Yesterday, ECB president Mario Draghi warned Brexit will be tougher for UK than for eurozone.
Also yesterday, Irish Prime Minister Enda Kenny warned Brexit ‘impossible’ within two years.
Both are quite wrong, and caught in obvious, self-serving bluffs.
There is nothing of substance in either claim.
Ireland does not support Brexit. In practice, Kenny hopes to drag out negotiations so long they don’t happen.
Everyone in the remain camp promotes their position with obvious bluffs.
Brexit Stacked Deck – Which Way
Brexit officials claim Cards Stacked in Our Favour.
UK officials claim they have the upper hand. But so does the EU. Let’s go over the claims and counterclaims.
UK Claims
- Britain’s top negotiators are confident they have a strong hand to play. From London’s perspective, it is facing a 27-country bloc that remains economically fragile, worried about security, under populist assault and divided over the crisis of legitimacy facing its central EU institutions.
- Britain’s exit blows a hole in the EU budget and will be costly for some members, stoking tensions between net contributors (such as Germany, France and the Netherlands) and recipients (many eastern member states).
- The UK is the EU’s third biggest net budget contributor, paying £140bn since 1973. More importantly it is scheduled to pay another net £60bn in the EU’s agreed long term budget to 2020/21, including £26.4bn in the two years after 2019, its expected exit date.
- If as part of a transition deal Britain agrees to continue payments to 2021, it would help the EU27 delay a divisive internal budget debate. But it would also mean Theresa May, UK prime minister, going into a 2020 election without any EU budget savings to show.
- Gordon Bajnai, the former Hungarian prime minister, argues that a common EU foreign and security policy would be “very weak in the future if the UK is somehow not kept in the system”. “The UK could ask for much more in Brexit talks if it somehow remains part of security and defence structures,” he said.
EU Claims
- Brussels sees Britain running headlong into a negotiating trap. It is smaller than the EU, has more to lose, and will be negotiating against a deadline controlled by the EU27. Crucially, it can largely only exercise leverage by hurting its economy or citizens. “The Brits have so cornered themselves that it is an unequal situation, whatever they do,” said one senior EU official involved in Brexit talks.
- London’s leverage options cluster along four themes: common economic interests; Britain’s contribution in money and power; the threat of a hard Brexit; and tactical opportunities to divide the EU27.
- Brussels is also aware it is in the UK’s interests to remain in some programmes, like research funding. “For every piece of influence it wants to retain in EU policymaking it will have to pay a price,” said Andrew Hood, a former UK government lawyer now at Dechert.
Trump Card
Boiled down to its purest terms, it would involve the UK effectively confronting the EU with a choice: continue a zero-tariff preferential trade arrangement, or accept World Trade Organisation terms. “The UK would recommend the former, but could live with the latter,” said a group of pro-Brexit former ministers, including Peter Lilley and John Redwood.
That’s a strong trump card, but the UK has another one that’s even stronger. First consider another obvious bluff.
Bluff from Schauble
Germany’s finance minister Wolfgang Schäuble boasts Britain can’t lower corporation tax because the UK still has EU commitments.
Obviously that claim flies out the window the moment the UK says “goodbye”. It is to the EU’s advantage, not the UK’s for the UK to enter negotiations.
The EU will try to drag the negotiations on forever. Heck, they won’t even have to try. Permanent negotiation is a natural process getting 28 nations to agree to anything, and under silly EU rules all 28 nations have to agree.
Don’t Negotiate, Just Leave!
Mario Draghi and EU officials are very anxious for May to trigger Article 50.
Why bother?
There is no legal requirement to file anything. All the UK has to do is proclaim the treaty null and void. By doing so, all these accumulated fees the EU is threatening the UK with immediately go up in smoke. So do current UK contributions.
That is the ultimate trump card, and I mentioned that prospect on day one.
A few days ago a reader emailed me a link to a Moneyweek article Don’t trigger Article 50 – Just Leave.
Despite my best attempts, says professor of international law Ingrid Detter de Frankopan, everyone has been deaf to the painstakingly simple course for the United Kingdom to take: don’t trigger Article 50 at all.
Second rate lawyers are misleading everyone in the country by insisting that, in order to leave the European Union it is essential to “trigger” Article 50 in its entirety. This line has been swallowed whole by the government, the media and commentators. It is, however, absolute nonsense. Under international law and under Article 50 (1) itself, only notice to leave is necessary.
