Boris Johnson, Brexit, Michel Barnier, Negotiating

“No-deal” becoming a real possibility

Barnier and Frost2

EU/UK Brexit negotiations ended last Thursday, a day earlier than planned, with both sides citing “significant disagreements”. This was the first-time face-to-face negotiations have been held since the outbreak of Covid-19, with discussions over recent months taking place by video link.

EU chief negotiator Michel Barnier said his team had:

“engaged constructively” in a bid to “get negotiations successfully and quickly on a trajectory to reach an agreement.”

“The EU side had listened carefully to UK Prime Minister Boris Johnson’s statements in recent weeks, in particular, his request to reach a political agreement quickly, and his red lines: no role for the European Court of Justice in the UK; no obligation for the UK to continue to be bound by EU law; and an agreement on fisheries that shows Brexit makes a real difference.”

“The EU’s position remains, based on the Political Declaration, that there will be no economic partnership without:

    • robust guarantees for a level playing field – including on state aid – to ensure open and fair competition among our businesses;
    • a balanced, sustainable and long-term solution for our European fishermen and women;
    • an overarching institutional framework and effective dispute settlement mechanisms.

And we will continue to insist on parallel progress on all areas.”

“The EU expects, in turn, for its positions to be better understood and respected in order to reach an agreement,” said Barnier.

For his part, UK negotiator, David Frost, said that the talks had been:

“comprehensive and useful. But they have also underlined the significant differences that still remain between us on a number of important issues.”

The next round take place in London this week, though it is difficult to know what they are going to talk about if neither side moves on its “red lines”, which looks unlikely. There is a certain unreality to discussing details of specific policy areas if the negotiators know that there is deadlock on the big issues. Your heart is just not in it.

Earlier last week the July 1 deadline for agreeing an extension to the “transition arrangement” passed, which means that the UK is now scheduled to leave the EU economically at midnight, Brussels time, on December 31 next. It left politically on January 31 last.

There can be little doubt that, economically, the UK needs a deal with the EU and “no deal” will be bad for all. But needing a deal and agreeing a deal are two very different things. Those who need the deal, the business community and ordinary citizens, are not the ones negotiating the deal and those who are doing the negotiating have none of their own “skin in the game”, as my US friends would put it. They won’t lose personally, no matter what the outcome. Their incomes and livelihoods are not conditional on a trade deal with the EU. There is a disconnect between those taking the Brexit decisions and doing the negotiating, and those who will have to live with the consequences.

While it can be said that this is always the way it is in trade negotiations between countries, with government officials doing the work, there is a big difference. In any such discussions, let’s say between the EU and Canada, the Canadians are seeking to improve on the status quo. But if they fail to do so, they revert to a status quo with which they are comfortable. And in which all the rules of the game are known. Businesses do not have to cope with any fallout from a no-deal. If a deal is done, sufficient time is always built in to allow for adjustment.

Brexit is different. A no-deal outcome sees the UK jumping overnight from a well-ordered and structured set of arrangements with the EU into who knows what? While WTO terms might provide a minimalist framework for goods, it does not do so for services, data transfers, and the rest.

By shutting down the option of extending the transition period the UK has created a time-trap for itself, though Brexiteers may believe that it is the EU that it caught in the trap and will crumble as the December deadline approaches. I see no evidence that this will happen.

Yet, as we discuss below, the “incentive structure” within which the UK’s Brexit team is working is political, not economic, and at this time there is no political downside to a “no-deal” outcome.

Brexit is politics before trade

Brexit is not about trade and commerce between the UK and the EU. If it was, then Brexit would not be happening because the current deal the UK has with the EU, membership of the customs union and the single market, cannot be improved on. There is no better deal on offer outside than inside.

