Insight

The BREXIT Bulletin: Ten weeks to go

Here we go again. That was the working assumption of many people on both sides of the Channel about the latest no deal rhetoric from London, resting on the belief that the UK government has threatened to end the talks completely to a) put pressure on the EU and b) make the UK government look tough before a deal is done which Boris Johnson can then sell to his sceptical backbenchers.
However, it is in both parties interests to make reaching a deal look hard. Both sides have to convince their own constituencies that every sinew has been strained to finally reach an agreement with an unreasonable negotiating partner. If it doesn’t look as if every effort has already been made then one or both sides’ will face a chorus of calls from their team to go back for more.
Beneath the choreography of the talks there are substantive difficulties – the outstanding issues are outstanding for a reason. It is also always worth remembering the fundamental difference between these negotiations and more normal free trade agreement talks. Usually there is a shared overarching objective in building up cooperation and coordination, these talks are explicitly about the divergence. At the core is the fact that the UK wants to be able to compete more and coordinate less with their nearest and largest market and the EU wants to limit the UK’s ability to do that – they have competing rather than shared objectives.
Through our unique network of agencies we have collected the view of the state of Brexit talks from across Europe.
 

The highlights from the UK


Canada or Australia?

In common with most countries, political and media attention in the UK has been diverted from the matter of Brexit. It therefore caught some by surprise when Prime Minister Boris Johnson used a speech, following the EU Council Summit, to reiterate the UK’s approach to negotiations with the EU and caution that without significant changes, the UK should prepare itself for “arrangements that are more like Australia’s” and to “prosper mightily as an independent nation”. Although he did not explicitly call a halt to the talks in that statement a Downing Street spokesperson did so later.
With under 10 weeks left there is speculation over whether the UK Government are bluffing when saying they are prepared to walk away from the negotiation table. Although Senior Cabinet Ministers are clear that they would like to reach an agreement this should not be misinterpreted as unwillingness to contemplate leaving without a comprehensive trade deal.
If no deal is the outcome, we should expect to hear more of the Prime Minister’s line that the Government wanted nothing more from these negotiations than had been offered to other countries – notably Canada. In particular, the Government continues to emphasise that because UK regulations and standards are currently identical to the EU, and the Government are politically committed to maintaining high standards, demands for level playing field conditions to be set out in a treaty are unnecessary and undermine the UK’s status as a sovereign state.
Amongst UK politicians, attention moved towards looking for bilateral agreements to mitigate some of the worst effects of no deal, for example, in industries such as aviation and haulage. Government insiders also privately suggested noises out of Brussels indicated some such barebones agreements could be achieved if there is an ‘Australia’ style outcome.
For the moment the negotiations are back on. Deal or no deal, some divergence from the EU – and consequently disruption to business – is baked into this Government’s thinking. Whilst Theresa May’s plan was to minimise the level of friction for British business trading with the EU, this Government is a different beast. It will not only accept some friction in UK-EU trade, but it has often actively talked of divergence – its main focus being British sovereignty.
 

The highlights from Berlin

It’s high time to sit down and reach an agreement
“What was right yesterday will remain right today.” Chancellor Angela Merkel said after last week’s EU summit. With this, she referred to her previous statement calling on both sides to keep looking for compromises – but not at any price.
While Chancellor Angela Merkel chose a softer tone to comment on the outcome of the summit the German leader of the European People’s Party (EPP) in the EU Parliament, Manfred Weber, was more straightforward and bluntly accused British Prime Minister Boris Johnson of irresponsibility. German media seemed to echo both these statements, repeatedly calling for an agreement on a trade deal, while using harsh language when referring to Boris Johnson’s political strategy.
There is one recognized certainty in Berlin: without an agreement, both sides lose. Even with this certainty German media encourage the EU to wait and see whether London moves enough in the negotiations to be able to pave the way towards an agreement at the last minute. There is a regretful recognition that it is quite possible that Boris Johnson cannot or does not want to move sufficiently.
Many reflect that with the rapidly rising coronavirus rates and the negative economic outlook in the UK the British Prime Minister must drop the talk about the UK having a ‘fantastic future’ even without an agreement. However, there is very little faith that the British Prime minister will let go of the rhetoric. The British government is seen to be acting against the national interest with its decision to suspend negotiations with the EU but that this confirms the real strategy, which is that when Boris Johnson claims that the UK can live with a no deal Brexit, he is more concerned about his Brexiteer supporters than the national interest.
The view from Berlin is that now, two and a half months before the end of the transition period, it is high time that both sides sit down and find an agreement, even at the last minute.
 

