Brexit24

Free movement is the line in the sand

The definitive piece on the UK hand position boils down to cakes, cherries and a line in the sand. Is the British government just treading water?

There has been much talk recently of “showing our hand”, “keeping our cards closed to our chest” and “the enemy” (Crispin Blunt, MP : not a very helpful description of the the person you plan to sit down and negotiate with).

Last week, we discovered that the UK Government was offering to agree with EU a deal whereby all the EU citizens in the UK and all the UK citizens could stay grandfathered into their existing countries irrespective of the EU negotiations.

This was done partly to appease calls for citizens not to be used as bargaining chips. On Tuesday, Hugo Rifkind wrote a piece in the times, Our threat to expel EU citizens is a disgrace, calling this idea “shabby”

This is a shabby way to treat people, and it will still have been shabby when all the uncertainty ends. For, even if our borders do clang shut, by means of some magic treaty nobody can yet imagine, it strikes me as pretty unlikely that we’ll actually end up deporting any Europeans anyway. Or that the Europeans will deport any of us.

Hugo Rifkind © The Times 2016

It’s something we touched on back in October in our piece When Citizens become pawns in a game.

Europe is not neogitating

Mrs May seemed surprised that her proposal was quickly shut down by the German chancellor. The four tabloids of hate and LBC all treated this story as an affront on the rights of EU citizens by the European Union.

 

Yesterday, Michel Barnier made his first statement on the upcoming negotiations between the UK and the EU.

The single market and its full freedoms, its four freedoms, are indivisible. Cherry picking is not an option.

Michel Barnier

Theresa May’s offer to resolve pre-emptively the issue of EU citizens/residency is seen from Brussels as an attempt to start removing segments from the orange before that conversation starts.

The European Union has drawn a line in the sand, the UK government needs to understand that it means what it says.

Freedom of movement is non-negotiable

From the first days of the big red bus, Leave supporters were adamant that the UK could negotiate a special deal that allowed it access to the Single Market whilst shutting the borders to Johnny Foreigner. Over time (we have been in this mess for five months now) that has morphed into the Boris Johnson “have cake and eat it” policy. One that turned up written down in a memo leaked outside Downing Street!

The European Union is not prepared to allow its citizens (there are 430 million of them) to be treated as “second class” by the any country, least of all by a former member of the club.

Theresa May’s “cards” have already been shown very clearly.

Sector by sector

The sweetheart deals presumed offered to Nissan were probably nothing more than an informal agreement to back-stop any losses suffered by the car manufacturer should it not get tariff-free access to Europe. In a piece in October, Nissan deal could cost “colossal amounts of money”, we calculated the approximate cost of that at £380 million per year. Nissan represents only 1/3 of the the total car export industry. So a running cost of £1.1 billion a year. In any case subsidising tariffs is illegal under WTO rules, so this policy has already been challenged by the European Union.

Similar assurances may have been made informally towards the City of London, yet the government simply doesn’t have the sort of money needed to back-stop the City of London

A sector-by-sector approach shows us the PM’s cards. She plans to insist on no freedem of movement – which she sees as political dynamite should she fail on it – and then attempt to put sticking plasters over what she considers the most juicy cherries in her basket. This is the “maximum possible access” – what ever can scrape by for a deal, just so long as we close our borders.

Europe say no

As Michel Barnier’s statement (and those of Donald Tusk and others) has said repeatedly is that the free movement of people is non-negotiable.

Equally, the European Union negotiators see the headlines published in the Daily Tabloids of Hate. They know that the Prime Minister is simply not going to be able to sell any kind of free movement to an increasingly fractious pro-Brexit lobby.

Europe reads the same news as the UK

They also know (as does the world) the importance of Financial Services to the United Kingdom economy. Back in October, thinktank Open Europe published a very detailed analysis of the value of the financial services industry.

The financial services sector is a significant source of revenue for the Government. In 2014/5, it provided £66bn – 11% of overall tax revenue. A significant chunk of this (£30bn), came from employee’s national insurance and income tax contributions.

© Open Europe

In addition to 11% of all tax revenues, the sector employs 1.9 million people in well paid jobs, 66% of these outside of London. To put those figures into context, the taxes from financial services are equal to 50% of the cost of NHS England every year.

Open Europe estimated that 12.5% of all business would be at risk from the loss of passporting rights, £8bn in tax revenues. Worse, the loss of passporting rights could persuade banks to relocate inside the EU. Two weeks ago we reported that City’s biggest employer, Citi Bank was scoping out approvals to relocate to Madrid , a firm currently employing 9,000 people in London & Belfast.

So, to suggest that these are cards “kept up the sleeve” of the UK negotiating team, is complete rubbish.

No position, just a begging bowl

If the UK was entering into the European Union, it might be able to negotiate some flexibility on certain issues. A big economy, a nett contributor to the European Union etc.

Trouble is, we’re leaving, not arriving.

The EU position is very clear. From the day after the Referendum they declared sadness at the result, understood it would take some time following David Cameron’s resignation and Mrs May’s appointment. Now that honeymoon period is over.

A neverendum

The European Union no longer considers the United Kingdom a de-facto member. The new mood music is EU27 – they are only concerend with limiting the damage to their 27 economies from dragging along with a recalcitrant UK that plainly has no idea what it wants. Mrs May’s “no invite” to the annual Christmas Party is a childish but blatant example that the UK is no longer welcome in Europe.

Michel Barnier’s comments yesterday are designed to bring British expectations down a notch. They cannot permit a nation to leave the club that gets a better deal ( or even a slightly worse deal) than the ones that membership brings. Mr Barnier used the expression “third countries” : akin to “alien” or “foreigner” in their future treatment of the UK.

Third countries can never have the same rights and benefits

Michel Barnier

A tightening of schedules

Mr. Barnier has also made it clear that the two-year period following Article 50 is no such thing. The UK will have only 18 months to complete negotiations, leaving six months for all 27 nations in the European Parliament to ratify the proposed deal. The line in the sand has been drawn already.

The positions

The United Kingdom
A big economy a net importer from Europe. Wants to close borders but allow EU workers easy access under a visa system with ID cards. Wants special deals for car manufacturing & City of London. Prepared to ditch single market access in non favoured sectors like aviation or normal manufacturing if this can secure the best possible deal.

Europe
Not prepared to negotiate on borders access for its citizens. Period.

Endgame

Since it is impossible to reconcile the two positions, the UK government can opt for 18 months of “playing at Brexit” (they have already prospered pretty well with this policy to date, supported by the four Daily Tabloids of Hate. Playing the fool could take the UK government to the wire : March 2019, just one year before the next (planned!) General Election in the UK.
There is also the possibility that the UK could decide early that those positions are irreconcilable and to opt to leave under WTO rules early and amicably. That would cause the most damage to business, the much vaunted “cliff”, but risks a sharp decline in the value of the currency, inflation and jobs. The “stagflation” option.
Such a dramatic move would mean the effects of a hard-Brexit (sorry, “Red White & Blue” Brexit) would begin to kick in ahead of the next General Election but would effectively neutralise UKIP.

The sticky end

In either scenario, the United Kingdom (unless Parliament blocks it, or softens it) is heading for a very hard landing indeed. It rescued a few crumbs of hope with Matteo Renzi’s recent resignation and the news that Francois Hollande will not stand for a second term in France.
So entrenched and anti-UK, both represented major hurdles for the UK. Next up of course is the French presidential elections where possible winners are Marine Le Pen, Francois Fillon & Manuel Valls.
Part of the challenge for the UK will be managing its negotiation whilst the sands of political change in Europe swirl under the negotiators feet.

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