EU whispers sweet nothings to May

This article first appeared in The Edge Financial Daily, on August 7, 2018.
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WITH only eight months left until Brexit, the UK government has become desperate for a transition deal.
For all the talk of stockpiling food and medicines, no self-respecting politician would take the country through the economic calamity of a “cliff-edge” Brexit.

UK Prime Minister Theresa May, who has assumed control of her Brussels negotiating team, met last Friday with France’s President Emmanuel Macron to try to soften his hard line on Britain. 

The prime minister is doing the rounds to promote her “Chequers” blueprint, which includes a free trade area for goods but not services.
May has been encouraged by some positive noises from Berlin, with Chancellor of Germany Angela Merkel reportedly keen to allow Britain “a dignified farewell.” 

But the British government would be foolish to confuse a willingness to help May get some sort of fudged deal over the line with any hint of support for her hybrid trade proposal. 

As has been abundantly clear over the past year and a half, the remaining 27 member states will not ease the rules that bind them together for Britain’s benefit.

Both before and after the vote, Brexiteers have offered several reasons for why the rest of the European Union (EU) would help out the UK. 

First came the Boris Johnson school of economic fantasy: The EU would be desperate to avoid damaging its own industry. From German carmakers to Italy’s prosecco producers, European businesses would force their governments to maintain strong ties to preserve profitable exports.

None of this happened. The EU 27 have backed their chief negotiator Michel Barnier with barely a hint of division — barring one message of support to the Brexiteers from Matteo Salvini, Italy’s far-right deputy prime minister. 

As for Europe’s chief executive officers, they have been much more worried about preserving the sanctity of the single market than the prospect of losing exports.

Now, it is the turn of political blackmail. The argument is that a “no deal” Brexit would create long-standing resentment in Britain toward the EU (as if that’s been absent before now.) 

The Chequers proposal has already triggered resignations in May’s government. The EU should throw her a bone to help her get a deal past her bitterly divided Conservative Party. 

Humiliation would be in nobody’s interest. This line of thought is, to say the least, a little self-indulgent. True, the Chequers plan was the first coherent proposal offered by the UK. 

But just because Brexiteers wasted months lost in their flag-draped dreams about sticking it to Brussels, why should Barnier come to the rescue? 

Yes, he would no doubt prefer to deal with May than Johnson as prime minister, but internal Tory party management is not really his problem.
Let us not forget that it was the UK that voted to leave. 

Despite the English tabloid view of wicked eurocrats determined to punish plucky Britain, the EU negotiators are just trying to make sure that the rules of their club remain intact after Brexit. 

That is only fair to the member states and other countries with EU relationships, whether trading partners or members of the European Economic Area such as Norway.

Nor is it immediately apparent why maintaining good relations with Britain should be the priority. 

Of course, there are deep commercial, financial and strategic ties to protect — which are not to be sniffed at in the Trump era. 

Yet for any EU leader, defending the national interest and the bloc’s smooth functioning must come first. 

The stakes are particularly high for Ireland, which is rightly demanding assurances on its border. But it is hard to see how any government could countenance letting Britain enjoy a better position outside the EU than within. 

This is not about punishing Britain, it is simple self-preservation.

This does not mean, of course, that the EU 27 will not compromise on some areas. 

In financial services, there are signs that Britain may have finally accepted that it will have to be a “rule-taker” from Brussels if it is to enjoy so-called “equivalence” status — where it certifies that its regulatory systems are equivalent to the EU’s rules. 

This blueprint could be extended beyond the areas covered by similar deals with third countries. 

But it is worth pointing out that Barnier would only be giving ground where it is in the EU’s own interest to do so: in this case it wants to keep accessing London’s world-class financial services.

Indeed, while Britain has every right to draw red negotiating lines wherever it wants, it must recognise by now that it does not have the whip hand here. 
The member states understand that the EU’s intrinsic worth comes from its unity. Britain needs to accept that its stand-alone value is far lower. — Bloomberg

Ferdinando Giugliano writes on European economics for Bloomberg. He is also an economics columnist for La Repubblica and was a member of the editorial board of the Financial Times.