Professor Sir Anton Muscatelli is an Economist and Principal of the University of Glasgow.
The Prime Minister’s speech in Florence was billed as an important moment in the Brexit process. So what have we learned about the UK’s plans for Brexit and what is the likely response from the EU27?
What was important about the speech was the change in tone from the Prime Minister. This was remarked on positively by Michel Barnier, the European Commission chief negotiator, who spoke of a ‘constructive spirit’, and a ‘willingness to move forward’.
We should note the positives for higher education in the speech, which stresses this as a key UK asset, and the emphasis put on science and education collaboration.
Nevertheless, progress in the negotiations will depend on the concrete proposals which the UK will put forward to address the main points of the negotiations.
There were two points in the speech which suggested a new approach by the UK. In other places the emphasis was different, but in substance, the positions remained the same. The Prime Minister even pointed out that the fundamentals of the UK’s Brexit approach had not altered from her Lancaster House speech:
“The United Kingdom is leaving the European Union. We will no longer be members of its single market or its customs union. For we understand that the single market’s four freedoms are indivisible for our European friends.”
The UK continues to aim for a ‘hard Brexit’ as compared to the ‘soft Brexit’ option of remaining permanently within the Single Market (sometimes known as the ‘Norway’ or EEA/EFTA model), and possibly in the Customs Union (EEA+CU).
The new points are around the willingness to meet the UK’s existing financial obligations and a proposal around the transition period to the future post-Brexit relationship with the EU. (Or as the UK government prefers to now call it, the ‘implementation period’.)
First, on the financial settlement (the ‘divorce bill’), the Prime Minister changed the tone of previous government rhetoric. By using the phrase ‘The UK will honour commitments we have made during the period of our membership” the aim was to match the EU27’s language on the ‘divorce bill’. No amounts were mentioned in the speech, but sources trailed that the UK would be prepared to pay around €20 bn over the two-year transition period, roughly in line with what is paid now.
Second, the UK government said that it was prepared to have a period of transition or implementation of ‘around two years’, to provide certainty to business, which essentially involves the status quo with the UK operating within the Single Market and the Customs Union. The extension of the EU acquis would, of course, require all the existing rules of the Single Market to apply: around regulation, supervisory and judicial arrangements, free movement and so on.
Reactions to the speech have been mixed so far. At the intransigent end of the spectrum, EU observers have said that there is little new. A more accurate assessment is that EU negotiators will feel that there is still not enough detail here to make substantive progress in the talks.
The main point to remember is that Michel Barnier and his negotiation team have a mandate which cannot be varied without the consent of the other 27 member states. That mandate makes it clear that any discussion of the future relationship between the UK and the EU must come once there is sufficient progress in phase 1 of the negotiations, which focuses on the implications of Brexit for Ireland; the need to safeguard citizens’ rights; and agreement on the ‘divorce bill’.
On all these issues the speech itself will be seen as not making sufficient progress. On the border arrangements between the Irish Republic and Northern Ireland, there was nothing new in the speech, and the UK position paper did not elicit a positive reaction in the negotiations. On citizens’ rights the positions on the role which the European Court of Justice and UK Courts will play in supervising the agreement are still far apart. On the ‘divorce bill,’ the two positions are still far apart on what the UK’s financial obligations are.
On transition, the EU negotiators will not want this to be seen as an arbitrary lengthening of the negotiations for two years beyond that envisaged by Article 50. A phrase I hear frequently in Brussels is “A transition to what? We cannot persist in having uncertainty. The UK needs to decide what it wants after Brexit.’
The Prime Minister was clear that what the UK wants is a bespoke Free-Trade Agreement (FTA) which is Canada+, i.e. the EU-Canada trade deal is not sufficient to support the deep trading relationship that we have with the EU in both goods, and particularly services. Indeed existing FTAs do not tend to allow the same access as membership of the Single Market does, and for a UK economy which is 80% dependent on services an FTA is a very poor substitute for membership of the Single Market and the Customs Union. As I and other commentators have pointed out repeatedly, this form of ‘hard Brexit’ will cause serious economic damage.
So you can see why the UK government wants more than this. The problem is that the EU will see this not as Canada+ but as EEA-: i.e. as cherry-picking getting all the benefits of the EEA Single Market without any of the obligations of subscribing to a single set of market rules supervised by the ECJ or EFTA Court, or adhering to the four freedoms.
The speech, in essence, proposes some sort of bilateral supervision of the EU-UK trading relationship involving unfettered access to the single market. This will go down very badly with the EU27. I cannot see how they would agree to this. Simply promising that UK regulations won’t diverge from EU ones as suggested in the speech will not persuade the EU to allow unfettered access to the Single Market where 27 members plus other countries in the EEA play by one set of rules and we don’t. Even if one believes that the EU will agree to a Canada+/EEA- deal, it is heroic to assume that all this can be negotiated in around two years plus what remains of the article 50 negotiation period.
The speech of itself will not unblock the negotiations. France’s President Macron reacted immediately by saying that progress on the three key issues of phase 1 of the negotiations must be made before the trade and other issues are addressed.
One important point which is not always understood in the UK is that the EU see Brexit as mainly the UK’s problem rather than a shared problem. In part, this is because the EU27 have other internal priority issues to address. The statement that we never felt like an integral part of the EU may harden attitudes in the EU27, and will also be seen as insensitive to the many UK citizens who disagree fundamentally with this sentiment, and to those parts of the UK who voted differently.
My view is that the speech by itself does not reduce the risk of a Brexit ‘cliff-edge’, which would be economically disastrous for the UK. Some of us warned about this risk recently.
To avoid this, more detail is needed and rapid progress on the issues in phase 1 of the negotiation must be made. Even if that happens, the gap in the positions on the future framework remains wide.
What is most depressing is that many of the elements of the speech still address a fractured domestic political audience rather than tensioning the UK position against the EU27’s objectives. In the turbulent politics of Renaissance Florence its ruler Lorenzo de’Medici allegedly said that “When I go more than ten miles out of the city, the love and loyalty of friends comes to an end.” Plus ça change.