EU Referendum


Brexit: options have costs


06/10/2016




It seemed to me that Mrs May took less care with her closing speech yesterday, giving hostages to fortune that she may end up regretting. Anyone offering a "fully sovereign and independent country" in this era of globalisation simply is not telling it straight.

But, aside from the crowd-pleasers, the Prime Minister's Brexit aims to give British companies the maximum freedom to trade with and operate within the Single Market, which leaves open the possibility of continued participation in the EEA.

Mrs May tells us that we are not leaving the European Union only to give up control of immigration all over again, and we are not leaving only to return to the jurisdiction of the European Court of Justice. But, since Efta states in the EEA don't fall under the jurisdiction of the ECJ, and the "safeguard measures" give us some control over immigration from the EEA area, it seems our options are still open.

What gives us greater optimism that this might be the case is the growing realisation that the "lunatic fringe" options have serious price tags attached.

That said, the claim that crashing out of the Single Market could cost banks and associated businesses in the UK almost £40 billion is probably an exaggeration, based on the assumption that cross-channel trade would dry up completely. Yet, as is evident from Monograph 14, there will be at least some degree of "equivalence" that would keep our financial services trading.

Exaggerated or not, though, the message is getting through that we are going to need a "transitional deal" with Brussels - to avoid a "cliff-edge" for exporters and the City of London after we leave.

The Financial Times is telling us that a smooth transition over several years after Brexit is a key demand for the City and for countries such as Japan, all of which fear disruption in trade while Britain and the EU hammer out a new free-trade agreement.

One senior banker is said to have complained that people in the sector were "shooting themselves in the head" on Tuesday after Bloomberg cited a senior figure in Theresa May's administration saying her team had privately dismissed an interim deal with the EU.

The encouraging thing is that this claim has been "strongly denied" by Mrs May's allies. Several ministers have told the Financial Times that a transitional trade deal was likely to be a key part of Brexit negotiations that begin next year.

"We are working to deliver the best possible exit from the European Union and it is completely wrong to suggest we have ruled in or out transitional arrangements", a government spokesman said – putting the possibility on an official footing.

And just to stuff the "lunatic fringe", it is even being suggested that the UK might continue to pay into EU coffers as an entry fee to the Single Market, pending agreement of a longer-term settlement. This is a recognition that there will most certainly be a gap of several years between Brexit – if it happens in 2019 - and the conclusion of that longer-term deal.

What is not yet being talked about with any clarity, though, is the probability that, to facilitate the Brexit process, the EU itself will need to agree a new treaty. After all, when a new member joins, there has to be an accession treaty. When the UK leaves, therefore, there will need to be a "secession" treaty.

This will be needed to regularise administrative details, such as QMV weightings, number of MEPs, and to remove any mention of the UK from the treaties. And if the most recent accession treaty – for Croatia - runs to 124 pages, the UK secession treaty might be a fairly substantial document.

It is this treaty which would provide the opportunity for making transitional arrangements, although the "colleagues" need to get cracking if they are to deliver within the two years of so that the Article 50 process is set to allow.

In the meantime, there are a lot of adjustments that are going to have to be made. Back with the Financial Times, we have Iain Anderson, head of public affairs group Cicero - which includes some of the biggest banks among its clients – observing that some ministers are not in a "particularly receptive mood" about Brexit.

"There is a 'la la la la la la' moment going on. Financial services companies are not the top priority at the moment", he says. "This is all about the message that they want to govern differently. Finance for its part needs to learn how to talk differently to this government".

But at the heart of the problem is the intervention by big business on the "remain" side of the argument, crying "wolf" over the perils of leaving the EU – when in fact they should have been talking about the Single Market. Had they been more honest, they might have a little more credibility when they complain about the costs of Brexit.

But, if at last, a bit of reality is creeping in, it comes not a moment too soon.