Thursday, 14 January 2021

It's over, time to move on

You might wonder why I'm writing a postscript on Brexit. Well, I'm wondering too...but I'm hoping this will be my last post on Brexit for a very long time. There shouldn't really be anything much more to say for a while. Should there.....?

Well, there will inevitably be columns written for years on whether we are better or worse off. And (I fear) on why we should apply to rejoin. But they will mainly be easy to ignore. I expect few people will have any appetite to engage in such debate. Wolfgang Munchau, the eurozone commentator who "speaks like a German but writes like a Brit" argues that Sir Keir Starmer is very wise to make clear that, for Labour, the Brexit issue is closed. He wants to fight the next election on the future, not the past. He wants to move on and Munchau feels the EU must also move on and resolve its dilemma between cohesion and integration as reflected in the views of Chancellor Merkel and President Micron.

The integration drive was effectively the cause for euroscepticism, a word invented by the British. Munchau argues that the UK's Brexit debate was an absurd "category error" between Leavers who opposed integration and Remainers who were in denial integration was occurring:

"While I favoured Remain in the 2016 referendum, I was troubled by the Remain leaders’ reduced view of Europe. The union they wanted to remain a member of was not the same union I ever experienced. I understood the least we agreed on what the EU is."

It will be interesting to see whether integration within the EU accelerates without the brake of UK membership. As for the UK, does the end result of many years of aggro - I nearly put four and a half but that is just since the referendum - make any sense? Well, what was the alternative?

I recently came across a book I bought in 2017 which I can now consign to the recycle: Nick Clegg's How To Stop Brexit (And Make Britain Great Again). Intrigued by the title - and it was already on cut price offer shortly after publication - I'd bought it to try to understand the rationale behind a democrat denying democracy. After reading it I still couldn't fathom it.

To be fair, I had expected that, the year following the Gina Miller Article 50 court case, that the book would be full of rearguard spoiling tactics, legal action and brigading the support of the egregious and not lamented ex-Speaker John Bercow and the House of Lords that Nick had been so anxious to reform. But no. He seemed to think that, by simple reassertion of the points that had not been telling in the referendum, folk would realise they should think again and would change their minds. And that this could be followed by a process to back off from Brexit. It was touchingly naive. 

The early chapters, about how the EU was now heading in the direction of a two speed Europe, we've heard before and it hasn't happened. Anyway I'm not interested in getting to the same place at a slower rate. The middle chapters feature conspiracy theories about a cabal of think tanks and wealthy business people who Clegg claims influenced right wing Tory MPs with their vision of turning the UK into Singapore on Thames. The businessmen he names include Peter Hargreaves of the financial services company Hargreaves Lansdown, Anthony Bamford of JCB, Boris Johnson's latest unsuitable political peer Peter Cruddas, Aaron Banks and others. Besides the fact that a very low tax, low regulation economy was never going to happen, none of this explains or even acknowledges that the Vote Leave campaign tapped into a strong vein of national pride in ordinary people in neglected areas of the country. Though for that Clegg blames a "small group of newspaper owners and editors". His pantomime villains are Rupert Murdoch (for the Sun but not the Times group, thereby ignoring how much editorial independence Murdoch has always allowed), "UKIP supporting Richard Desmond" of the Express and the "billionaire Barclay brothers" owners of the Telegraph. And, of course, Paul Dacre who is the odd one out as he was editor of the Daily Mail, not owner, though Clegg is very keen to describe him a "secretive multi-millionaire who claims to stand up for ordinary people".  Who knew newspapers were so influential, when only 40% of the population ever read them?

But it was the closing chapters, that I've just re-read, that turned my stomach. Deploying the stale old argument that the only way ahead was more Europe not less and that pooling our sovereignty is the way to increase our power, Clegg made clear that his vision was for a Europe without the UK's a la carte arrangement which he described as complex and unfair. He quoted Guy Verhofstadt "... a new Europe, a Europe without rebates, without complexity, with real powers and with unity".

I thought that was enough to make me want to throw up, but then I read Clegg's masterplan for how to achieve his vision. Just how would he kick start discussion of a Europe of concentric circles and get everyone's buy in? Easy: a joint UK-EU convention should be formed, removed from "the bungling hands of government ministers and elevated above party politics" and handed the task of sketching out a future arrangement. It would be chaired by serious and experienced figures from either side of the channel. Clegg also proposed who those people should be: Sir John Major and the Dutch PM Mark Rutte, who would work to a short timescale. The concept of giving some unelected people, who we can't get rid of by voting them out, the job of deciding how we move forward in an undemocratic federal club run by politicians also we can't vote out is beyond parody. But bizarrely Clegg didn't say at any point how this would actually extract the UK from Brexit. "Once Article 50's point of no return has been successfully delayed or paused, the discussions must not drag on" he said, without saying by what process the UK government would set aside the referendum result and ditch Article 50.

