Thursday, 4 May 2017

Less than two years to agree a divorce?

I’ve been impressed recently by Yannis Varoufakis who was the Greek Finance Minister and recently has established himself in the UK as a journalist, commentator and author.

He has recent and very relevant experience of dealing with the EU Commission and the leaders and ministers of EU governments when, two years ago, he was trying to find a solution to the Greek debt crisis.

His account of the negotiating tactics adopted against him by the EU is highly revealing and also depressing. Varoufakis describes the various methods used to delay and frustrate progress towards an agreement over the Greek bail-out. 

I think it’s quite reasonable to expect EU officials to follow the same path with Theresa May. The longer they delay, the more concessions they are likely to get from her, but also the more they are going to demonstrate to EU countries, with strong anti-EU elements, that leaving the EU is not a soft option and that you can’t have all the trade advantages, with none of the costs and disadvantages of membership.

There are 27 other countries in the EU so any inconvenient or painful economic results, following no agreement when the two year article 50 period expires, will be spread over all of them. In contrast the UK will bear the full costs and consequences of a failed negotiation. The fact is that the EU is holding all the best cards and is in a much stronger negotiating position than the UK. No amount of talking tough by Theresa May will help when, on the other side of the table, there are people holding all the aces who don’t even really care when the hand is played. 

For the EU delaying an agreement is a win–win situation. Among the EU officials there could even be an aspect of thinking that it’s better not to agree, than to agree something that will be criticized later.

If there’s no agreement the EU will say it’s due to Theresa May’s intransigence and the hard Brexiteers behind her will stand logic on its head and say that it’s a good outcome. 

Even without the punishment factor, when divorcing from the EU, it was never realistic to expect an agreement to be reached in two years.  Assuming that both sides are genuinely willing to negotiate, all negotiations take time because everyone has to have the opportunity to adjust their expectations down between meetings. In a negotiation of this breadth and complexity two years was never going to be enough. With this very short timescale all the pressure is on the UK and, unlike in the Greek/Euro crisis, there’s little reason for urgency on the other side.

Varoufakis’ suggestion is to change the terms of the whole thing by asking for an off the shelf “Norway Model” whilst the details are negotiated over say, seven years. He doesn’t really explain why this would be attractive to other EU countries, other than to say that pushing the decisions that far down the line would mean that the current set of EU Commissioners and government Ministers would be likely to be out of office, and therefore they would be more inclined to agree to a deal that their successors would have to see through.

But, even if this idea was sellable to the soon to be elected Tory government and its right wing, the Department for Exiting the European Union has unfortunately ruled out such an arrangement. In addition, EU Commission President Donald Tusk said, at the end of March, that any transitional deal cannot last longer than three years.

It looks like we’re heading for a hard Brexit!


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