Theresa May Capitulates on Brexit Settlement, Agrees to Pay Full Liabilities; What Will Brexit Ultras Do?

November 29, 2017
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The Government appears finally to be recognizing how weak its Brexit bargaining position is and how desperately it needs to avoid a “no deal” outcome. According to the Financial Times, Theresa May’s emissary Olly Robbins capitulated to the EU’s demands on the Brexit divorce bill. That has the potential to resolve one of the three issues where the negotiations needed to show sufficient progress for the European Commission to agree to allow the negotiations to move on to discussing “the future relationship” meaning among other things, trade. From the Financial Times:

According to several diplomats familiar with the talks, the UK would assume EU liabilities worth up to €100bn although net payments, discharged over many decades, could fall to less than half that amount.

Prime minister Theresa May is expected to formally present the breakthrough offer next week as part of package deal if agreement can be reached on the other issues of citizen rights and the contentious question of the border between Northern Ireland and the Republic.

Note that the story was originally reported at the Telegraph, but the pink paper appears to have independently verified it. However, Reuters got a frostier response:

A British government official said they “do not recognize” this account of the talks going on ahead of a visit by Prime Minister Theresa May to Brussels this coming Monday.

However, the press reports indicate that Britain has conceded (at least for negotiating purposes, as opposed to domestic messaging) to the EU’s position, that the UK had a long list of outstanding EU commitments that needed to be cash settled and the two sides needed to agree on an approach as to how to value them. Heretofore, the UK had effectively taken the position that the EU was demanding a payment for the privilege of exiting, and they were engaged in what amounted to a hostage negotiation. From the Independent:

Sources in Brussels suggested to The Independent that talks have seen the two sides’ stances begin to align over the “methodology” for calculating the settlement, with the outcome increasingly acceptable to both sides….

No figure has been explicitly agreed upon, but sources in Brussels highlighted that the EU had always been pushing for clarity on how the bill would be drawn up as opposed to an outright number.

Various UK papers are headlining the net value of the UK offer, given the lower value of payments staggered out over time, as between €45 and €55 billion, consistent with the Financial Times’ summary. This is finally within hailing distance of the net figure the EU had bruited about most often, of €60 billion. And if that €50 billionish net result is net of the UK’s EU assets, which are at most €10 billion (€5 to €7 billion is a reasonable guesstimate), the two sides may finally be aligned on financial terms.

However, the noises from the EU side seem more cautious, of the “progress is being made” sort.

Mind you, as we and other observers have pointed out, the UK is far from having come to grips with the Irish border conundrum, as we will discuss shortly. Nevertheless, this is a huge climbdown for the Government. Strikingly, it is also at odds with recent press report of hard core Brexiters Boris Johnson and Michael Gove having gotten the upper hand in the seemingly never-ending power struggle in the Tory party and among May’s own ministers over Brexit. And let us not forget that May offered the EU a major concession in her speech in Florence, in which among other things she offered a hard currency payment for the UK to remain in the EU during a transition period. The uproar among the Tory ultras led that offer to look as it if was a deflated trial balloon.

Many Brexiteers seem to be rationalizing this concession as “buying” a trade deal when it does no such thing. First, there’s no reason to believe that the EU has or is willing to budge from its position that the UK needs to pass its three hurdles for both sides to start talkin’ trade. Yet the Brexiters have talked themselves into the idea that this concession on the settlement total buys them something, in particular a trade pact, as opposed to being a necessary precondition for the talks moving forward. For instance, from the Financial Times:

Mrs May won the backing of her cabinet to break the deadlock in Brexit talks with an increased financial offer, but on the condition it was tied to a good trade agreement. British ministers have made clear that “nothing is agreed until everything is agreed”.

Ahem, the ministers’ statement verges on being tautological. Yes, even though the terms are being negotiated sequentially, the talks can fall apart at any time, rendering any understandings reached to date moot. So it’s peculiar to see them treat an inherent feature as a win.

The Independent may have a better fix on how the diehard Brexit camp is rationalizing this climbdown. And if this line of thought is representative, it’s another demonstration of the pathology among the ultras:

Conservative MP Bernard Jenkin told The Independent: “It better be worth it.

