Brexit negotiations – second phase

Brexit second act
On stage Juncker and May

The scenario was: Michel Barnier should have given his recommendations to the European Council and the Council decides on December 15, if the first act is over and the second act can start. Instead the deal was announced by Jean-Claude Juncker and Theresa May. It is based on very vague comittments and was undermined within hours by the opinion of the British government, pronounced by Theresa May, that „nothing is agreed until everything is agreed“. David Davis was even more outspoken, when he said that the comittments between May and Juncker were not legally binding and just a statement of intent, while the talk of „alignment“ with EU regiulations were „meaningless“. Michael Gove made clear that another government could come to a different view and retract on the agreements. If this is the prevailing view in the United Kingdom, it would be difficult for the European Council to state that sufficient progress has been made in the negotiations. I have the strong feeling that Juncker became impatient and tried to bind the Heads of Government to his positive notion of what he agreed with Theresa May.

If the EU accepts the „nothing is agreed“-position of Theresa May and the Brexiteers, this successfully undermines the strategy of the EU-27 to keep the deal on the divorce settlement separate from the deal on long term trade relations. This opens the door wide for Britain to haggle over the trade deal, keeping European citizens, the Irish border, and the financial settlement hostage to the trade negotiations. This is not what the EU Council decided before the first round of negotiations, and it is not what Article 50 means.

The British government had not been happy with the fact that the first act should have seen sufficient and substantive progress for the divorce agreement and that talks in the second act over the future relationship should only start after the British bargining power has been exhausted. So in the first phase British diplomacy plazed on time and made every single point a bargaining chip to be kept on the table also in the second phase. The EU negotiator Michel Barnier made clear that this was not really helpful neither for Britain nor for the European Union. If the British interpretation of the agreement with Juncker is correct, this will be completely reversed.

In the very last moment before the December summit, Theresa May made a dramatic move to put her final proposals on the table. In my view this was well played theatre to threaten the EU with the nuclear option of a Cliff Edge jump out of the Union. Her slogan of „no deal is better than a bad deal“ had certainly been meant as a kind of brinkmanship to put pressure on the 27, who were suggested to believe that a bad deal would be better than no deal for the EU. However, did that strategy work ? Yes – it worked insofar those in the EU who really want a good deal with Britain were put under immense time-pressure because – as Barnier had said – the clock is ticking. But at the same time the loss of trust is so high that the number of those who are well disposed towards Britain is shrinking. Juncker may finally stand alone, if the next rounds of talks should continue like the previous shows. The British strategy was shortsighted and it continues to be so, because it was destroying trust.

First of all the Cliff Edge is still nearer than both sides want to admit. Progress in the negotiations means that the substantial progress on the divorce settlement has to be real and not just a dummy open to be put back to square-one, if the British think this to be in their interest. Even if the conditions set out on Article 50 of the EU Treaty do not make the final conclusion of the settlement on the exit a condition for further negotiations on the future relationsship, it is still necessary that the divorce settlement is finished until 2019 when Brexit becomes effective. If there is no final agreement on the financial consequences, on EU citizens in Britain and on the Irish border, then negotiations about future trade relations become stalled and even an agreement about a transition period is impossible.

The sequence of the possible agreements is not different from the sequence of negotiations: the divorce settlement comes first and then everything else. There is no „nothing is agreed until everything is agreed“ – because the obligations following from exiting the EU do not fade away only by not having an orderly agreement how to settle them. Since a comprehensive trade agreement will take much time, the topic of a transition period is possibly the next priority. But a transition is no prolongation of the two-year period given by the Treaty for the divorce settlement. It can only settle the transition period after the divorce settlement and before any long-term trade deal is concluded.

So even if there was some progress in the last days, this is not enough to finalize the divorce settlement. Too many points are still open, some still controversial, or at least unclear. The first reactions in Britain may even jeaopardize the consent of the Council for the second round. The 27 cannot be content with the results of the negotiations up to now. The sum for the financial settlement must in the end reflect British obligations, not a concession on what it likes to pay. The rules of the game for EU citizens in Britain have to be forged in a way that the promises made are not becoming useless by bureaucratic and unfriendly procedures and costs. And the Irish border can only stay open, if the alignment with EU regulation is taken very serious and will be obligatory and juridically binding – with a role for the European Court to interpret the rules – and not just an option. The first reactions from hard Brexiteers in the British government, including Brexit secretary David Davis, and the ongoing weakness of the Prime Minister in her party and her government show that this is not at all a safe bet. The 27 could certainly start negotiating about the next issues, but still results depend on Britain genuinely honouring the obligations the Prime Minister recognized to get to that stage of the negotiations.