The horror that I feel about this misdirection is compounded by that the fact that if Article 50(2) is ‘triggered’ it implies that the UK government accepts that the EU will decide the conditions of UK’s withdrawal. This has serious consequences. An arbitrary two-year negotiation window; a supreme agency problem between negotiating parties (the European Commission and various powerful governments) and a ratification process that is far from certain. All the while we will be contributing approximately £40bn gross, or £20bn net, to the European project. We will be paying for them to negotiate – and once we get to the end of the timeline there will be no real incentive to reach prompt agreement, as well as no reason to be true to their negotiated position. In fact any excuse of an election, a financial crisis or a small war – could derail years and millions of man-hours of work.
Now turn this situation on its head. The United Kingdom withdraws from the European Union (as directed by the people of the country in the referendum of June 2016) in March 2017 with immediate effect. The European Union loses almost 14% of its revenues overnight. I suppose our mission / delegation will be received with a great deal more alacrity then they would otherwise. This would turn the screw on the Commission and force them to conclude negotiations rapidly. It would give them less of a chance to strike back, ask for an “exit” premium and force a rapid conclusion on all parties. While it is true that this could descend into a tariff war – it is likely that we would end up with this situation at the end of two years anyway. There is the Commission, 27 other governments with diverse objectives ranging from using Britain’s exit to foster greater unity or to underline the need for retaining sovereignty within the Union.
The reader commented “You said this long ago.”
Yes, I did. But it’s nice to see the legal case presented by Ingrid Detter de Frankopan, a professor of international law who holds three doctorates, one specifically on European law.
Case closed. Just leave.
After the UK leaves, perhaps the EU will take trade talks a bit more seriously.
Mike “Mish” Shedlock
The UK is a sovereign nation of considerable importance, with major trade relationships outside the EU and its own nuclear weapons. The UK doesn’t need a “legal case” to leave the EU, it can just leave. If it does, the EU can play ball sensibly or it can impose sanctions and disintegrate. I vote for #2.
I’m pretty sure they know this already.
Assuming the Brits are not stupid or corrupt (I’m sure they’re not), they are using the time as a negotiation strategy. Even saying ‘piss off’ is a negotiation – if you mean it then it’s the beginning and end of a short negotiation.
They’re doubtlessly listing their strengths, weaknesses, opportunities, and threats and deciding among themselves how to get maximum benefits from the EU at no or low cost to the Brits.
The EU is trying to spin gold from hot air. The Brits know this, really, they do. The only strength the EU has is what it can or will give up in order to minimize the damage to themselves for the Brits leaving. They have precious little to offer unilaterally.
The UK would be a nice addition to NAFTA. However, with Trump’s base supporters, any expansion of NAFTA would I believe, be wildly unpopular.
Not too unpopular if handled correctly. We give them Harry Reid and get haggis in return. The Brits are used to whiny politicians and would tell him to shut up with no problem. We would get haggis, which, while somewhat repulsive to many, is far less noxious than Mr Reid.
Or, if the Brits won’t go along (likely as they’re not stupid) perhaps we can trade Mr Reid with Brussels for a loaf of French bread. He would fit right in and we could use the bread to feed some birds. The EU would consider him a gifted master politician and we would lose the frequent sound of fingernails on a blackboard.
(white anglo saxon english speaking world war allies)
I’ll show my support for our friend across the pond. Wimbledon overseas ballot opens Thursday! Hyde Park area lookin’ dirt cheap this year. Double orders of Strawberries and Creme… gotsta luv it!
The first thing Trump should do in January is to do a trade deal with the UK, and stare down EU heads until they cry. Should take about 20 seconds.
Why wouldn’t May want to listen to Ingrid Detter de Frankopan if she is serious about Brexit?
As the UK wants to sign trade agreements and other treaties in the future, its government must take the TEU (willingly signed by a previous UK government) very seriously. Its Article 50 is the legal way out and implies exit negotiations to deal with all the obligations which the UK has signed up to as EU member; many of them involving big sums of money owed by the UK to the EU, debts which won’t disappear simply because the UK decides to leave.
As you can read elsewhere on the web:
Theoretically, there is nothing to stop a British Government unilaterally withdrawing from the EU by simply repealing the 1972 European Communities Act. Article 50 compels only the EU to seek a negotiation, not the withdrawing member state. However, while this may be the case in principle, such an approach would likely damage the UK’s chances of striking a preferential trade agreement with the EU after exit – since its first act as an ‘independent’ nation would have been to have reneged on its EU treaty commitments. It would also mean there is no transition period, so EU legislation along with the UK’s free trade agreements via the EU lapse immediately. Since some EU law applies in the UK directly, the UK would need to legislate to replace it.