Brexit is about ideology, by which I mean a set of political values which drives action. It is about reclaiming allegedly lost British sovereignty, the right to “take back control”, of borders, laws, and money. It was spelt out clearly in David Frost’s Brussels speech earlier this year, which itself echoed Michael Gove’s 2016 “We hold all the cards” speech. here

The ideology of Brexit is about recreating borders between the UK and the EU. Politics is privileged above economics. We saw it in action this week with the Commons passing a bill which will end EU Freedom of Movement.

The “Brexit ideology” is also about recentring political control in the UK executive at the expense of other institutions, including Parliament here and here. If EU requirements on level playing field conditions, and agreement governance structures are seen as cutting across this agenda, then an agreement will not be doable. Brexiteers will not want to be seen, having taken back control from Brussels, to be handing large chunks of it back again through a future agreement.

As Lord Roger Liddle notes in a recent EPC report, the UK government’s position now is:

Our own sovereignty and independence come first: the realities of our geographical proximity, the depth of economic interdependence on both sides of the Channel, or our shared common interests and values with our nearest neighbours are all secondary to this higher cause.

Do not underestimate the power of ideology. Brexit ideology can be summed up as “a sovereign executive in a sovereign country” with no constraints and no checks and balances.

A negative sum game

Even if ideology did not stand in the way of an agreement, the very nature of the negotiations creates roadblocks. In every known trade negotiation, the parties are looking to remove barriers to trade between them, whether by eliminating tariffs and quotas or dismantling regulations that act as hidden obstacles. Convergence is what the parties are looking to achieve. Such convergence, it is believed, will create a win/win game for all.

The raison d’etre of Brexit is the exact opposite. It is for the UK to diverge from the EU, to put borders in place where none now exist, to end the free movement of people, to diverge rather than converge. This can only be done at a very substantial economic cost. Brexiteers say that the long-term benefits will outweigh the short-term costs, but what is meant by long-term is never defined while the short-term has already begun, as a number of reports on the impact of Brexit testify. The short-term costs will intensify from January 1 next as the borders go back up.

Brexit, therefore, is a negative-sum game which will inflict costs on both sides, but on the UK to a much greater extent than the EU. As a not entirely irrational economic actor the UK is seeking to limit this damage in the discussions with the EU. Despite denials, it is trying to “cherry-pick” the benefits of the single market and the customs union, but free of the obligations. See this for example on the issue of rules of origin for manufactured goods, or look at the UK’s proposals on financial equivalence, data transfers, or “freedom of movement” for truck drivers here .

In the words of the Luxembourg prime minister, the UK was in the EU with a lot of opt-outs. Now, it wants to be out “but with a lot of opt-ins”. Actually, not so much “opt-ins” as “dip-ins”, dipping in to pick out the bits it likes.

The EU is not going to give the UK this deal. Any deal the UK gets with the EU will be immeasurably worse that what has it now.

Faced with the hard-negotiating choices to be made, the Johnson team might well conclude that that “no deal” is better than a “bad deal”. A “no-deal” can be laid at the door of an “inflexible, intransigent EU”, whereas the choices and trade-offs in a deal will have to be explained and justified.

And any deal with the EU will create friction with the Brexit-ultra wing of the Tory Party, the only group capable of hurting Johnson in the short-term.

Political calculations

If, because of British sovereigntist concerns, the only deal on offer from the EU is thin to the point of invisibility then the question has to be asked: What is the political incentive for the Johnson government to accept it? No deal could be a lot more palatable than a “bad deal”.

All political calculation is based on the ability to count. First, to be able to count the votes you command. Second, to be able to count the days to the next election. The Johnson government has an 80-seat majority in the Commons. It is four and a half years to the next general election. All moderate, non-Brexit voices have been purged from the Conservative Party. Johnson appears to be in total control. Under the UK system, there is almost nothing to stop him doing whatever he wants to do. Except, perhaps, the Brexit ultras.