The highlights from Central and Eastern Europe

EU over Brexit
Central and Eastern Europe was a COVID success story in the spring. The virus arrived slightly later to CEE than Western Europe, and rapid lockdowns and border closures, combined with a disciplined public response to restrictions, led to the initial outbreaks being contained.
Things look very different now. The Czech Republic is battling one of the worst outbreaks in Europe, and the entire region is seeing alarming spikes in cases which dwarf the numbers recorded six months ago.
Why mention this in a Brexit bulletin? Because it means that there is simply no bandwidth for Brexit in CEE. On 1 July, when Poland took over the Presidency of the Visegrad Group (V4), which comprises Poland, the Czech Republic, Slovakia and Hungary, it published its Presidency Programme. A 38-page document, Brexit was given a single paragraph.
Even politicians like Hungarian PM Viktor Orbán, who some Brexiters hoped would be an ally within the EU, has been relatively quiet. Last month, Orbán told Reuters that the referendum result was “a brave decision of the British people about their own lives…[and] evidence of the greatness of the British.” However, he also said that Hungary “can’t afford to follow that track” because of how closely integrated the Hungarian economy was with the rest of the EU.
This final point is crucial to understanding attitudes to Brexit across CEE. It’s true that there is a lot of warmth towards the UK across CEE, but the economic reality is that the region is dependent on the Single Market in a way that it isn’t on the UK. For example, across the 11 CEE member states, 18% of exports go to Germany alone on average (it’s above 25% in the larger economies of Poland, the Czech Republic and Hungary). There are only two CEE countries where exports to the UK exceed 5% of the total: Poland (6.4%) and Slovakia (6%).
This helps explain why, at last week’s European Council meeting, governments in the region stood squarely behind the Commission. Czech PM Andrej Babiš was in the unusual position of representing Poland as well because the Polish PM, Mateusz Morawiecki, was quarantining, and he said afterwards that “We support Mr. Barnier and his negotiating team. It is unfortunate that Britain is leaving as we were natural allies in many fields, but it was their decision to leave. We cannot give Britain exemptions to state aid rules. It would undermine the whole functioning of the Union’s internal market, and that is unacceptable.”
It was a useful summary of the view of Brexit across the region.
 

The highlights from Paris

The UK needs a deal more than us
“Les Britanniques ont davantage besoin d’un accord que l’Union européenne”; tweeting after last week’s European Council, French President Emmanuel Macron is clear in his view that London relies on having a deal more than the EU does. This opinion, it seems, is representative of much of the feeling in Paris.
For EU Internal Market Commissioner Thierry Breton, whilst the EU’s customs are ready for a no deal, London’s are not yet. He calls on British customs to get prepared urgently. For Breton, therefore, the EU is better placed to face a no-deal. He adds: “we prefer a deal but not at any price”.
France looks to show a strong front, arguing that a bad deal would be worse than no deal. Arriving at the European Council, Emanuel Macron was less hopeful than his counterparts, explaining that the EU is ready for a no-deal scenario.
Despite remaining firm in this view, Macron treads a fine line. When it comes to fisheries, in a no deal scenario, the EU has everything to lose, and France would be at the heart of this. Macron has previously warned that the first image of Brexit, would be that of the fishermen. Fears that this could create a crisis on par with that of the gilet jaunes run high in Paris. Just two years ahead of a French presidential election, such a crisis would not be good news for Macron, having barely survived the yellow jacket protests of 2018.
The French President must therefore find a balance. On the one hand, Macron is presenting a united France ready to face a no deal, whilst on the other hand, he must be seen to be seeking an agreement when it comes to fisheries.
What may seem like an insignificant issue to many, the question of fisheries, still has potency on both sides of the channel as well as in it.
 

The highlights from Brussels

Talks are back on
The talks are now starting again but the policy stumbling blocks remain as they always were – fishing, state aid and governance, now specifically in relation to dispute resolution procedures.
The UK walkout was in response to the European Council’s final statement which lost the word ‘intensify’ from the draft text – something that the Prime Minister, Ministers and UK Government spokespeople repeatedly took issue with. Ursula von der Leyen, Angela Merkel and Michel Barnier hastily tried to backfill that lost word in statements after the meeting and over the weekend. On Monday Barnier also addressed another sore point by agreeing to work on legal texts in a tweet, in effect openly dropping the dreaded ‘parallelism’ where no progress could be made on one issue without progress in the other areas.
More was required and in Barnier’s speech to the European Parliament he said the EU team would “work constructively and in a spirit of compromise” – many on the EU side didn’t see this as being much different from his, Merkel and others’ comments the week before but it did the trick and the talks are back on.
The Council meeting on 15th October was a UK deadline rather than an EU one. The EU has long predicted entering the ‘tunnel’ or ‘submarine’ stage of the talks in the second half of October and here we are.
Even if the actors are following the stage directions in these negotiations it doesn’t mean that the conclusion has been written. As ever, the politics matter more than the economics. There are still significant voices around Boris Johnson calling for no deal and Emanuel Macron is entering an election season. Expect more plot twists, although the balance of opinion still expects a deal to be done in early to mid-November.
If a deal is reached it will need to be ratified by the EU and ratifying the deal was made harder by the UK’s Internal Market Bill. Separate to the negotiations between Frost and Barnier, the negotiations between Michael Gove and Maros Sefcovic in the Withdrawal Agreement’s Joint Committee need to come up with a way of the UK removing clauses 42, 43 and 45 from that bill. Without that, the EU Parliament may reject the future trade agreement.
There is one certainty accepted on both sides of the Channel: Deal or no deal come 1st January 2020 there will be significant changes in the way business can operate between the UK and the EU. There will be new customs processes, licences and certificates and freedom of movement for people will end. In 10 weeks’ time the union between the EU and the UK will end – that change is coming whatever happens to the talks.
 
Grayling Brexit Unit
Our Grayling Brexit Unit brings together the very best consultants from across the Grayling network and includes those who have direct experience of working alongside the leading political figures charged with negotiating Brexit in London and Brussels.
The Grayling Brexit Unit is here to support, guide and inform the success of your business and identify how the political dynamics will change as a result of Brexit in both London and Brussels. We are your Brexit experts.
Please contact Robert Francis in our Brussels team or Alan Boyd-Hall in London for more information.