Clegg argued that "now that we can see what Brexit really means why wouldn't we change our minds? Don't let anyone tell you that we can't". Well Nick what we can see now is people haven't changed their minds, at least not substantially. The Sunday Times has had a panel of 52 leavers and 48 remainers through the whole period and, while views have shifted within the camps of leave and remain not a single person has switched sides. Larger opinion polls give results which depend on the specific question but none show a substantial collapse in support for leaving.

Clegg closed his book by saying "Brexit does not have to be hard or soft, clean or messy or even red, white and blue. In fact Brexit does not have to mean Brexit at all." From a man who called himself a democrat. Wow.

We can leave Clegg to cry into his beer and worry about the US government's anti-trust suit against Facebook. For ardent remainer/rejoiners in general Brexit can never make sense but, given that there was a referendum on a simple majority basis and the result was to leave, we have a result that is undoubtedly Brexit. Even Nigel Farage hasn't popped up to say it isn't a real Brexit. But I don't think we'd have got there without the change in course when Captain May was ditched for Captain Johnson. Nor would we have done so if we hadn't found some principles we were prepared to die in a ditch for. Whether the UK, in the limit, was prepared to opt for no deal mattered far less than whether the EU believed it would.

During May's convoluted negotiations - on the withdrawal agreement, remember not the trade deal - I felt that the UK was not standing up to the EU enough and I argued that we should walk out of the negotiations early in order to reset the tone. While everything was one way at that time with, for example, various concessions on rights of EU nationals residing here given up in the vain hope of immediate reciprocation, with hindsight I suspect that tactic would have failed at that time. Part of the problem was that the UK saw Brexit in purely transactional terms: it wanted the closest to single market membership that it could get and it assumed the trade balance in the EU's favour meant they would want continuity as well. However, unlike the UK at that point, the EU side had principles that mattered to it more than short term economic optimisation. To be fair to them the integrity of Margaret Thatcher's brainchild, the single market, was paramount. If you have no principle to walk out over it's hard to walk out.

But the real problem was that the EU leaders felt they could trample all over May who was too desperate to clinch a deal. That was visibly evident in the manner of the serial humiliations they subjected her to, especially at the Salzburg EU summit. Who can forget the pictures, which looked uncomfortably like sexist bullying:

There was also the Donald Tusk tweet "cake? No cherries" which led to him being accused of mocking the diabetic May, apparently to his humiliation, though the intention clearly was to humiliate May and the UK.

However, even had the EU gone for May's Chequered compromise - her attempt to keep as close as possible to Europe and secure frictionless trade - it's not clear how she ever expected to get it through Parliament as many of her own MPs would never have supported it and, at that stage, neither would Labour, which was set on making life difficult for the government rather than securing a solution. It was politically incoherent. The whole doomed enterprise only started to stand a chance when the Tories went for Johnson. In contrast to May the EU leaders seemed only to pleased to be photographed back slapping with Johnson when the transition deal was agreed in October 2019:

Truly charisma is a strange and powerful quality

Once Johnson got his majority he was able, unlike May, to credibly threaten no deal on trade. The asymmetric nature of UK-EU trade - we buy more than we sell but for each individual EU country the total volume of stuff they sell to us is far smaller than the share of our exports that goes to the EU - implies much more pain for the UK from no deal than for any individual EU country. I thought this might mean our bluff would be called over no deal. But in the end it was the EU that blinked. I accept many commentators say that wasn't the case. David Smith, for one, says that the "thin" trade deal secured was always on offer. Personally I don't believe it was. At least not without level playing field constraints and unacceptable dispute resolution provisions. The EU's insistence, until the closing throws of the negotiations, on being able to control the playing field and the arbitration of whether that control was fair were points that they could never sustain in a trade negotiation with almost any third party country and so were, for me, too much to swallow. So when Lord Frost, in the first trade deal negotiating session in March, outlined the UK's key demand, that the it "be treated as an independent nation" one British official said Michel Barnier responded with a "hilarious meltdown", launching into a "massive rant" in which it is claimed he said "why do you keep mentioning 'sovereignty'? All you do is mention this word". In another meeting an enraged Barnier apparently shouted "I am calm!" leading the British officials to refer to his outbursts as "Michel's calm and serene moments".

