At the top of the list of absurd Brexit advice is the notion that a bad deal is better than no deal.
But that’s what Andrew Duff at the European Policy Center says.
Drop the Clichés
The British side should stop pretending that ‘no deal is better than a bad deal’. It is not. In fact, there’s really
nothing worse than no deal. So it’s not a clever tactic for the UK to start off negotiations by repeating a cliché
that at best nobody believes and at worst sounds mildly threatening.
Mathematical Idiocy!
The position of Duff is mathematical idiocy. The EU demands as much as €60 billion in exit fees, adherence to four principles (that the EU itself does not follow), fishing rights, etc.
Giving into those demands, or most of them, is like leaving for no reason at all.
Clearly, no deal is better.
Duff is nothing more than a staunch “Remainer” who refuses to accept reality.
€60 Billion in Exit Fees
Eurointelligence takes to task the notion that €60 Billion is remotely close to a starting point for negotiations.
Werner Mussler offers the most detailed account of the financial issues we have seen so far. The €60bn have several components, the largest being a back-of-the-envelope calculation on the EU’s open positions, also known as “reste à liquider“, spending commitments made in the past that have to be paid in the future. They stood at €217bn as of end-2015, and are likely to grow to €240bn by end-2018. Britain’s part would be about €29bn. In reality, that position would be lower since many of these funds are never called.
The second large position regards pension payments to EU employers – not just British – as the EU does not distinguish between UK and other nationals. Locking in a British net contribution for the lifetime of these payments seems ludicrous to us, but it is fair, of course, that the UK pays at least for the pensions of EU employees who are British nationals. If the EU insists on the UK paying for the pension of non-UK nationals post-Brexit, there can be no Brexit agreement. Mussler concludes that the €60bn is a purely political number.
We found ourselves in rare agreement with Holger Stelzner, the FAZ’s conservative economics editor, who asks what kind of community the EU is that wants to penalize a member state for exiting. He also notes that there is no legal basis for the €60bn claim.
Surrender
Duff would pay the full bill on the absurd grounds that a “bad deal is better than no deal”. The UK may as well hoist the white flag and sue for peace in Duff’s absurd model.
Theresa May Has Things Correct
“Not partial membership of the EU, associate membership of the EU, or anything that leaves us half-in, half-out. We do not seek to adopt a model already enjoyed by other countries. We do not seek to hold on to bits of membership as we leave. No deal for Britain is better than a bad deal for Britain.” Theresa May, 17 January 2017
Odds of No Deal
May’s position makes perfect sense mathematically. Nonetheless, Bloomberg writer Simon Kennedy repeats the nonsense A Bad Brexit Deal May Be Better Than No Deal After All.
Walking away with no regime for 230 billion pounds ($287 billion) of annual exports to the bloc and the 3.3 million Europeans in the U.K would be “perfectly OK,” says Foreign Secretary Boris Johnson. Not “frightening” at all, says Brexit czar David Davis.
But analysts are painting an entirely different picture of an outcome they view as increasingly plausible: An official in May’s government puts the chance of the talk collapsing at about 30 percent. EU negotiator Michel Barnier this week said the bloc should ready to deal with the “serious consequences” of a breakdown, such as longer queues at borders to how to handle transportation of nuclear materials.
Fearmonfering
Kennedy drones on and on about all the ways the UK would lose. Here are just two examples.
For manufacturers, World Trade Organization tariffs averaging about 5 percent — and twice that for cars produced by the likes of Ford Motor Co. — would be immediately imposed on trade with the EU, the market for 44 percent of Britain’s overseas sales. Farmers could face duties of around 40 percent and most industries would suffer higher import costs if Britain imposed its own tariffs on trade from the EU.
Jordan Rochester, a London-based strategist at Nomura International Plc, predicts the pound would slump towards $1.15, extending its post-referendum slump to almost a quarter.
Not once did Kennedy note what the UK might lose.
Let’s assume (I suspect falsely) the pound slumps to $1.15 from $1.25. That’s would take 8% off WTO tariffs averaging 5%. The UK would hardly get hammered in such a scenario, at least from an export standpoint.
In contrast, add another 8% to EU exports to the UK. Who is the big loser here?
Nonetheless, I suspect the odds of no deal are higher than most believe. Stubborn EU nannycrats will be to blame should that happen.
Merkel Hardens Stance
The Express reports Merkel TOUGHENS Brexit stance amid concerns over EU’s future as May prepares for talks.
In an interview with the Financial Times, finance minister Wolfgang Schäuble said: “We have no interest in punishing the UK, but we also have no interest in putting European integration in danger over the UK.
With Germany preparing for general elections in the autumn, fears over populist campaigns in other parts of the world – including Donald Trump’s election win, Geert Wilders’ narrow loss in the recent Dutch election and the increasing prominence of Marine Le Pen in France – has led to a surge in support for pro-EU campaigns.
