Brexit negotiations hit a speed bump

Relations between the UK and the EU have hit a bumpy patch. Matthew Partridge looks at how this will affect Brexit.


Theresa May and Jean-Claude Juncker
(Image credit: This content is subject to copyright.)

At the moment it seems that UK-EU relations have hit a bumpy patch. After details of a supposedly disastrous dinner between Theresa May and EU commissioner Jean-Claude Juncker were leaked to the press, May responded by accusing Brussels of interfering in the upcoming general election. Meanwhile Europe is reportedly upping its demands for an exit fee from £60bn to a reported £100bn.

To assess how much of this is real, and what is just rhetoric, we've decided to go back to Charles Grant of the think tank the Centre for European Reform. You may remember that when we talked to him back in December, he shared his relatively pessimistic view of what was happening behind the scenes.

Nearly five months on, it's safe to say that he's still pessimistic. Until recently, "everyone thought that the UK position was moderating" as civil servants hinted that the government would be open to a transitional deal, between the time Britain left the EU and a more permanent trade agreement. Such a deal would temporarily allow UK firms to access the single market in return for accepting continuing freedom of movement, the jurisdiction of the European Court of Justice and budget contributions.

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However, May's meeting with Junker, and a less reported, but equally frosty, dinner with EU president Donald Tusk in April, suggests that her stance "is definitely not softening". Indeed, all the indications are that the PM still thinks that a trade deal can be agreed by the time the UK leaves the EU in 2019, a deadline Grant considers unrealistic. May also still seems committed to the idea of greatly reducing immigration, which could cause "a lot of ill will" on the other side.

Grant accepts that the widely predicted Conservative landslide could "give May the room to agree a softer Brexit", and some sort of transitional deal still seems very likely. However, in the end May will only take advantage of any greater negotiating room "if she wants to". In any case, if she does decide to go for a compromise involving continuing obligations, she will have "to take on and destroy the Conservative Right and its supporters, such as the Daily Mail".

Of course, it's unfair to solely blame May for the breakdown in relations. Indeed, "the positions of the remaining EU countries positions have definitely hardened". A mixture of "group psychology" and fears that "Brexit will blow a hole in Europe's budget" has led to "very strong solidarity between both donor and recipient countries". This has prompted the escalating financial demands, something that Grant bluntly describes as "extremely unhelpful" for the hopes of any eventual deal. While such a provocative strategy is not in the long-term interests of the EU-27, there is sadly "nobody pushing in the other direction".

In theory Emmanuel Macron's election as French president could push France (and Europe) in a more reformist direction, which could make them more open to a comprehensive post-Brexit trade deal with the UK. However, in reality Macron's position on Brexit is pretty much the same as Franois Hollande and other members of the "French establishment", namely that "giving Britain too generous a settlement will simply encourage populist movements elsewhere". After all, even with Marine Le Pen defeated, the battle over the future of continental Europe is not over yet, with Italy another country where a deeply Eurosceptic party stands a good chance.

Overall, Grant now puts the chances of a complete collapse in talks, followed by an exit on World Trade Organisation terms, as high as 20-30%. Even the best-case scenario is a Ceta-style deal (Ceta being the Comprehensive Economic and Trade Agreement between the EU and Canada), "which covers a handful of services but not the really important ones". These are unlikely to include finance since "the EU doesn't want to see the City of London to thrive outside the EU".

In any case, May's decision to leave the customs union will force both sides to reimpose controls at the borders and ports. This will hit farmers, manufacturers that export to Europe, as well as those retailers who rely on "just-in-time" deliveries from the continent.

One of the big hopes in some quarters was that Donald Trump's enthusiasm about doing a bilateral trade deal with the UK could either cushion the blow of leaving the customs union, or give Britain increased leverage in negotiations, by providing it with an alternative trading partner. However, Trump's administration seems to have changed its mind on the topic. This is partly because it is "waiting to see what we want from a future relationship with Europe". In any case, whatever he might have said on the campaign trail, "the UK will have to wait for the US to agree a deal with Europe" before negotiations with a bilateral US-UK deal can begin.

At the moment, Transatlantic Trade and Investment Partnership (TTIP) negotiations are currently "dead" due to the upcoming elections, most notably Germany. While they could resume next year after these elections have concluded (especially if Angela Merkel continues as chancellor), it will still take time to negotiate, so it is unlikely to be concluded by the time we leave the EU, so we won't be included in any agreement (though some people might consider this a good thing).

Dr Matthew Partridge

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

Follow Matthew on Twitter: @DrMatthewPartri