A fundamental point of the EU is that nations pool sovereignty for mutual gain. The whole point of Brexit is that the UK was opting out of that concept. It had found some principles at last. However, EU leaders apparently believed Johnson had backed Brexit only to further his career and had never studied his reasons. Apparently it was a book by his then wife, Marina Wheeler, that originally convinced Johnson that leaving was the only way to make our laws entirely British. As a result Wolfgang Munchau frequently commented that he felt the risk of no deal was vastly underestimated in EU national capitals. 

Johnson and Frost were convinced May had accepted too willingly that the price of tariff-free access was that Britain had to agree to rules written in Brussels. Johnson is said to have told Frost to play "ultra-hardball" even if it put noses out of joint. When Barnier published a graphic suggesting the UK had to remain in the EU's orbit, Downing Street pointed out that he had previously told May that she should seek a Canada-style trade deal, the model Johnson now wanted. "Now they say that's not on offer at all. Michel Barnier, what's changed?" tweeted the 10 Downing Street account.  "We trolled him from government accounts" an official recalled. "The Commission went absolutely tonto". But by June the EU had accepted no role for EU law, or the ECJ, in the trade treaty. 

Nevertheless I still feel that the EU's about face on whether it would offer a Canada style deal was tantamount to bad faith. And this still left the level playing field issue, with the EU proposing an "equivalence" clause under which, if the UK's rules did not rise and fall in line with the EU's, retaliatory tariffs could be instantly applied on anything they chose. Again not a condition that would be normal or readily accepted in a trade deal. The EU also proposed that, under no deal, the EU should be able to dictate what goods would need to be checked at ports on the Irish Sea and which might have to pay tariffs. One wonders what part of "no deal" they didn't get. It was this that led to the controversial Internal Market Bill. Frost met EU criticism about the potential breach of aspects of the Withdrawal Agreement by stating that it reflected the PM's "determined view to protect the integrity of the country". When the EU announced after its October summit that it was entirely up to the UK to make "the necessary moves to make an agreement possible" Frost and his deputy, Oliver Lewis, argued that only by walking away could they create enough drama to get EU leaders to override Barnier's remit. Johnson agreed and told them not to go back to Brussels.

At last - and at the right time - we had walked away from Rene. EU officials admit this had an effect. They "never, ever believed May would go for no deal...with Johnson 5 to 10% of you thinks he might do it - and that changes the nature of the game". Oliver Lewis, in proposing the Internal Market Bill, reckoned that the EU had to believe that Johnson was mad enough to implement it and go for no deal. This "madman" strategy is one I recognise having once had my commercial manager say "we're not really going to do that are we?" My response was all that mattered was that the client looked us in the eyes and believed we would. (It worked, though it may not have done me personally any favours. As it touched on national security I'm saving the story for my memoirs).

Frost's gesture was a stay away rather than a walk out but it had the right effect, as arguably did the Internal Market Bill that caused such ructions about the potential to break international law. Personally I think it was clever to threaten to do something drastic that would not be needed if there was a deal. Like many I was uncomfortable about it at the time but such is the way in a negotiation with the gloves off. There was a risk that it would cause long term ill feeling, but only if the negotiation was ultimately unsuccessful. What all those who campaigned against no deal failed at every turn to appreciate was that removing no deal inevitably meant a crap deal when the other party was so steadfast in pushing not for a good or a fair deal but for the deal that suited them the most. A deal that left the UK under some form of EU control.

The other point about Frost's stay away was that, while EU national leaders refused to directly engage with Johnson, EU President von der Leyen intervened by sending her political adviser Stephanie Riso, a former deputy of Barnier, to take over the talks. "Suddenly there was serious engagement and dialogue" a no 10 source told Tim Shipman. "She sat there doing all the work, the EU team huddling round her while Michel played on his phone".