(http://openeurope.org.uk/today/blog/the-mechanics-of-leaving-the-eu-explaining-article-50/)
So if the UK merely says something like “you’re hereby notified that the UK is no longer a member of the EU” and refuses to negotiate an agreement covering the financial and other consequences, it will clearly not be acting in good faith, and will also immediately harm UK companies presently trading with the EU. Perhaps the UK is indeed so strong it can gain great advantage from such unilateral power play, but I doubt it. Also note that the current (unelected) prime minister could well find her Cabinet and Parliament against her, on this path.
For reference, here is the relevant part of Article 50:
2. A Member State which decides to withdraw shall
notify the European Council of its intention. In the
light of the guidelines provided by the European
Council, the Union shall negotiate and conclude
an agreement with that State, setting out the
arrangements for its withdrawal, taking account
of the framework for its future relationship with
the Union. That agreement shall be negotiated
in accordance with Article 218(3) of the Treaty on
the Functioning of the European Union. It shall be
concluded on behalf of the Union by the Council,
acting by a qualified majority, after obtaining the
consent of the European Parliament.
3. The Treaties shall cease to apply to the State in
question from the date of entry into force of the
withdrawal agreement or, failing that, two years
after the notification referred to in paragraph 2,
unless the European Council, in agreement with the
Member State concerned, unanimously decides to
extend this period.
1. is ambiguous, as below, if there is a constitutional requirement to leave immediately, ie) via act of Parliament. This might occur if a General Election is called specifically to give a mandate to the Government to execute an act of Parliament to the effect of an immediate withdrawal. As of today, it will likely change as times become tougher, May would gain an overall majority.
As for the EU law, there is already action to take all EU law on to the UK statute book in its entirety. There will then be a council of legal eagles to strike off unwanted legislation then a single Parliamentary sitting and act to repeal unwanted laws. This may be intended (not yet clear) to be the case on the first day of no longer being a member state. In effect no jurisdiction to be left under the remit of the EU/ECJ. This is considered critical in some UK circles and will likley be prioritised.
A process for various has been drawn up.
1. Any Member State may decide to withdraw from the Union in accordance with its own constitutional requirements.
The other trump card is now Donald Trump, they can cut a better deal with the US now and maybe even get the US to start to pressure the EU to give them a better deal.
UK is doomed. 80% of their economy comes from providing services. Not much hardware is created and finds a buyer. If you are living in the UK and want to have a nice car, you better buy now before you can’t effort it anymore. If the UK votes to leave the EU and no new trade deal is negotiated, they will still continue to trade with the EU but would have to pay (hefty) tariffs. Good luck
HT, out of curiosity, how did the Brits survive BEFORE the EU came to be? Or, are you implying the EU will band together and isolate the Brits and start the Battle of Britain 2? Since they survived the first one quite well and since this one involves no bombs, I think the EU is only blowing smoke and trying to terrify the Brits about the monster that lives under the bed.
PS: the Brits not speaking openly about their plans is called ‘good negotiating’. Only the stupid put their plans out in the open. Since the EU is trying so hard to sound like the apocalypse, I strongly suspect the tough talk is all they have and they will beg for mercy after the Brits formally sit down at the negotiation table.
Mish, I think the Brits might be ‘letting them sweat’ as there is no benefit at this time for being hasty or exiting at this moment. The EU has a lot to offer in trade as appeasement for the Brits to not be mean back to them.
You act like the only people who can sell products to Britain is the EU. The rest of the world would love to replace EU products with their own.
“EU officials claim they have the upper hand. But so does the EU. ”
Not to be a grammar nazi, but should one of those be UK?
Probably no. The EU appears to be trying to impress itself as I don’t think the Brits are being fooled in any way by their bluster. Rather, they’re probably being entertained by the EU tough talk. The more the EU talks, the more it reveals about the weak hand it holds.
Ty.
The UK can unilaterally annul all international contract and agreement as it pleases, just as one can decide not to recognise another country or EU. It is not a clever or wise choice without a strong justification.
British law is widely respected due to its higher integrity. Trade, contractual obligations, only occur in trust. Respect is intangibly hard to maintain.
Article 50 is protocol, it is an agreement that before you leave the hotel, you inform of your departure. It would be a bad and unnecessary precedent to simply walk out and let the rest chase you with bills. That is not UK. When and how UK triggers Article 50 is a UK choice only, it is part of UK social and political decision making, only.
