How to make Brexit manageable

Posted on July 17, 2016

David Davis, Secretary of State for Exiting the European Union©Getty

David Davis, secretary of state for exiting the EU

We have moved beyond “Brexit means Brexit”. We know the new UK government is seeking a relationship with the EU, governed by a trade agreement. It does not want to join the European Economic Area — an extended sphere of the EU’s internal market.

Philip Hammond, chancellor of the exchequer, has talked about access to the single market but not membership. After meeting with Jack Lew, the US Treasury secretary in Berlin last week, Wolfgang Schäuble, the German finance minister, called this proposition reasonable. There is no agreement on anything yet, but the UK and the EU may at least agree what to talk about. Coming from where we did, this is progress.

    Beyond the broad direction, we can make three further points. The master plan drafted by David Davis
    , secretary of state for exiting the EU, was as clear on the general direction as it was naive about the technical details. The campaign is over, Mr Davis will have to get excited about really boring things.

    What is also becoming clear is that
    Theresa May, the UK prime minister, may well want to trigger the exit procedure under Article 50
    before the end of the year. It will take time to get an agreed negotiating position that both Scotland and England’s Brexiters are happy with. Compromises will have to be made. But the process cannot be delayed for too long. The economy might leave her no choice. Brexiters should not be fooled by the relatively benign market reaction after the referendum and the limited fall in the pound’s value.

    The third point that has become clear is that Brexit will happen before the UK’s general election in 2020. It is the only scenario under which the Conservative party will hold together.

    In the months ahead the main job of the Brexit team will be to understand in detail the negotiating positions of the other 27 member states. What does each of them think about Britain’s access to the EU’s financial market?

    We know France favours curbs but is this universal? Such an exercise would also reveal that the principle of free movement of people cannot be easily negotiated away. Free movement is not a policy, nor mindset, but a principle deeply enshrined in European law.

    They should also think about the transition. There is no chance a trade deal can be agreed and implemented within two years. The deals are technically complicated because they have to be negotiated chapter by chapter, industry by industry. Complex trade-offs will be needed. Ratification may be delayed. Fortunately, Britain runs a large trade deficit with the rest of the EU so several countries will want to complete a deal quickly, Germany among them. This also means the process might come unstuck if others cannot agree.

    Meanwhile, an important development is about to unfold that could prove a great opportunity for Britain: Germany’s Social Democrats, partners in Chancellor Angela Merkel’s coalition government, are about to ditch support for the Transatlantic Trade and Investment Partnership
    — an agreement between the EU and the US. My understanding is that it is now in effect dead.

    Brexit Briefing: Britain’s new Mr Brexit

    David Davis’s role as the minister spearheading the exit negotiations makes him a pivotal figure

    A German veto of TTIP would give the UK and the US a chance to negotiate their own bilateral version.

    In this case, the UK could theoretically end up with a better position than before: with access to the EU single market and deeper economic integration with the US.

    The EU is in grave danger. For geo­political reasons I would have preferred it if the UK had voted to stay. The failed coup in Turkey and the latest terror attack in France could destabilise the EU further.

    But starting from where we are today, there is a chance Brexit can be managed in a way that is at least economically neutral. Such an outcome is not guaranteed. For that to happen, Mrs May will need to proceed with the same ruthlessness and sense of purpose as she did last week when she ended the austerian economic strategy of David Cameron, her predecessor, and wielded the knife against long-serving ministers.

    munchau@eurointelligence.com

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