There is a very sizeable section of the Conservative Party, organised through the European Research Group (ERG), which would welcome a failure of the current discussions between London and Brussels. They would be more than happy for the UK to trade with the EU on minimalist World Trade Organization (WTO) terms. For “packaging” purposes a WTO Brexit is described as an “Australian deal”, seen by most people as a bright, “white” and sunny place. What’s not to like about an Australian deal for Brexiteers?

WTO terms mainly cover manufactured goods and agri-food. Services, vital to the UK economy, are lightly catered for. This is not a problem for the ERG as many of them still believe that the “EU needs the UK more than the UK needs the EU”. This being so, they further believe that the EU will “blink” at the last minute and give the UK what it want. ERG members are more than capable of holding two contradictory thoughts in their heads at the same time.

This group is a key, internal constituency for Johnson. Why not give it what it wants, a “WTO Brexit”? Any deal that the government negotiates with the EU will be packed full of compromises and hard choices. It will be picked apart ruthlessly by the ERG and others. There is no doubt that the Opposition in the Commons will vote against any agreement Johnson does with Brussels. Why take the risk of the ERG also voting against it? As they showed when Theresa May was prime minister, “true Brexit” is more important than any one individual.

It is argued that Johnson craves popularity and that the economic impact of a no-deal Brexit will make him deeply unpopular. I am not convinced by this argument. If sustaining his popularity was Johnson’s top priority, he would have dismissed his chief advisor Dominic Cummings after he broke Covid lockdown by driving with his wife and child to Durham, hundreds of miles from London. He didn’t and stuck by Cummings, when dismissing him would have been the popular thing to do.

Popularity comes and goes and may matter little with no general election in the offing. Local elections and an election in Scotland won’t greatly affect this calculation.

It is further argued that Johnson will be subject to sustained criticism from a revitalised Labour Party, now under the capable leadership of Keir Starmer, over a no-deal Brexit. But that is all it will be, criticism. The Labour Party has no parliamentary options to damage Johnson, with his 80-seat majority.

Johnson and his team may well take this view that the disruption from a no-deal Brexit will be hidden by the even more massive disruption that is being caused by Covid-19 and that the economy will have adjusted and recovered by the time of the next election. It may be argued that such a view is ill-founded but, like all things in the future, impossible to prove in the here and now. Four years in politics is a very long time.

When all of the above is considered it is reasonable to conclude that there are few immediate political incentives for Johnson to agree a deal with Brussels. All of the incentives point towards no-deal, which will keep the Tory Party intact and see off any threat from the Brexit ultras.

Remember, the Johnson/Cummings/Gove government is not a government that works to known political norms. There are no precedents for the way this government thinks and acts.

A U-turn?

One final point. It is argued that Johnson will “U-turn”, like he did last year on the Irish provisions in the Withdrawal Agreement, which saw him agree to a border in the Irish Sea between the UK and Northern Ireland, even if he denied at the time that this was what he had signed up to.

I think this misreads what happened. Johnson did not U-turn. He simply agreed to revert to an earlier EU proposal on Northern Ireland and dropped Theresa May’s compromise on keeping the UK in the EU’s customs union until a new deal was negotiated.

This move was welcomed by Brexit hardliners who hated the idea of any continuing involvement by the UK in the EU’s customs union, no matter what the terms. The fact that it was beneficial for the UK was neither here nor there. Brexit ideology comes before politics.

The further fact that it sacrificed Northern Ireland was a matter of no concern to Brexiteers. More than one opinion poll has shown that Brexiteers would agree to Northern Ireland leaving the UK if Northern Ireland stood in the way of Brexit.

So, what Johnson did in 2019 had no political downsides for him. It got his deal through Parliament, got him his election and his 80-seat majority.

All things considered, there is very little, if any, political upside for Johnson in any deal with the EU.

Which is why I believe there will be no-deal. If the first rule of politics is to learn to count, the second rule is this. If you put mad people in charge of things expect mad things to happen. I am not the only one to think this here.

But I would be delighted to be proved wrong.