Even once dialogue restarted the EU attempted to introduce clauses giving the EU the right to introduce lightning sanctions in any area if Britain diverged from EU rules, which Frost described as a "baseball bat to bash us into alignment with EU law forever" and at a later stage to retaliate across the board, in this case if Britain sought future reductions in access to its fishing waters, a so-called "hammer" clause. Frost negotiated away the former threat with Riso, sustaining the argument that retaliatory tariffs should be proportionate and that the clause should give each party equivalent protection. The fishing hammer required Johnson to call EU President van der Leyen on the evening of Monday December 21st to say "I cannot sign this treaty, Ursula. I cannot do something that is not in the interests of my country." Talking in her language Johnson is reported to have said "viel hummer, kein hammer" (lots of lobster, no hammer), which led to the final horse trading on just how many years the fishing transition period would last.

It always seemed bizarre for the deal to hang on fish, when the contribution of one department store to the UK economy exceeds that of fishing. (Mind, that department store is Harrods). But as one British aide put it "it's not about fish, it's about freedom". Even after the principle was agreed, Frost stayed in Brussels, going line by line through the revised quota plan for each of a dozen species of fish. The fact that the British lead negotiator needed to do this reveals how little trust there was right to the end, though I've previously read that the EU have a tendency to try to slip through changes in the detail of final drafts. Not good behaviour.

The final result is that neither side seems to have "won" the negotiation. And neither claimed to have, which would have been inappropriate and unseemly anyway. It seems a reasonably balanced outcome, which was by no means guaranteed. Had we settled for whatever we could get the deal would have been far worse. It undoubtedly delivers a proper Brexit, fulfilling the promises to take back control of borders, money and laws. From my point of view a key red line of freedom from the yoke of the European Court of Justice has been met. If anyone believes the ECJ is a proper court independent of politics perhaps they can explain why the number of ECJ rulings against the UK has fallen from double figures annually to low single figures since the referendum. It's a weird legal system that responds in that way to a plebiscite, though my main issue has always been that the fundamentally different UK and European legal systems implied an incompatibility which meant arbitration would always tend to be skewed.

The fact that, when it came to the closure of the deal, criticism of it was so muted confirms that the deal is coherent and makes sense. When Labour speaks up for the City and complains that financial services was not included when no-one expected it to be included in this round and the City wasn't squealing that loudly you know that there isn't much to criticise. Of course the small band of passionate advocates of our EU membership will be sad but the referendum swung partly on how small that group was and its failure to convey any positivity in the 2016 campaign.

While it seems that the deal does meet the EU's primary goal of protecting its single market, Munchau argues that the EU did not do itself any favours with the deal as he sees the EU lagging the US and China in most high-tech areas:

"I am moderately confident that the UK will carve out niches in a few sectors like artificial intelligence, genetic research and fintech. But I worry about how the EU will cope in the digital 21st century. I would have preferred an agreement to strengthen joint innovation in high-tech areas rather than one that focuses on protecting legacy market shares."

Johnson was undoubtedly right to put a guillotine on the timetable for negotiations and resist all calls for an extension to avoid no deal. The whole point was that no deal had to be a real possibility. Extension would have prolonged the misery for no improved chance of success as the basic facts on the points at issue weren't changing. Indeed most of them were crystal clear at the outset. But all the aggravation confirmed just how naive Liam Fox's comment about the "easiest trade deal in human history" was. Fox assumed that what mattered was the starting point, when all regulations are in line, rather than the direction of travel and divergence, which was what concerned the EU. Whether it was fair for them to attempt to sustain their point that we could not be treated like Canada just because of our geographical proximity is now, fortunately, moot. Well not fortunately, actually, thanks to Frost and his team whose grit was in stark contrast to May's team of appeasers. In the end there was probably not much more or less aggravation than I feared when deciding that the pain of the transition would be too much and I opted, against my instincts, to vote remain. Though remember, while the negotiations and the official transition period have completed, the transition for British companies has only just started. And my fear about the impact on markets and the value of my pension has not borne been borne out - so far - though only because of quantitative easing and the ongoing backwash from the financial crisis which has now morphed into the pandemic crisis, all of which has dwarfed Brexit.

So while the guillotine was necessary, the anguished calls in mid-December for us to avoid the risk of no deal when a deal was 98% agreed were based on faulty judgement. The point was argued strongly and eloquently by the ever misguided Ed Miliband, saying that it was nonsense to risk the certainty of tariffs on everything over possibility of punitive tariffs on some items in the future. Andrew Marr gave Miliband a pretty good going over on TV on 13 December so I was shocked when Andrew Neil, whose views and logic I can't normally fault, collapsed into hyperbole a few days later arguing that it would be ludicrous to fail to agree with 98% settled and that no deal would be a "nail in the coffin of western democracy".  "Why not suck it and see?" said Neil, failing to recognise that the 2% mattered. After all chimps and humans share 98.8% of their DNA and, at that stage, the deal was still a chimp.

