Unless you’re fond of ambling, it’s the choice of the destination that usually determines the path you take. The Brexit negotiation is no stroll in the park, but it now looks like one of those cases where it is the path that will determine where we end up.
Speaking before the European Economic and Social Committee this week, European Commission Brexit negotiator Michel Barnier painted a black picture of a post-Brexit world in which the UK failed to come to terms with the EU. A return to WTO rules for trade between the two markets; high customs duties, burdensome controls and higher transport costs. He insisted that even if a deal is reached, “frictionless trade” is unachievable.
The EU and Japan this week announced a political agreement on an FTA between the two sides after four years of negotiating. This is certainly big news in the generally calm waters of global trade negotiations. An agreement between the EU and Japan would create the prospect of the largest free trade zone in the world by GDP - the EU and Japan together account for more than a quarter of global GDP. But this deal had seemed rather becalmed a year ago. So, what is the significance of the ‘political’ in the ‘agreement’?
The setting before Parliament of the UK government’s legislative agenda for the two years leading up to the expected exit from the EU, has provided a further opportunity for ‘soft’ Brexiters in the UK to rekindle a debate about how detached from the EU the UK should aim to be. After the UK election, my colleague Jade Rickman and I examined the renewed debate over the possibility of customs union between the UK and the EU. Last week, a group of UK opposition MPs tabled an amendment calling for the UK to remain in “the EU single market” and “the customs union”. This would certainly be a very soft Brexit indeed.
Tax rises are now back in the centre ground of the UK economic discourse, in a way they have not been for at least a decade. This shift should put businesses and investors on notice - the era in which they could safely assume an ever-friendlier approach to taxation may be at an end.
The question of UK membership of NAFTA seems to be doing the rounds again. This is not entirely surprising. Both Australian and Canadian trade officials – including Ottawa’s former chief NAFTA negotiator - have recently called for the UK to join existing trading blocks, such as NAFTA, as an easy fix to potential Brexit-related disruptions to UK trade and production. The idea in itself is not new – back in the early 1990s, some members of Congress in the US hoped to convince London to swap the EU for NAFTA. But, with Article 50 negotiations now under way, there are some in London and Washington who would like to see it seriously considered.
Sunday’s Italian municipal election results demonstrated one of the golden rules of Italian politics – never underestimate Il Cavaliere. Former Prime Minister Silvio Berlusconi’s party Forza Italia and its ally, Lega Nord, had a string of very good results in some of Italy’s largest cities, with victory in the erstwhile left-wing stronghold of Genoa being the most symbolic.
After an eight-month hiatus, the EU looks finally set to have a new Commissioner in charge of its flagship, the Digital Single Market (DSM) agenda. Mariya Gabriel is a former MEP, and it showed, in an effective hearing before the European Parliament, which is now certain to rubber stamp her appointment. This support matters for Gabriel as she will need to mobilise MEPs to publicly back her agenda, particularly on issues where member states in the Council are proving intractable. Gabriel acknowledged that she had two years remaining in the post, and, rather than proposing a slew of additional reforms, her primary responsibility will be in cajoling MEPs and member states into finalising proposals that are already on the table. Her main task will be implementation rather than policy formulation.
I listened this week to SSM head Danièle Nouy defending the sale of Spain’s Banco Popular to Banco Santander in front of the ECON committee of the European Parliament. It was notable how hard Spanish and Italian MEPS in particular pushed her on the ECB’s declaration that the transfer of ownership had been a success for the SSM and the EU’s new approach to resolution and recovery. Nouy implied that the SSM process couldn’t have been more seamless: producing a win for the bank’s depositors, Spain’s taxpayers and, ultimately, the ECB.
Much has been written at the launch of Brexit negotiations today about the time remaining for negotiators. Michel Barnier has set a deadline of October 2018 for agreeing a withdrawal treaty, which may or may not include an outline of the future UK-EU trading relationship. This is to allow ratification by the European Council, European Parliament and – where necessary - national parliaments in the EU27. The UK parliament also plans to vote on the deal before the legal deadline of 31 March 2019, and the current balance of power in Westminster makes that far from a formality.