The Germany finance ministry claims: “Any Article 50 agreement will have to include the UK’s assurances that it will honor the financial commitments it undertook as an EU member state.”
Norbert Spinrath, Brexit spokesman for Mr. Schulz’s Social Democrats, warned: “We expect the British to do the honorable thing. If they don’t, the EU can take them to the international courts.”
No Deal Better
Telegraph writer Edgar Miller gets it correct: Don’t worry about Brexit negotiations, no deal is better than what we have now with the EU
In response to Theresa May’s view that “no deal is better than a bad deal”, Donald Tusk – subsequently joined by Pascal Lamy and Jean-Claude Juncker – made it clear they believe such a scenario would, in fact, be bad for the UK.
While some of this rhetoric can be seen as the first plays of a negotiating strategy, the answer to this challenge is crucial for the UK Government to understand. The answer, based on our detailed analysis at Economists for Free Trade, is actually not as complicated as many will have you believe. Our work shows that not only is the WTO option better than a bad deal, it can actually be better than the deal we have at the moment.
First, however, we must deal with the myths surrounding what is misleadingly called the “WTO option”. It’s a misleading term because every option for the UK in its new trading arrangement will be a “WTO option”, given that the UK will take up its full (founding) membership of the WTO and will trade under its rules once we leave the Single Market.
In fact, there is no other way we can leave, regardless of whether we have done a deal with the EU or not. The WTO will be merely the referee in our trading relationships, as it already is with other trading nations of the world such as the US, Japan, India, and so on.
We can reduce tariffs across the board (including to zero) or, for example, reduce tariffs on selected goods that we do not produce in the UK. Most importantly, if we do not reach a free trade agreement with the EU, it will be the choice of the UK to decide what level of tariffs it sets against the EU and – consequently – the rest of the world. It is that one single decision that will decide whether the UK will prosper or not in this new trading environment.
So what happens if we remove tariffs against the EU (and the rest of the world), even if the EU (and the rest of the world) does not reciprocate? In summary, a standard world trade model shows unilaterally removing tariffs creates a long-term GDP gain of 4 per cent, a fall of 8 per cent in consumer prices, and an increase in Treasury revenue of more than 7 percent, compared to the status quo.
About half of this gain comes from eliminating our tariffs on goods imported from non-EU countries, abolishing our relatively few non-trade-barriers, and eliminating the CAP and its associated levies. The other part of the gain are tariffs on manufactured goods with the EU that average about 3.5 percent on our exports to the EU; about 4.8 percent on their exports to us. If we do not implement our 4.8 per cent tariffs on the EU, then we achieve the full 4 percent gain.
Clearly, this will be a better situation than we have today – a massive gain for the consumer – even though the EU may have raised tariffs against us, no other country may have reciprocated our zero tariffs, and we will have “fallen off the cliff” into the dreaded WTO.
Of course, it is also possible to pursue free trade through a series of free trade agreements with the rest of the world. Under this approach, the UK would not unilaterally eliminate import barriers but would attempt to achieve the same objective via negotiating such agreements.
Finally, producers need not suffer in order that consumers benefit. Our research shows that manufacturing – aided by Sterling’s lower exchange rate (likely to last for several years) – can prosper without protection. Even without the benefit of a lower currency, a modicum of productivity improvement coupled with new opportunities to re-source supply chains at better value from both the UK and the rest of the world will allow manufacturers to compete successfully.
Thus, the decision is not complicated, the WTO is not be dreaded, and there are clear economic benefits to the UK of embracing free trade, irrespective of how negotiations with the EU turn out. No deal really is better than the status quo and Mr. Tusk and his colleagues would do well to remember that during the next two years.
Edgar Miller makes perfect sense.
As I have stated many times, the first nation that truly embraces free trade will be a winner regardless of what any other nation does.
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It is a very rare treat to encounter a genuine free trade advocate.
Kudos to Edgar Miller.
Mike “Mish” Shedlock
Well now they only need 27 nations including the UK to agree. Based on past EU history of agreements, that will happen in 5, 4, 3, 4, 5, 6 ,7 ,8…….
On this, I think you are absolutely right Mish. Right now in the UK we are under the gun, but I just don’t understand why! Our NET!! contributions to the EU Budget are circa 12 billion euros annually.
That is greater than all the other EU members together (Except Germany) France pays half that. As Mr Trump has pointed out, most EU members are way below the 2% of GNP they are supposed to spendon defence. What are they going to do without our annual contributions to the The Budget, especially if they start their own Armed Forces?
I simply cannot understand how getting out can be anything but a good move for UK.
Andrew Duff is no doubt being paid by the EU or its sympathizers, so he’s just another presstitute….The UK has the whip hand here, because the EU is desperate for its markets. Case closed.
