Former PM of Italy: Brexit could create a two tier Europe

161017-brexit-b — Enrico Letta: Brexit could spark a "grand agreement" and create a two-tier Europe

Over the past few months I've interviewed a wide range of experts, including diplomats, academics and senior civil servants, for one of MoneyWeek's sister publications, asking them about their views on Brexit. However, recently I spoke to someone who has direct experience of leading, rather than just administering, a country.

Letta is reluctant to make any definitive predictions. But, like other people we've talked to, he admits to being baffled by the internal battles that seem to be going on inside Downing Street. In particular, he notes that the foreign secretary, Boris Johnson, and Theresa May seem to have radically different ideas about the type of Brexit they want (I interviewed Letta before the Conservative party conference). This makes it impossible to know what the British government wants; something that will need to be resolved before we start proper exit negotiations with Europe.

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However, Letta is certain that when Britain does make up its mind and begin to talk to the rest of Europe, it won't find a lot of sympathy for the idea of keeping unrestricted access to the single market while winning concessions on a range of areas. Specifically, Letta warns that we "should not underestimate the role that the European Parliament will play". Not only has it insisted that any deal must win its approval, but has appointed several negotiators to fight its corner in any talks. Significantly, it has chosen ones who are strong supporters of European integration, and are unlikely to put this at risk by making too many concessions.If the European Parliament is going to take a hard line, the individual national governments are unlikely to be any softer. This is because domestic politics will also force national governments to refuse concessions. Letta thinks that each of the three main candidates Nicolas Sarkozy, Alain Jupp and Franois Hollande are likely to take similar attitudes to the UK. Additionally, Germany, Spain and Holland are also likely to go to the polls over the next year. However, Letta is confident that whichever way December's vote on constitutional reform goes, there will not be early elections in Italy.

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In terms of specific issue, Letta thinks that freedom of movement will be at the "core of discussions" and that it will be "very hard" for the UK to get concessions on this issue, without losing access to the single market. The City of London is likely to be first in the firing line, with cities such as Paris, Frankfurt and Amsterdam "looking for opportunities to take business from London". In his view, the best that the City can expect is "fragmented, partial access" to the continent and only after "several years of tough negotiations".

So what is the most likely outcome? In an ideal world, Letta thinks that Brexit could be an opportunity "for a grand agreement" that created "a two-tier Europe that had the eurozone at the core, with the non-eurozone and EEA countries around the side [Sarkozy recently floated a similar idea of a new treaty]. However, Letta thinks that the current political climate makes this completely impossible. In any case, any arrangement would involve freedom of movement. As a result, Britain is likely to end up with a much looser "a la carte" deal with only partial access for goods and services.