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by Mish

It’s a symbolic victory for the EU. The bottom line is the UK can walk away anytime and there is nothing the EU can do about that.

Brexit Debate – Mish vs Financial Times

FT: Britain’s decision to invoke Article 50 on March 29 helps the EU achieve one of its Brexit goals: seizing from the UK control over the timing and structure of the negotiations.

Now that Theresa May’s government has confirmed the date for formal notification of the start of the two-year divorce process, the UK has ended a period during which the EU could do little more than watch and prepare for the start of talks.

Henceforth, the other 27 members of the bloc will have much more control.

Mish: Seizing control is nonsense. In one sense it was a given. The clock starts ticking the moment chapter 50 is filed. So nothing was seized, it was handed perforce. In a second sense, it’s not realistic. The EU is not really in control of much.

FT: In the wake of the UK’s vote last June to leave the bloc, senior EU officials were convinced that Britain would refuse to trigger the formal divorce process — because of the tactical drawbacks of working to a two-year deadline.

Instead, they expected London to try to first negotiate exit terms, then invoke Article 50 for only a “juridical minute”.

Mish: Here’s a one-word summation: wrong. More wrongness is guaranteed.

FT: “The [EU-27 leaders] understood that their strongest chip is time pressure,” said one of the principal figures involved in EU Brexit preparations. “They did not want to give that away.”

Mish: Question: Pray tell what good did it do them? Has it worked at all, in any sense?

FT: The EU’s next attempt to maximize its leverage will be through its guidelines for Brexit, which lay out the bloc’s priorities for talks. This public document is expected to be adopted by EU-27 leaders in late April or early May. Although its content will depend on Mrs. May’s notification letter, some recent drafts run to around six pages, according to diplomats.

Much of the detail will be left to separate confidential negotiating guidelines, which will take a further month to agree. But for some EU diplomats, the release of the public guidelines will be a critical moment. “This is our best chance to sober up the Brits,” said one senior EU diplomat from an anglophile northern state.

Mish: EU negotiators still think they can sober up the UK. It is the EU clowns that need sobering up.

FT: One of the main possible causes of tension is EU officials’ push to delay talks on a future trade deal until Britain has agreed on principles on an exit bill of some €60bn and the rights of EU migrants.

“It’s the British position that the negotiation for leaving and the negotiation for a future arrangement will happen in parallel, whereas it was the European position up to now that this would be sequenced,” said Michael Noonan, the Irish finance minister. “That difference has to be overcome.”

Mish: Do tell, why does the difference have to be “overcome”? More accurately, how can it be? Things will either happen in parallel or serially. Is there a “half-parallel” construct?

FT: Some EU officials strike a more uncompromising line. “What people are worried about is that the talks could drag on and on and on,” said Johan Van Overtveldt, Belgium’s finance minister. “Even those who don’t want to punish the UK will be very careful not to give Britain too good a deal.”

Mish: The desire to punish the UK is strong. To not punish the UK will require 27 nations to agree. Clearly, there is something more uncompromising than “half-parallel”.

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FT: Michel Barnier, the EU’s chief negotiator, wants member states to bolster his hand by issuing a directive that covers only the exit bill and citizen rights. When formal talks start in late May or June, Mr. Barnier could then say talks on trade were simply beyond his mandate, according to EU officials.

Such tactics may open up the first cracks in EU-27 unity. Some member states and even some European Commission officials are less concerned by the exit bill and would not want the divorce to poison future EU-UK relations.

Mish: Cracks are a given. Heck, crevasse is likely a better word. But nothing can be done unless all 27 nations agree.

FT: Britain is banking on Mr. Barnier being overruled. David Davis, Britain’s Brexit secretary, claims there is “slight schizophrenia” on the EU side: “Most of them, nearly all of them, are sympathetic [to the UK case for parallel talks] but there will be an issue of not breaking the solidarity of 27.”

Mish: I am unsure if the UK is banking on the EU doing anything. If so, it may be unwise. The same applies to the EU banking on the UK to do something specific.

FT: Mats Persson, a former Downing Street adviser now advising on trade for EY, noted an emerging “mismatch in perceptions” that could kill the process. “Neither side is thinking the other would ever risk a no-deal scenario because of damage to trade, financial stability, and geopolitics,” he said. “In reality, there are players on both sides who are genuinely contemplating this option.”

Mish: I side with Mats Persson.

FT: Stephen Adams of the Global Counsel advisory group said the problem with Article 50 “is not that it is complicated but that it is relatively simple”.

“It provides limited guidance and leaves a lot to political interpretation. It also starts a ticking clock and that is what makes it so different,” he said. “You are working against time. And time, in this case, is everybody’s enemy, including the EU, because two years is not long to get an agreement of this kind.”

Mish: Time is another reason why Persson is likely correct.

Sensible Deal Likely?

Wolfgang Münchau says the EU should not seek to earn a quick buck, nor the UK to dodge direct costs. Münchau concludes A Sensible Brexit Deal is More Probable Than You Think.

The fight over the UK exit bill should not be as difficult. There is talk, unconfirmed, about €60bn. This is financially not in the same league as the great fights of the past. The problem about the exit bill is lack of legal basis and precedent. The treaties are silent; there is no rule book.
The problems are solvable as long as both sides adhere to a simple principle: that Brexit should be an opportunity neither for the EU to earn a quick buck, nor for the UK to dodge the direct costs to the union that will result from its decision.
While it is only fair for the UK to pay for the costs of Brexit, it would not be fair for the EU to extract a price for market access. Fortunately, there is an ample choice of numbers between zero and 60bn.
There are 18 months for the two sides to discuss the details of the Article 50 exit procedure. This will not include a trade deal, only the terms of the divorce. Separately, the EU and the UK will negotiate an interim arrangement that would remain in place until a final trade pact is negotiated and ratified. The interim agreement would take effect after Brexit takes legal force.
It would be reckless to predict that all will go smoothly. On the contrary; this will be as bitter and hard fought as any of the big battles of the past. What I do see, however, is that both sides have more to lose than to gain.
Every political process is prone to accidents. But I am really struggling to identify a single insurmountable obstacle to a deal. My advice, especially for angry Remain supporters, is to take a deep breath, accept that Brexit will happen and focus on how to reconnect with the EU after Brexit. There is much to play for.

Final Word

I certainly agree that both sides have more to lose than gain by a messy Brexit. Yet, the math remains, all 27 nations in the EU have to agree to the deal. They need to do so in 18 months or so and sign off on it within two years.

The EU could not conclude a trade deal with Canada in seven years.

The CETA free trade negotiations between Canada and the EU started in October 2008 and concluded in August 2014.

On February 15, 2017, the Guardian reported European Parliament Passes EU-Canada Free Trade Deal Amid Protests.

Somehow we are supposed to believe a messy divorce will be a faster process. That’s possible, but color me skeptical in calling such an event likely, especially if one insists most loose ends will be tied up.

Mike “Mish” Shedlock