• There will be an announcement of an announcement
• Negotiation will come in waves
• We can be certain of more uncertainty
One thing for certain, there is a lot of uncertainty around. But with a new Prime Minister and her cabinet in place, perhaps we can start to conjecture what our future relationship with the European Union and the rest of the world might look like and how it will be brought about.
And reducing uncertainty is critical to safeguarding our economy in the coming times as it is the biggest factor holding back business investment and consumer spending and thereby the biggest factor in the risk of recession.
So what do we know?
We know that we are going to leave the E.U. – no ‘associate’ status for us – and we know that the three key characters conducting the negotiations are hard-line Brexiters; the Johnson-Davis-Fox team is not far short of one led by Farage, Cash and Tebbit.
We know Theresa May is doubtful we will be able to negotiate full access to the single market and have control over immigration; we know David Davis, on the other hand, thinks it possible. If May is correct, some concession will need to be made somewhere.
The announcement of an announcement
Focussing on process rather than content, an early announcement of plans will help support business confidence, both foreign and domestic. Given the speed of her election to her post, May is unlikely to have such clear plans right now but giving the markets a date for when she will, will probably suffice in the short-term.
Philip Hammond has said there will be an Autumn statement as usual, one would expect a clear view of the post-Brexit goals along a similar timescale. We are moving into the summer and nothing happens in August anyway – Hollande will be on the beach in Cannes, Renzi in Sardinia and Merkel will be in her office working hard.
The more clearly the parameters of the end vision are laid out with timelines of how they will be reached, the greater clarity business will have, the greater the confidence they will have to plan and invest, the smaller the hit to the economy.
Waves of negotiation
Sometime later, Article 50 will be triggered and negotiations will begin, taking place in waves. Firstly, exit terms will be discussed, then the highest priority elements of the new model, then next highest priorities and so on. Again, this approach will minimise uncertainty since the most important pillars will be agreed and publicised as soon as possible and the further we proceed, the smaller the tweaks become.
Domestic law would probably go through similar waves. One law would be passed declaring all current E.U. legislation will continue to apply within the UK and would then be followed by prioritised waves of tweaks.
Following this process of communication and phased negotiation gives the highest chance of keeping market and business confidence and so we can hope it is the procedure they will follow.
Content, however, is another matter.
Can we conjecture how the end goal may look like?
It is difficult, to be honest. It depends who out of May or Davis is really leading these negotiations. Davis, quizzed by journalists as he entered Downing Street on the acceptance of his position, implied strategy would be agreed on a collective basis. Indeed, Lord Mervyn King and others have suggested the team should be cross-party, King in particular thinking Ed Balls and Vince Cable would be excellent possibilities for such a team.
Whoever it is, it would make sense to start with an existing model as the reference point (eg, Norway plus or minus) – it would be the easiest for people to understand and would be the quickest to reach. Building a relationship from scratch will take years if not decades, but cutting, pasting and tweaking will be far quicker.
The promises of the Leave camp suggested a model where we had full access to the single market, full control over our own borders, full financial services passporting and zero contribution to the E.U. budget. Really. Davis still argues this will happen but he has at least considered the possibility it might not.
And if not, what will give?
Access to the single market and control over borders already exists
Interestingly, Article 112 of the EEA treaty (that is, the Norway model) allows states to ‘take unilateral action to restrict freedom of movement in the event of serious economic, societal or environmental difficulties’. Is this enough for the Brexiters? Probably not but it is not too far from something that may be acceptable.
Another very high priority for the UK government would be to safeguard London’s position in the financial services. But Frankfurt, Paris and Dublin are already making overtures to banks who may want to move. On the other hand, MIFID2, new financial directives commencing in 2018, are likely to provide a lot of the passporting rights the UK is after anyway. All of which means to protect these, the UK will have to make some concessions but it is not clear yet how much.
Those concessions will probably be in the scope of our access to the single market and in our budget contributions – we will still pay for access but less than before.
Will this be quick?
David Davis thinks so. He thinks agreement will be reached within two years and within the same timeframe deals will also be struck with all our major trading partners. For this to be the case, the 20 trade negotiators currently in the Civil Service will need to do a lot of overtime. That said, one paper published by the LSE suggested it could all be done in 7 days, with the 7th being a rest day. Who knows?
How quick it is depends a lot on how amenable Europe is to any suggested model and we haven’t considered that yet. In fact, it is remarkable how few British politicians or commentators have considered that there are other parties involved and they may have an opinion different to our own.
Relationship is very important in negotiation and one might consider a Merkel-May axis could conduct these talks in a friendly and rational manner. But fronting the team with Davis, Fox and Johnson is likely to be inflammatory. Emotions are riding high amongst many European parties and these are not to be ignored. The opportunity for them to punish the likes of Johnson and Davis is likely to be too tempting to pass by.
Don’t forget, the UK will now be seen as a competitor rather than a partner. Davis says as much himself and indicates a reduction in taxes and significant de-regulation as a way of increasing UK competitiveness. Simple Prisoner’s Dilemma strategies suggest that Europe are unlikely to be too co-operative in such circumstances.
So, are we any clearer?
In conclusion, do we have a better idea of our future than before? Perhaps some, as a best-practice process becomes apparent and the range of possible models narrows.
But if we have learnt anything from recent weeks, it is that there are many twists and turns to come. Uncertainty still abounds, that is one thing that is certain.