Neil did recognise the problem that the talks had been soured by the desire of the Brussels elite to punish Britain for having the temerity to leave, to encourage others not to do so. And that the EU position was always illogical, viewing Brexit as an act of self-harm while also wanting to confine post-Brexit Britain so that it could not go too far out on its own. "Just why a country they thought was heading for basket-case status needed to be so shackled was never explained".  Neil suspected that the real fear was that Britain would make a success of Brexit. Which remains to be seen: it might, but it might signal a long term decline. But May's solution of staying within the EU orbit would certainly have led to long term decline: the EU would have seen to it.

So can British business make a success of Brexit? Now the real transition has started Johnson's apparent total misunderstanding about the importance of non-tariff barriers either revealed naive ignorance or that the "fuck business" comment he refused to deny making in June had substance. Johnson ludicrously claimed that the deal had no non-tariff barriers when it actually ladles red tape onto business. Nevertheless, I feel the problems have been exaggerated. The BBC is always looking to run stories on the lines of "it's a disaster and it's all the government's fault" but it has been able to find few such stories in the immediate aftermath of 1 January. It ran a story about the problems faced by Scottish fishing companies and I saw a graphic showing a process of nearly 30 steps for them to export to Paris. However, most of the steps did not seem complicated and will become copy and paste repetitive. And several of the steps were always there, including the one labelled "catch fish".

Most businesses sell the same things over and over and they will soon get on top of the paperwork. Yes it's an additional overhead. But on the other hand it might encourage companies who previously only exported to Europe to look for new markets, once they've got the hang of exporting for real.

I was worried at the outset about financial services, as it represents 11.5 % of our employment tax revenues and nearly 7% of our GDP (fishing is said to constitute 0.1%). The EU undoubtedly has its eyes on stealing London's lunch. After all it is ridiculously dependent on London, with 90% of some euro based transactions occurring there. But there's a rub. London is ranked as the world's number two financial centre scoring 766 on the Global Financial Centres Index compared with 770 for New York (so make that equal first within the measurement noise). On that list there is no EU city in the top 10, though on another index Frankfurt sneaks in to 10th place. London will lose business to Paris and Frankfurt - and maybe more to New York - but the idea that the EU can insource much of that activity on any forseeable timescale is surely for the birds. Moreover, many have argued that our reliance on financial services makes for an unbalanced, London-focused economy. If the combination of Brexit and covid security of supply issues, together with the freezing of UK-China relationships, encourages UK companies to invest in more home based manufacturing some helpful rebalancing (and levelling up) might accrue.

Business does not always respond as politicians expect, as we have seen from empty supermarket shelves in Northern Ireland. It has been reported that some mainland based businesses decided they couldn't be bothered with the extra paperwork for the supposedly non-existent border in the Irish Sea. But the fact that there have been few such stories, apart from the odd one from Scottish fishermen, the bizarre Scottish seed potato blight (they can't export to the EU including Ireland, major market for the product) and the stories of overzealous Dutch customs officials confiscating legal vegetarian sandwiches along with illicit meat sandwiches, would appear to indicate that things are actually running fairly smoothly. You can bet we'd hear if they weren't from the "it's all a disaster and it's all the government's fault" brigade.

That supposedly non-existent border in the Irish Sea does bother me but then I always said there had to be a border at the border or in the Irish Sea. The cunning solution was to have a bit of both while pretending it was neither. And as the Irish free travel area has always bothered me I can live with that. Indeed, Northern Ireland may be uniquely placed to benefit from being in the UK and EU single markets. In which case the Brexit end position might not provide a push towards a united Ireland.

The end point is that the UK found it's principles and Johnson delivered a coherent Brexit that lived up to the promise of the Leave campaign: control of borders, money and laws. The principle is we are an independent country.

Which leaves the Scotland problem. For another day.

"Madman" Johnson gets his Hollywood ending. Tim Shipman in the Sunday Times, 27 December 2020

No deal would be a nail in the coffin of Western democracy and celebrated by Russia and China. Andrew Neil, Daily Mail 15 December 2020.

What Boris Johnson's mistake tells us about our future. Faisal Islam 24 December 2020

Moving On. The UK needs to move on from Brexit but so does the EU. Wolfgang Munchau, Eurointelligence