The latest commentary from leading lights in Europe and around the globe [G20] paint a bleak picture for short term certainty. The Japanese felt compelled to weigh in with a 15 page ‘’Dear Theresa’’ letter while former EU Commissioner Michel Barnier, the lead negotiator for the European Commission, claimed to be ready to negotiate “tomorrow” despite not having a Council mandate to do so. The European Parliament has appointed Guy Verhofstadt – who has previously spoken of a two tier Europe – as its lead negotiator. In London, campaigns are being put together to define what exactly was meant by the referendum vote with ‘’hard’’ and ‘’soft’’ Brexiters marshalling forces to sway the Government. Brexit Secretary David Davis’ attempt to stake out his ground on Monday was derided by opponents on the day, and rebuffed by Prime Minister Theresa May on Tuesday.
Against this backdrop, a few significant shifts are taking place that have gone unrecorded but pose significant issues for the period prior to any withdrawal and possibly afterwards. In Brussels, the EU institutions are now expressing their own regret about the apparent muzzling of the UK voice in debate on policy and legislation. The strong UK presence in counterbalancing more interventionist Member States is waning, especially in areas like the Digital Single Market. Rumors abound about hardening of regulatory restrictions in asset management and prudential capital requirements. The Commission, long expert at finding the median point in any debate, is having to recalibrate its policies as the UK voice diminishes.
The upcoming European Council Summit in Bratislava – without the UK – is now drawing out the protagonists. Italian Prime Minister Renzi has openly called for a two speed EU, while Greek Prime Minister Alexis Tsipras tries to take advantage of the crisis to create an anti-austerity coalition of Mediterranean countries. Put this against a backdrop of upcoming elections and referenda in the next year – Hungary, France, Spain, Germany, Netherlands, Italy – an you have cocktail of events to radically alter the EU approach to the Brexit negotiations. The only certainty is that the European Commission and Parliament continue to double down with their “all four freedoms or no single market’’ federal approach.
UK Chancellor of the Exchequer Phillip Hammond, Foreign Secretary Boris Johnson and Secretaries of State David Davis (Brexit) and Liam Fox (International Trade) continue to woo British business to give them clout in their upcoming bun fight at Cabinet. With certain sectors receiving Treasury favor, the race is on to secure pole position for the inevitable compromises which will hit industries to varying degrees . The bespoke nature of the upcoming negotiation demands activism by industry. If not compliance departments will swell to record levels to alter business requirements leading up to and post deal.
The lead in to any Article 50 trigger is creating a new dynamic in Brussels and elsewhere. Hopes in some quarters of never having to trigger Article 50 are growing given the reluctance of the PM to delineate a date much beyond 2017. How much is the recent boom in the stock market less about proving that Brexit was not so bad, or simply the calm before an Article 50 trigger storm? The result is that the UK is caught between pressure from within and without to get on with it, and the desire to marshal its troops and plan before it starts. Businesses like banks and energy companies which take much more than two years to implement any regulatory change are calling for an early commitment to transition periods. So buying time is much more than the UK Government getting its act together but an element of tactics to get the best deal and secure business behind the Government.
The current course will soon become unsustainable – each day assaults the ‘’give us time to prepare’’ motif whether from impatient EU capitals, die hard Brexiteers or frustrated business. The only respite could come from the slowly bubbling battles being fought by EU Member States, but at some time the UK Government’s hand will be forced.