When faced with any truly complex decision, meaning a decision where outcomes are simply not knowable to much of any extent up front, Kent Beck’s advice stands: “Do the simplest thing that could possibly work.”
Not that could certainly work. Just possibly. Have as little invested in sunk decisions as possible, before moving forward. You can always go back and correct, once new information and experience shows that what you did could in fact not even remotely possibly work. And the less effort you put into the original decision, the easier it is to change tack down the road.
Britain’s negotiations should consist of saying good buy. Then wait until the actual, not merely anticipated and guessed at, pain points become much clearer. Then work on resolving those. Again following Beck’s pretty much universally applicable advice.
EU will use non-tariff barriers and paperwork for origin of goods to create havoc. Source of ALL components in a finished product to be documented. I fully expect such at EVERY border crossing between member states with associated delays plus extra delays.
German side have already alluded to the UK being an island and fantasy island at that. Last summer French did a dummy run of delays. They will leverage the island nature of the country.
No deal – at the end of 2 years all fishing rights return to UK. Orders for fishery protection vessels should be placed now and preparations made and discussions with 3rd parties commenced to take cod, haddock etc. The EU will slap 30% on UK fish exports. Chinese and others can’t get enough and can have it tariff free. No problem finding customers.
UK manufacturers and exporters should start to prepare for the worst outcome.
Open skies arrangement will fold – air travel costs increase. If it gets really nasty access to North Atlantic via air could be a problem too through British airspace.
It’s a mess, very complicated and fraught will potentially very negative consequences.
To a degree the EU have created this through zero pragmatism and telling people to live with it all or leave. UK then decides to leave.
“The EU will slap 30% on UK fish exports. Chinese and others can’t get enough and can have it tariff free. No problem finding customers.”
Or the UK can sell the fish to the Chinese at the EU price, and pocket the 30% for the exchequer.
For UK this negotiation is a sovereign political set of decisions, but on the other side of the table sits a bureaucracy. That is what EU countries have offered UK to negotiate with , their bureaucracy, non-sovereign and incapable of making sovereign political choice. It is a true insult, and the idea that it is possible to forge a vital relationship with other countries by having their shared bureaucracy dictate the terms of any agreement is a non starter. I have been through this, having to work with foreign bureaucracy when there was no higher ‘connect’, and it is chaotic and completely lacking in objective, leaving way too much space for opportunism in the hands of the non qualified who have punctual access to the might of a nation as leverage, but who are incapable of redressing the resulting imbalance that occurs from their position and attitude.
Exactly
Brussels holds all the cards. The English none.
Brussels have every intent of using Scotland, Ulster, and Wales as the ultimate weapon.
In your, no doubt “humble”, opinion!
I disagree. I think UK has a lot of very strong cards. To understand them, you have to understand the EU and how it works.
EU contributions are a factor but so is commitment to the EU stability fund.
I can’t remember the numbers but should shtf the UK would have to pay a massive amount to help stabilise the likes of Greece, Italy etc. even though not a member of the Euro.
UK is via European Stabilisation Fund bilaterally and indirectly via IMF. No ESM involvement, so figures not as high as first thought.
The problem is the ‘United’ Kingdom is not so united. Wales and England voted leave, Scotland and N Ireland voted remain. I imagine the EU will exploit these divisions as part of the negotiations.
The referendum was a mistake from the start, it was a lose-lose situation for the UK. Voting to remain would have meant giving the EU a free hand to pursue even more autocratic rule, with no possibility for the UK to influence the agenda, because it would have been pointed out that this is what the majority wanted. Vote to leave and now you have this mess. Best to not have had the referendum and gradually made changes to the EU whilst still part of it. Public opinion across the EU appeared to be suggesting a need for reform, which might have benefited from UK involvement.
Now both parties are stuffed, thanks to Cameron. QEII, last monarch of a United Kingdom?
Depends. Those in the know are seriously hinting at a Federal UK after Brexit. There is more for the regions by being in a Federated UK than an integrated EU.
Scotland outside the UK would not have GBP as a currency, have to wait for accession to the EU, pay about £1Bn p.a. to the EU (a number I read and don’t know where it came from) lose about £12Bn p.a. transferred from UK to Scotland and be subject to tariffs into England that is a bigger trading partners to Scotland than the EU is.
Now, if even half that comes about do you think Scotland will go independent?
I think they have more sense.
Personally I think England could prosper without the Scottish and Northern Irish into which we send funds. Both those regions would need support from elsewhere and I don’t think Ireland is in a position to support NI – I may be wrong.
The determination to ignore the benefits of Brexit almost amount to a conspiracy – self-determination, running one’s own affairs. escaping the jungle of EU regulations and diktats, being free of the European Court’s legal supremacy, and not having to shell out hard earned resources to the EU budget.
