendum. It reappeared this week in a new campaign by more than 50 Labour politicians who want the U.K. to remain inside a “reformed single market.” Yet it should be obvious by now that there is no appetite in the EU to water down the right of free movement, a point even Prime Minister Theresa May has conceded.There is certainly anxiety over immigration in many EU countries, but it relates largely to migration from outside the bloc. It is also true that some countries would like to reform the rules around access to welfare. But no other country shares Britain’s neuralgia about the principle of the free movement of people, which is broadly accepted as the price to be paid for the free movement of jobs.

When the single market in financial services was created in the 1990s, tens of thousands of jobs migrated to London from Paris, Milan and Frankfurt, in turn creating hundreds of thousands of new jobs in other sectors. Britain today is host to millions of European jobs in all industries and all parts of the country. Why would any EU government agree to a deal that allowed the U.K. to retain European jobs while restricting them to British workers?

A second fantasy is that the U.K. might engineer a “soft” Brexit by joining the European Economic Area alongside Norway, Iceland and Liechtenstein. This has the superficial appeal of keeping the U.K. in the single market, but it could never work as a long-term solution. Not only would it require the U.K. to accept the free movement of people, but would also oblige the country to become a rule-taker rather than rule-maker.

That is bound to be unacceptable. Only this week, Chancellor of the Exchequer Philip Hammond accused some in the EU of advancing “protectionist agendas…disguised as arguments about regulatory competence, financial stability and supervisory oversight.” The idea that the U.K. could sit on the sidelines, as Norway must, when the EU next draws up banking rules is absurd.

But could the EEA be a short-term solution to the U.K.’s Brexit challenges, operating as a transitional arrangement while the long-term relationship is negotiated? This seems far-fetched too. The EEA doesn’t pertain to the EU customs union, all EU free-trade agreements and agriculture, so it could only be a partial solution and would mean striking many other deals. A push to join the EEA would in any case be complex to negotiate, requiring not only the consent of 27 EU members but also the three other countries in the EEA. And the EU has been clear that any transitional deal must come under the jurisdiction of the European Court of Justice—precluding one under the European Free Trade Agreement court that oversees the EEA.

The truth is there is no soft option for the U.K.: The price of a transitional deal is almost certain to be continued adherence to all EU obligations overseen by the ECJ.

The third fantasy is that the U.K. can negotiate a full new trade deal with the EU by the end of the Article 50 exit talks in March 2019. EU officials are adamant that it isn’t practically possible to negotiate a divorce deal and a new trade deal in 20 months. Even if the U.K. capitulated to all the EU’s demands, it would likely take a year to complete the detailed technical work on the withdrawal agreement and transitional arrangements, which would then need to be ratified, EU officials say. Nor is it legally possible either: The EU isn’t authorized to negotiate a free-trade agreement with an existing member, and the EU’s negotiating team would need a detailed negotiating mandate from member states before trade talks could start.

This point was made repeatedly to Mrs. May by Sir Ivan Rogers, the former U.K. ambassador to the EU, who was frozen out by Downing Street for his efforts. Yet it suits the British government to keep insisting that both the divorce deal and a new trade deal can be reached in two years. One reason is that it allows Mr. Davis to present his capitulation over sequencing as a mere tactical retreat, on the basis that “nothing is agreed until everything is agreed.”

More importantly, it delays the moment when politicians must face up to the real choice: whether to make the ultimate capitulation—pay the Brexit divorce bill in return for a transition deal with no guarantees on future trade—or take the British economy over the cliff.

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