Theresa May‘s speech in Florence was polite but non-committal. It will probably not be enough to unlock the stalled Brexit negotiations. And her vision of the future relationship between the EU and the UK is not going to work either.
What Brexiters and Remainers in the UK have in common is a delusion about the number of post-Brexit options available now. The EU only knows a very limited number of external relationships. There is the European Economic Area, the so-called Norway option. Mrs May has rejected it, and reiterated that today. The other is a customs union agreement — the Turkey option. Mrs May also rejected that. The EU will not offer the UK the “Swiss option”. It regrets having offered it to Switzerland. The EU hoped that it paved the way for a future Swiss membership of the EU, which is clearly not happening.
This leaves a single option: a free-trade agreement. It is probably not helpful to call it the Canada option because trade deals are as diverse as Tolstoy’s unhappy families. The trade deal with the UK may include some unique elements. It may have deeper dispute settlement arrangements. But I am willing to predict that it will not be anything like what some people mistakenly refer to as “access to the single market”, the ultimate category error of the Brexit discussions.
What Mrs May really wants is an association agreement. There is a strong political case for such an association agreement, also from an EU perspective. But I fear that the idea is time-inconsistent. I have no doubt that the EU will ultimately have to shrink into a deeply integrated eurozone. Member states that choose not to participate in the euro will eventually end up in a similar position as the UK. But this is not going to happen within the next two or three years. The EU is only just starting to talk about institutional reform. The re-definition of its various external relationships will be part of that. But this type of change usually takes five to 10 years. It will not happen in time for Brexit.
The big question is, how will the UK’s political system react once the realisation has sunk in about how little the EU will ultimately offer?
The best outcome for the UK will therefore be a deep FTA, and this will only happen if the UK moderates its plan for a new immigration regime. If that regime is anywhere near to what the Home Office has recently proposed, the EU will not be able to offer an economic partnership that goes much beyond that with Canada. There is no way that the EU will agree freedom of movement for aeroplanes, for example, but not for passengers.
The big question is, how will the UK’s political system react once the realisation has sunk in about how little the EU will ultimately offer? The transitional period would still buy the UK some time to prepare for the eventual hard break. Time is good. Businesses need to prepare. But then again there is no reason not to do this right now. And ask yourself: is it politically smart to risk a cliff-edge a year before the next election?
For companies that do business across EU borders, Mrs May’s announcement that she wants the UK to remain within the single market for a two-year transition period after Brexit, and is willing to pony up €20bn to pay for the privilege, is welcome clarity. Banks, carmakers and food producers no longer have to worry that British stubbornness will cost them access to their markets and supply chains in 2019. They can wait at least two more years before having to move key employees to European capitals that may or may not have adequate housing and good international schools.
The rest of the speech was less positive for executives looking to map out the future. Mrs May does not want to be Norway — with full EU access in exchange for accepting all EU rules — but she does not want a Canadian-style free trade deal either. She believes in a Goldilocks “creative solution”, promising the details will be worked out later. That is cold comfort for an English factory manager who is used to just-in-time delivery of parts from Poland. To make matters even less clear, Mrs May seemed to suggest she wants a sector-by-sector approach in any future treaty, which almost certainly means the process will take longer and be less predictable
With Britain engaging in this kind of magical thinking, businesses have to worry that they will still be feeling their way in the dark even after the two-year transition.
No one is throwing their hat into the air in Berlin. A Germany on the eve of a general election has other things on its mind than Brexit. Theresa May’s Florence speech merited, at best, one cheer from policymakers in the German capital. A glimpse of realism? Yes, but the merest glimpse. The UK prime minister should not expect chancellor Angela Merkel to swing into action on Britain’s behalf.
Germany will leave it to EU negotiating chief Michel Barnier to decide whether Mrs May has said enough to open the door to the next stage of Brexit talks. There are doubts that Mr Barnier will have been convinced. To continental ears, Mrs May’s call for a unique economic partnership sounds suspiciously like another, albeit subtler, attempt for Britain to have its cake and eat it — to retain the privileges but not the responsibilities of EU membership.
