I do not understand the optimism in some corners that a deal will be reached.  Events in the last two days should open some eyes to the large and increasing chance there simply is no deal.

The Wall Street Journal reports European Parliament Votes to Toughen Stance on Brexit.

Highlights

  1. By a 516-183 margin, the European Parliament voted to tighten Brexit discussion rules.
  2. On the disputed divorce bill, which EU officials expect to reach €60 billion ($64 billion), European politicians said it should cover not just all commitments made by the U.K. during its time as an EU member, but also so-called off-balance sheet items. These items would include, for example, the U.K.’s share of any losses made by the European Investment Bank during the U.K.’s time as a shareholder.
  3. Parliament also warned the U.K. not to pursue any bilateral deals with EU countries or nations outside the bloc for as long as Britain remained a member.
  4. The parliament also said the U.K. shouldn’t use cooperation in security and defense as a bargaining chip for trade relations.
  5. The UK must heed the jurisdiction of the European Court of Justice (Financial Times).

Statement by Michel Barnier

“We are not proposing this to be tactical or to create difficulties. It is an essential condition to maximize our chances of reach an agreement together in two years” said Michel Barnier, the European Commission’s chief negotiator.

Michel Barnier Translated

“We are taking this tough stance as a tactical measure to create difficulties, to punish the UK and to give warning to others not to leave.”

To that end, the EU acts like a Mafia or gang enforcer. Once in, don’t try to leave.

Barnier’s statement minimizes the chance of a deal.

Enter Gibraltar

The Spain Report noted Former Conservative Leader Suggests UK Would Go To War With Spain Over Gibraltar Brexit Spat.

I am quite sure that is a sensationalist click-bait headline. Nonetheless, Eurointelligence discussed it.

It is easy to dismiss the war threats over Gibraltar as a tempest in a teacup, and Theresa May has laughed off the suggestion that she might go to war over Gibraltar. To us, however, the controversy started by the former Tory leader Michael (now Lord) Howard, points to a real risk that the Brexit negotiations could be derailed over Gibraltar and that the failure to reach an agreement on the future EU/UK relation could have serious consequences. We can envisage the following sequence of events:

1. The UK refuses to negotiate a separate status for Gibraltar as set out by the EU at Spain’s behest:

2. On account of Gibraltar’s airport, Spain blocks the air traffic part of either the Brexit transitional agreement – by convincing the rest of the Council – or the ultimate free-trade agreement with the UK

3. Air traffic between the UK and the EU is seriously disrupted as a result, either in 2019 or at the end of the transitional period two to five years later.

4. English politicians and tabloids construe this as a ‘blockade’ of the UK by Spain over Gibraltar;

5. A ‘blockade’ is a classic example of casus belli – Lord Howard gets his punitive expedition on Spain.

These events are not likely, but it is not out of the question either given the rhetoric of the past week-end. If the rest of the Council overrules Spain on the transitional agreement, Spain might even adopt an ’empty chair’ policy in protest for the EU’s lack of solidarity.

As we noted six weeks ago from this FT story, Spain has blocked revisions of the EU aviation agreements for four years now, on the issue of whether they would apply to Gibraltar’s airport which Spain claims was built on no-man’s land, outside Gibraltar’s territory.

Numerous Breakdown Points

Since all 26 nations have to agree to Brexit terms, plus the European Parliament, there are numerous places negotiations can break down.

  1. European Court of Justice
  2. Gibraltar
  3. €60 billion Brexit bill
  4. Bilateral deals
  5. Security and defense cooperation
  6. Fishing rights
  7. Corporate income taxes

UK prime minister Theresa May has two sensible options.

  1. Inform the EU it will not accept blackmail and will not start talks unless trade is considered at the same time.
  2. Just leave now and be done with it.

Time For Hardball

Option number two makes the most sense.

If May chooses option number one, she must threaten to remove fishing rights, not pay a penny of Brexit costs, start bilateral talks, and threaten to lower corporate income taxes again.

The EU can mull that over. I suspect however, the EU nannycrats would simply choose to let time run out.

The only advantage of option one is it lets the EU know it is not in charge of Brexit, while simultaneously suggesting a willingness to negotiate.

Optimism Seriously Misguided

The only grounds for optimism I see is the fact that both sides lose more if there is a messy agreement than if they negotiate.

However, the EU demands are so out of whack with reality of what May can accept, and it takes all 26 EU nations plus parliament to agree.

A core underlying problem is Brexit is a Religious Battle (And You Can’t Negotiate Religion).

No Deal Is Better Than a Bad Deal

At the top of the list of absurd Brexit advice is the notion that a bad deal is better than no deal. For discussion, please see Bad Brexit Deal Better Than No Deal? Mathematical Idiocy! Odds of No Deal?

The EU believes it has the upper hand and the UK will not just walk away.  Theresa May needs to shatter that belief now.

Mike “Mish” Shedlock