“It won’t be unless they now roll out the red carpet for a Rolls Royce free trade deal.”

Second, even if the two sides do reach a completed Brexit deal, it will not included a trade pact. Those agreements are complex and take years to negotiate. Sir Ivan Rogers, who had said in Parliamentary testimony that the UK would not have a trade agreement with the EU before the early-mid 2020s, underscored in a recent speech about how Cameron got to Brexit that a departure deal would only set the parameters of a future trade agreement. From his lecture last week at Hertford College, Oxford:

Political agreements, with high falutin aspirational guff are one thing. Legally binding agreements, treaty changes and trade deal texts are another. All we shall see, at very best, on U.K.-EU trade in 2018 is a political agreement on ambit, not legal texts.

Yet despite the fact that the UK is now more than halfway through the time period between when it voted for Brexit and the current departure date of March 2019, even those members of the British press that are starting to realize that the UK is going to face a world of hurt are still wedded to substantial elements of a deeply flawed, self-contratulatory narrative that is morphing into one of victimhood, with the EU rather than feckless British pols as the bad guy. From the Guardian in Brexit talks: for all Britain’s bluster, the EU has it over a barrel:

Now it looks as if Boris Johnson’s taunt that Brussels could “go whistle” if it wanted a €60bn divorce settlement appears to have been the prelude to Britain sounding a full retreat. We have yet to discover just how much humble pie will be eaten by the foreign secretary, but early reports on Tuesday night suggest Downing Street has conceded a net bill of €60-65bn (£53-58bn), equivalent to the indigestion-inducing gross total of up to £89bn.

All the while, the EU’s aims for the first phase of exit talks have only hardened. Where once it looked as if Brussels might be willing to temporarily park the requirement for a full agreement on keeping the Irish border open until trade and customs talks began, now Dublin has succeeded in making this the final test of Britain’s suitability for further talks….

Privately, British officials have been telling ministers since July that they are unrealistic to expect the EU 27 will be any more forthcoming over trade, let alone agree to the “cake-and-eat-it” model of maximum market access and minimal sovereign compromise.

Instead, leaked EU papers make clear that the only prize that Britain has bought with its €60-65bn is a stark choice between the low-access trade rights of Canada, or the low-sovereignty vassal state status of Efta members such as Norway.

This passes for informed commentary in the UK. EU leaders said from the morning after Brexit, with one voice, that the UK had to accept the four freedoms if it was to have access to the single market. The UK is insistent upon limiting EU immigration, which is a rejection of one of the four freedoms. That means it can choose only among “third country” options of the sort depicted as an insult above. This is not news if you have been paying attention. You didn’t need leaked documents to hear what the EU was saying from the very outset. Nor is it news that the settlement of the so-called Brexit bill was not buying any concessions from the EU.

By contrast, Richard North was harrumphing about the fuzzy math of the Brexit financial settlement:

Needless to say, both sides are playing games on the financial settlement. Attempts are being made to obscure the size of any final payment – if it is accepted. Rather than a single sum, it appears that a complex payment method will be adopted, that allows for phased payments with no end date fixed and no overall figure published. Payments could continue “for decades”.

Attempts will be made to massage the figure by offsetting the UK’s European Investment Bank (EIB) capital, which will be returned to the Treasury, and by delaying payments until they are actually due, such as the RAL commitments and the pensions apportionment.

Whether this will overcome the opposition from the “ultras” remains to be seen, but there will unhappiness at what will doubtless be called underhand dealing. This puts further political pressure on Mrs May but, as always, nothing emerges from the Westminster gossip machine that might suggest she might be deposed.

The Financial Times confirms North’s reading:

Under this model, pensions of EU officials, for instance, could be paid on the basis of annual costs, meaning there will be no final figure for the so-called “Brexit bill” until the final eligible EU pensioner is dead, many decades from today.

But the fact that the UK and EU have tentative deal on the divorce settlement does not mean that Britain has solved its pressing Brexit problems. Even though the Brexit bill was supposedly a UK red line, the Ireland border is the thorniest. There’s no indication that the UK is any closer to a workable solution. And to quote unnamed UK ministers: “nothing is agreed until everything is agreed.”

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