After triggering Article 50 the UK can annul all existing EU agreements, either by declaring them void or by refusing to negotiate new ones in the two year period. It cannot undo existing obligations unilaterally without loss of credibility, it can challenge them legally. There is no reason to look for confrontation for its own sake, or in spite, the UK knows its hand, and will be more concerned coordinating national effort and stability than looking to challenge EU. There is every reason to listen to EU offers, to aim at negotiating a framework suitable to UK, but the hand will be on the tiller of British circumstance throughout.
Those who flinch or fall along the way will be picked up and replaced.
That is nation.
All things except war move slowly in government with lots of blustering talk and comments along the way. Brexit is coming, slowly but surely. We are hearing the equivalent of campaign promises now. Later we will get the reality of it all after private negotiations.
What Britain obviously needs to battle the EU are policies that will guarantee their economic stability and sovereignty….from both tyrannical finance and political duplicity with same. And seeings how a policy of a universal dividend in addition to whatever one made via work for pay would solve the chronic problem of scarce individual income and a retail discount would resolve the chronic problem of inflation by creating continual deflation, they seem to fit the bill rather nicely. This would also de-throne finance as the dominating and manipulating power behind all governments by integrating the paradigm of monetary grace as in gifting into the debt based system thus ending finance’s monopolistic powers. The philosophical (not religious) concept of grace comes around every couple of hundred years and tries to help free man. If we’d simply think in terms of third alternatives to dueling and half true orthodoxies…we’d make a lot more actual progress.
The EU has a very large trade surplus with the UK which could easily go away as well.
This is bad behaviour by the EU and Merkel. Using EU citizens as bargaining chips. Disgusting.
http://brexitcentral.com/donald-tusk-refuses-even-engage-reciprocal-rights-uk-eu-citizens-let-alone-guarantee/
Minor editing catch:
Under “Brexit Stacked Deck – Which Way” I think you meant to say “But so does the U.K.”
Thanks as always for the great posts.
The UK should adhere to all it’s international obligations, so should the EU.
It will be messy and stressful and neither side will be better off afterwards.
The main concerns for the UK are to take control of borders/immigration and repatriate all laws from the ECJ to become fully sovereign again.
The EU will be dealing with a leading democracy, not Putins Russia or Erdogans Turkey, so should behave accordingly. Worth remembering many of the freedoms they enjoy are because of the intervention of the British on more than one occasion in the last 100 years at substantial cost to the people of the British Isles in Blood, Sweat and Tears.
The British are the true defenders of democracy as illustrated by the referendum.
The EU wants immediate Article 50 so they have more control and a counter party that is as ill prepared as possible. British preparation will be less than ideal but certainly better than if the procedure is triggered much before end of March 2017.
God only knows the outcome. Very complex covering everything from fishing rights to air traffic and all points in between.
May has said it won’t be plain sailing and to expect give and take. If not competed in 2 years, with no extension agreed, then expect some turbulence in the UK but also for Ireland. Ireland has a lot at stake as it’s very UK dependent.
I’m quite sure the EU will be fine inflicting pain on the UK and their own populations.
Anyone fancy an orange?
How can developing nations hope to develop when their exports of agricultural produce can be treated like this at the drop of a hat?
http://brexitcentral.com/dan-lewis-new-16-import-tariffs-oranges-show-must-leave-customs-union/#more-1784
News today. Who would want to share intelligence with the Germans?
Who wants to bet there is Russian infiltration in their security apparatus too, buried deep.
http://www.telegraph.co.uk/news/2016/11/29/german-intelligence-officer-arrested-islamist-plot-raising-fears/
If the British wait a bit, the EU may simply self-destruct.
Italy’s December 4 vote will most likely end their current government, which would then instigate new elections in which anti-EU parties would be favored. It would also blow up their dreadful banks, which could potentially take out the Euro if there is enough shrapnel.
France has its own elections coming soon, and if Le Pen wins they will Frexit and more or less end the EU.
German politics are getting more interesting as Merkel has lost much of her support.
Many smaller nations, such as Hungary, have even more antipathy to the EU than the big nations.
Exactly which side has the political momentum at the moment – pro-EU or anti-EU?
I think the answer to that question is self-evident.
It’s very easy to decide who has the upper hand.
If the UK has the upper hand, EU politicians would be debating how much to pay to the UK to secure access to the UK markets.
If the EU has the upper hand, UK politicians would be debating how much to pay to the EU to secure access to the EU markets.
So. Which is it?
poor analogy
Everyone loses in a trade war so it makes some sense on the surface to minimize damage
The EUs religious beliefs seem stronger
But if the UK would just leave, we would see who lost more – It would not be the UK