With 300 days to go to Brexit, the Brexit negotiations are facing a perfect storm of UK Government incompetence, Italian governmental policy changes on the Euro, and a trade war initiated by Donald Trump. The UK government has still not made up its mind as to what kind of relationship it wants with the Customs Union and Single Market, and seems no closer to coming up with a coherent solution to the problem of the Irish border.
While Boris Johnson continues to waffle on about wanting a clean break from the EU, the UK government is actually seeking ever more complicated solutions to retaining “friction free” access to the Single Market and wants to retain access to the Blue Skies agreement, the Gallileo project, Europol, the Prüm Convention, and to retain influence over European defence and foreign policy. Basically the UK is seeking a partnership of equals between the UK and EU, and the EU is having none of it.
Meanwhile the “Italian Crisis”, which is seen by many in the EU as a more serious threat to the Euro and the EU than Brexit, is reminding EU negotiators of just how much they need to show the Italians (and everyone else) of how much they stand to lose if they leave the EU or the Eurozone. The Italy Panic Might Be Bad News for the U.K.
The EU’s chief Brexit negotiator, Michel Barnier, stepped up rhetoric last weekend on the need for the U.K. to be worse off. It was sparked by last week’s round of negotiations in Brussels in which European officials said they were taken aback by how much the British government wants to continue after Brexit as if Brexit never happened.
Meanwhile the EU has “closed the door” on trade talks with the US after Trump imposed tariffs on Steel and Aluminium imports into the US. The EU has retaliated with tariffs on Bourbon and Harley-Davidsons and the dispute could escalate into a full scale trade war if the US extends tariffs to EU car exports as Trump has threatened to do.
If Theresa May – who apparently has difficulty getting a word in edgeways in meetings with Trump – needed any reminders of how difficult it may prove to be to get an advantageous trade deal with Trump, this is surely it. There can hardly be a worse time to be pursuing “ambitious trade deals” than right now, with anti-globalisation parties gaining influence and a trade war in the offing.
Worse still, the EU is embarking on a new round of internal budget negotiations against a backdrop of cuts forced by the loss of the UK contribution to the budget. With Poland – currently at odds with the EU over it’s anti-democratic “reforms” – also the largest net beneficiary, sparks are surely going to fly. Some member states might welcome the increased revenues tariffs on UK and US goods might bring in.
All of which is a long way of saying that the omens for a Brexit deal are not good. The UK government is still negotiating with itself much more than it is actually negotiating with the EU negotiating team and the internal political dynamics of the EU are not helpful to a generous approach. Expectations on both sides are still so far away from any kind of alignment, it could be many years before common ground becomes clearly visible to all.
Brexiteer joy that the Italian crisis could bring forward their long predicted collapse of the EU won’t have helped the negotiating atmosphere. Neither will the plan to mint special coins to to celebrate Brexit. The EU could well have an incentive to make sure they are worth as little as possible.
But spare a thought for poor former U.K. Chancellor of the Exchequer Nigel Lawson. A long time advocate of Brexit who chaired the Vote Leave campaign, he’s preparing for Britain’s departure from the EU by applying for French residency, to allow him to continue living in south west France. Apparently he is finding the bureaucracy involved “tiresome.”
Why Italy had to say goodbye to the dolce vita
Is the Euro entirely to blame or were there other factors? And why does Italian industry become so systemically uncompetitive without regular devaluations? What is so intrinsically “Germanic” about the Euro, especially with Draghi as President of the ECB and the “unconventional” measures he has adopted?
Would leaving the Euro now solve all these problems or is devaluation as an economic policy tool no longer the the cure-all suggested in this article? Would leaving the Euro not result in far higher interest rates and ultimately inflation offsetting any short term benefits of devaluation leading to a need for a never ending cycle of devaluations?
And Finally, is there even a mechanism (equivalent to A.50) for leaving the Eurozone, or is that process, in itself likely to be chaotic and catastrophic? Brexit is certainly a process far easier to manage because the UK has its own currency, but will that fact, on its own, enable Brexit to be a “success”?
I am wary of the simplistic cause and effect advocated by this article. Would it not be better to tackle the underlying causes of Italian uncompetitiveness rather than relying on currency manipulation to hide them? In an increasingly integrated EU economy, would reverting to the Lira not be a backward step, even if the transition to the Euro created considerable difficulties?
I appreciate devaluation is often preferable to deflation, but is it not possible to manage an economy without either? Italy’s economic problems seem to be caused far more by stagnant productivity, stagnant corporate structures, stagnant legal and governmental structures, regional and class inequalities, and a culture of entitlement.
La Dolce Vita was always about living now and paying later, and perhaps not paying at all. Blaming the Euro seems a convenient excuse and cop-out.
Sunday Times: Revealed: plans for Doomsday Brexit
EU consumers could be deprived of English Cheddar, Wensleydale, Marmite or Branston pickle. Most of the English imports you could source from Ireland or other EU states instead however.
The UK strategy seems to be to keep the posts customs controls/tariff free in the hope that the EU would reciprocate. However this is because they simply don’t have the infrastructure in place to impose those controls in the first place, and hope that that way they will have access to the Single market by default as if they were still a member.
However those nasty French will probably not reciprocate, partly because they may have more of the required infrastructure in place, the tariffs will come in handy to replace the lost UK contribution to the EU budget, and mainly because there are few UK exports that are absolutely critical to French/EU food/production supply chains.
The Brits will scream blue murder and that the actions of the French amount to a declaration of war. The EU will reply that they are simply treating UK goods and passengers in the same way as any other non-member state goods/citizens.
Unlike the UK where everything seems chaotic, I would be surprised if EU plans for a no-deal Brexit are not well advanced. And it is much easier for the EU to be prepared: UK exports make up only 4% of EU imports whereas EU sourced goods make up 40% of UK imports. So the impact on EU customs infrastructure is relatively marginal – an order of magnitude less than the impact on UK infrastructure – although highly concentrated in the channel ports area.
In the meantime Irish shipping firms plan to bypass British ports with direct routes to Europe.
CLdN, a shipping company in Luxembourg, has introduced two “mega vessels” on new direct freight routes between Dublin and the ports of Zeebrugge, Belgium, and Rotterdam, in the Netherlands.
Irish Continental Group will boost weekly freight capacity from 120 to 1,155 lorries between Dublin and the French port of Cherbourg this summer.
Brittany ferries will this month start a service between Cork and Santander in Spain