The second act is officially dealing with the future relations. Since the British government and Prime Minister Theresa May have made clear that they want to be neither part of the single market nor of the customs union with the EU, and will not accept jusrisdiction of the European Court of Justice, the scope for an agreement is rather limited.

The EU wants a close relationship, but it has to make clear that this can neither be the same like full membership with some more cherries picked, nor even a status like that of EEA members or Switzerland. WTO rules are very clear that outside a customs union the most favoured nations status steps in. The Brexit Secretary has said Britain wants a Canada plus plus plus… free trade agreement. But any free trade agreement has to observe the WTO rules. Michel Barnier had warned that the next phase is nothing easier than the first one. The illusions and even denial of realities persists in the British government.

The main purpose of getting to round two had been to placate business for a while, because decisions over investments and moving away from Britain have to be made very soon. The hearings in the select committee on Brexit in the House of Commons speak volumes about what a desaster Brexit really is. As long as Leaving is the end game, business will have to prepare for an adverse environment.

When I spoke about Brexit recently in Munich, many British citizens present were embarrassed by the fact that Britain had made people, especially EU citizens in Britain a bargaining chip. This is a very sad fact. Initially the EU-27 were willing to grant all existing rights and benefits for citizens also for the future. But since the British policy, not to forget leaks from the Home Office, made clear that there is a huge risk for a very unfriendly „solution“ in Britain, the EU cannot give guarantees until details about the settlement on citizens will have become clearer. It will certainly worsen the situation of EU citizens who can no longer rely on conditions on which they set their trust when settling in the United Kingdom.

The agreements between Juncker and May do not satisfy my expectations. I believe that this policy will mainly be damaging for Britain itself. Especially highly qualified Europeans will for some time avoid to think of going to Britain for work or studies. However I strongly believe that in the end the EU-27 should unilaterally offer British citizens on the continent a better deal – independent from the shameful discrimination happening in Britain. This could include special regulations for an accelerated nationalization in EU countries and more genereous rules for British citizens. This cannot be done before the legally binding deal with Britain is concluded, but after that we should be generous. However this does not mean that British citizens can any longer participate in programs reserved for EU citizens, and where Britain is no longer helping to finance.

As far as the trade negotiations are concerned, there are two deep misunderstandings quite widespread in Britain: since case law allows very flexible rules this is also expected from the EU alignment rules. If there are new British laws abandoning EU rules, this would in each case lead to conflicts and the necessity for conflict settlement. Services are a very delicate question inside the EU, as Britain knows very well. The principle introduced with the Bolkestein directives on service providers – abandoning the iron rule of the EU that harmonization is necessary to have a common basis for the single market and instead recognizing different systems as more or – mostly – less equivalent, is very contentious. Unions believe this started a race to the bottom violating minimum standards. Many countries do not think that this was the right way to bring services to the single market. The British hope to base relations on equivalent instead of identical rules may be politically feasible for trade in goods. But I am convinced that there will be strong political resistance in many member countries against including services. Without Britain the EU may come back to the principle of harmonization again.

There is still no understanding in the Brexiteer’s circles that all benefits of a future relationship have to be matched by obligations. Since Britain wants less obligations than Norway or Swizerland accepted, the benefits have automatically to be less than the ones, which these countries enjoy. There may be very little room for Canada plus, and no room at all for plus,plus,plus…

Politics is not independent from the personalities who stand for it. The first act of the negotiations has shown that the Brexiteers are insolent, stupid and shortsighted fanatics. As long as Boris Johnson stays on as Foreign Secretary, as long als Michael Gove and John Redwood play a role, as long as those who were characterized by John Major as „Tories in their head but UKIP in their heart“ (March 2013 at Chatham House), any concessions are given to the wrong people, who prefer tricks to trust. It is good if those people leave the EU, but it is sad for all the others: those 48% who knew what they were loosing and voted against Brexit, and those who voted Brexit but will wake up one day, when they learn hoiw much the Brexiteers betrayed them of their future.