An outbreak of realism in Britain over Brexit
There has been a shift in what the UK believes it can achieve in EU talks
This has been an important week in Britain’s approach to the Brexit negotiations. Until a few days ago, Theresa May’s government appeared vague in its stance on the talks, providing little detail about what kind of Brexit it seeks. The publication of seven official papers by Whitehall over the past 10 days marks a shift and suggests the UK is becoming more realistic about what it can achieve.
The most significant paper concerns how the UK and EU could resolve future disputes over trade standards and rules. Until now, Britain has been tied by Mrs May’s insistence on leaving the remit of the European Court of Justice. However, London now recognises that (in the words of one minister) it will have to keep “half an eye” on the ECJ if the UK is to retain a privileged trading relationship with EU members.
The government has also been a little clearer about its intentions as regards the customs union. Britain will leave the customs union but it wants a new long-term agreement that replicates present arrangements. Precisely how this will be achieved is left unclear. But Britain’s position paper helps to soften talk of a decisive departure from the EU, mitigating the potential economic damage of Brexit.
The May government has one overall aim in publishing these papers now. It wants to persuade the EU to move from phase one of the talks (the divorce) to phase two (the wider trading relationship) at the next big meeting of EU heads of government in October. UK ministers know the clock is ticking towards departure and they want to make progress towards a final deal.
However, it is unclear whether Brussels will agree to the UK’s demand. EU leaders do not want to blur their insistence that there should be sufficient progress on three issues (rights for European expatriates, the Irish border and the UK’s financial settlement on departure) before they move to phase two. And while the UK has produced papers on the first two of these issues, it has produced no paper on the third, which is in some ways the most politically charged.
Even so, it is striking that foreign secretary Boris Johnson has on Friday shifted language on the financial settlement. A few weeks ago, he said the EU could “go whistle” over demands for a hefty bill. Now he is more emollient. “Of course we will meet our obligations,” he told the BBC on Friday morning. We are law-abiding, bill-paying people. We will certainly have to meet our obligations.”
Many commentators are struck by how the government is sounding more realistic on other fronts too. The cabinet now agrees on the need for a post-Brexit transition lasting three years, and on the need to grant generous citizens’ rights for EU nationals. There is also consensus about the potential influence of the ECJ. As Rupert Harrison, the former adviser to chancellor George Osborne, tweeted this week: “A sensible UK approach is hiding in plain sight.”
Whether this will be enough to take the UK-EU talks to a new and more harmonious level remains to be seen. Financial market operators are clearly worried by the prospect of a stalemate. One sign of their concerns came on Wednesday when sterling fell to its lowest closing level against the euro for eight years. Hans Redeker, global head of forex strategy at Morgan Stanley, forecasts euro-sterling parity by the end of this year. For analysts such as him, the UK economic environment looks increasingly fragile.
Please use the sharing tools found via the email icon at the top of articles. Copying articles to share with others is a breach of FT.com T&Cs and Copyright Policy. Email licensing@ft.com to buy additional rights. Subscribers may share up to 10 or 20 articles per month using the gift article service. More information can be found at https://www.ft.com/tour.
Article 50: The Brexit divorce paper
Further reading
Whittling away at Brexit
Martin Kettle writes that the case for Britain to remain in the EU’s single market and customs union is growing stronger and more irresistible by the day. (Guardian)
Not whistling now
Boris Johnson has conceded that the UK will pay money to the EU as part of the Brexit process. He previously said the EU could “go whistle” over a reported bill of between €60bn and €100bn. (Politico.eu)
The Efta option
Carl Baudenbacher, the President of the Court of the European Free Trade Association (EFTA) — which judges cases concerning Iceland, Liechtenstein and Norway — argues that Britain could use his court to resolve disputes.
Hard numbers
From FastFT Not quite parity?
Paul McClean writes: The pound will continue to slide against the euro in the coming months and will take longer than previously expected to recover, but is unlikely to reach parity with the single currency, according to analysts at ING.
Foreign exchange experts at the bank have revised their forecasts for euro-sterling, and now forecast more short-term pressure for the pound in the face of a crucial month of political events, with the Tory party conference, the final round of opening Brexit talks, and the EU summit all to come in October.
They also forecast a more gentle recovery; having previously thought the euro would retract to £0.80 against the pound by the end of 2018, they now forecast it will not fall below £0.85 by then.
But Viraj Patel, head of foreign exchange at the Dutch bank, insists that parity with the euro is not on the horizon, unless the UK suffers “a nightmare Brexit scenario” with a “complete breakdown” of negotiations.
“We do think the growing consensus within Theresa May’s cabinet over a transitional arrangement means that the tail risks of a cliff-edge Brexit are diminishing,” he said, adding that progress towards a transition deal was also likely to boost the pound.
ING also argue that the pound is “extremely undervalued” at present, with euro-sterling 20 per cent higher than it should be, and also note that parity with the euro would not be “in the economic interests” of the Bank of England, given its contribution to higher inflation and squeezed household incomes.