Quite simply, the “European Federal State” is a political religion
…owned by a set of bureaucrats.
Reblogged this on Ketan Deshpande MN and commented:
How Brexit transpires will have some great implications
This whole debate about good deals and no deals is a waste of time. There will be no deal anyway, so arguing over some kind of hypothetical agreement that exists only in fantasy is pointless.
The reality is that the logistics of getting all 27 remaining members of the EU to sign off on ANY deal with the UK is utterly impossible. No matter what the UK agrees to there will be some holdout that wants more (Gibraltar for Spain, financial regulations for Germany, etc, etc).
Not only will there be no “deal” (good or bad), there won’t even be a transition agreement to extend the negotiating period.
Nothing the UK government does can change this. It doesn’t matter if the UK employs the most masterful negotiating strategies known to man. It doesn’t matter if the UK tries groveling at the feet of the EU agreeing to anything and everything asked of it. In the end, the EU will never have the unanimity required to agree to any kind of new relationship with the UK.
Would totally agree.The reality will come home to all soon enough.
The tyre hits the road if no deal in 2 years as all existing Treaty obligations cease to apply.
The only transition period I see is one where some UK companies set-up EU operations to get around tariffs and some EU move on-shore to the UK for the same reason as UK is > 10% of total EU population with relatively high spend compared to the likes of Slovakia, Czechs, Poland etc
The reason the EU insists on a high penalty for Brexit is because other members are ready to bolt. Humpty Dumpty is already cracked beyond repair.
Bingo! We have a winner!
EU/Merkel are attempting to bully their remaining members by bluntly extorting the UK. It won’t work. UK will exit on it’s own terms (EU is powerless to stop them), and more EU members will eventually leave the union…
EU/Merkel tactics here will backfire.
Of course NONE of the ‘bad deal’ Brexit compensations, or should I call them ‘capitulations’ is coming from the sweat of any of the politicians. These losers are simply lobbying for their banking and political overlords, not representing their constituents. When, oh when are we going to stop referring to politicians as ‘public servants’?
They say no FTA until after exiting the EU then negotiations can begin & will be for a few years. Expect it to be cleared in 6 years after today, not much sooner.
Certainly the exit bill is #1 priority to the EU side and if that goes to the Hague that’s probably 2 years gone in an instant. There will be no exit deal only an exit.
Once 2 years are up all Treaty obligations cease to apply, important to note that.
America is definitely UK’s child. I can see distinctive genetic resemblances when it comes to sovereignty.
Thank God.
The EU is only there to stop Europeans slaughtering each other.
Who stopped the slaughter the last two times?
Sovereign UK, Sovereign USA and Sovereign Russia.
An independent UK is a part guarantor of European peace, ready to intervene, not so if we are not Sovereign.
Will the British really pay more for French Brie? Will they pay more for German BMWs? Oh please, do go on. The UK imports quite a bit from the EU, so why would the EU exporters decide to raise prices and reduce quantity? Okay, so the EU puts a tariff on UK goods and services. But the world will still buy from the UK. Oh, but what about the bureaucracy making it expensive to export to the EU? Not a problem, simply export to other countries willing to sign trade deals like the US and China. The EU is not in a position to dictate terms and Ms May knows it. The UK is in a position to start up small industries for export as well as local consumption and at prices below EU levels. It’s time to go long the Pound and short the Euro.
Time to onshore to the UK to look out of Europe.
17.2% of world population is in India alone.
The middle class there is growing rapidly.
There are UK-INDIAN ties.
Expect an increase if business there, just as a starter.
The one thing that joining the EU was to kill off a number of UK industries due to too much “competition” and EU regulation. By abandoning the EU the UK gets to go back to manufacturing many of those goods and providing many of the services they once had. The EU is a constant drain on resources and the only ones who really benefited was Germany, except for the refugee problem.
India poses a far different problem. Their ties to the UK are more indifferent given their history. Call it a love-hate relationship at best. On the other hand I expect more business ties to form between the US and other countries and the UK. England always imported more from the EU in general than they exported to that region. It’s time to go long the UK pound.
Ok UK, just relocate now to the EU the big guys who depend on free EU maket acces such as finance, pharma, automobiles etc and good luck for the rest to compete in the WTO arena with China, South Korea et company!
When the Pound will fall low enough maybe you will be poor enough to be competitive on costs.
Can we have an “ignore” button please.
Less than 50% of UK trade is with the EU and it’s falling as a %.
Your thinking is flawed as a weaker UK economy means Germany’s second largest net trading partner buys less.
Germany funds the EU.
Think about that for 2 seconds.
No UK contribution and Germany contributes less too.
To the credit of a few in the UK they want a win-win situation. Not so in the EU it appears where they lack understanding of the opportunity for mutual benefit.
No wonder they resort to slaughter every so often.
Mish what does no deal actually look like when it comes to existing trade.