Berlin says the EU is still waiting for a realistic account of Britain’s ambitions for the future relationship
The cabinet infighting before the speech did not help. Word has reached Berlin that Boris Johnson, the foreign secretary, has privately boasted that he had prevented Mrs May from making a more realistic offer — perhaps three years of transition and budget payments. How, European diplomats ask, can they deal seriously with a government in which the foreign secretary might at any moment move to topple the prime minister to further his own career?
German officials contrast dysfunction and discord in London with surprising unity among the 27. Britain had been expected to seek to divide and rule its partners. Instead Mrs May had been preoccupied with the task of trying to unite her own party. Berlin says the EU is still waiting for a realistic account of Britain’s ambitions for the future relationship.
On one thing Ms Merkel is clear: the prime minister should not expect special treatment from Germany. The chancellor wants a fair deal but one that reflects the fact that the advantages of EU membership are not available to outsiders. She has other priorities, not least the need to strike a bargain with France’s Emmanuel Macron to restore the Franco-German partnership.
After Mrs May’s speech, the attention of UK officials is immediately shifting to how the EU will react. There is no automatic expectation that the EU will now make the vital statement that “sufficient progress” has now been made to allow the two sides to proceed to discussing their future trade relationship. One UK official says that Mrs May’s speech is simply enough “to get us on the dance floor”. A lot will now depend on the next round of negotiations next week. The Brits hope that the two sides can now build on the May speech.
However, the EU reaction may be quite cool. The British believe they have made reassuring noises on money, security and citizens’ rights. But the insistence that the UK will leave the customs union means that it will be hard to point to progress on another issue that the EU deems critical: the Irish border.
And then there is the question of tactics. The EU may be tempted simply to play for time, by rejecting the British offer, knowing that the longer the talks drag on, the more Britain is at risk of a cliff-edge Brexit. That in turn could mean that the British become increasingly desperate — and will return later, with a better offer.
Theresa May addresses her audience in Florence on Friday © AP
David Allen Green
The Florence speech demonstrates the folly of triggering the Article 50 period before the UK was ready. The prime minister is now reduced to booking a room in Florence and begging the EU27 for two more years. Before the notification, the UK had complete control of timings. Now, any transition or extension is down to whether the EU will agree.
In terms of substance, there was little that engaged with, still less addressed, the detailed and succinct speech of Michel Barnier yesterday. A gap analysis between the two speeches would show the prospects of a deal. That gap is still large. The only concrete long-term (and welcome) proposal, of a security treaty, is not directly relevant to the current Brexit talks.
An urgent concern for the governments of central and eastern Europe is the protection of the rights of their citizens living in a post-Brexit UK. Mrs May’s speech in Florence offered some reassurances, but lacked sufficient detail to be wholly convincing.
The prime minister suggested that UK courts could, in the future, take into account any European Court of Justice rulings related to citizens’ rights. She also said she wanted EU citizens “to carry on living as before” in Britain. But she made no specific promises on access to UK state benefits, or on how new entry and registration systems for migrants might work.
The region’s governments will welcome Mrs May’s pledge to maintain a strong defence and security partnership with the EU after the UK leaves the bloc. Poland, the Baltic states and Romania are particularly keen to ensure a high level of security co-operation with London after Brexit.
These and other nations in the region regard Nato membership as their primary defence guarantee. But they want the UK, as one of Europe’s leading military powers, to be involved with the EU’s efforts, too. They will appreciate Mrs May’s commitment to close co-operation on counter-terrorism.
Governments will take some comfort from her assurance that the UK will honour the financial commitments it has made as an EU member. Mrs May’s language implied that there will be no threat to the tens of billions of euros that central and eastern Europe have been receiving under the EU’s 2014-2020 budget.
However, the region’s governments will seek more details on what Mrs May is promising after the UK’s expected departure date of March 2019. The legal status of UK financial commitments for 2019 and 2020 is a sticking point in the UK’s Brexit negotiations with the European Commission.
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