May's pain with no gain crisis leaves Brexit snookered

Towards the end of my previous post, I wrote that it was still perfectly possible that the Tory Party would implode into civil war over the Chequers proposal. Now it has. This has obviously always been on the cards throughout the Brexit process, and not simply because the party has been split for 30 years over the EU.

More, it reflects the structural paradox I have been writing about for months now: the irreconcilability of declaring that hard Brexit is the inviolable will of the people with the general political imperative of not following policies that do major damage to the country. This entails, as has been clear since the February 2017 White Paper, that Brexit must be done and yet must not be done: an impossibility.

May’s ill-judged decision that Brexit meant the hard Brexit of the Lancaster House speech (which may have been at the behest of her then advisors, but she, as PM, has to take the responsibility) meant she was always likely to have to dial back towards a softer Brexit. In the process, she gave those who would always have cried betrayal anyway a semi-legitimate reason to feel betrayed.

After all, she had promised them that hard Brexit was both deliverable and would be delivered. She could never quite bring herself to say it was desirable, of course, but that isn’t the reason she has diluted her stance. The reason is a combination of the realpolitik of what it would mean economically and of what the parliamentary arithmetic allows.

Hence the Chequers proposal and hence, to an extent, the resignations. I say to an extent because there is more to them than purist Brexit principle. Such principle may have been behind the resignations of Steve Baker and Chris Green (who he?), but Davis and Johnson are more complicated.

The resignations

Davis, it has been clear from the outset, was too vain, lazy and incompetent to do the job and was completely out of his depth (see Ian Dunt’s excoriating profile for more detail). He’s been looking for a chance to jump for a long time. Now he can claim that he was undermined, rather than having to accept that he failed to understand the most basic things about Brexit. It was he, amongst many other Brexiters, who claimed that “within minutes” of a vote to leave German car makers would be busy insisting on a great deal for Britain.  More charitably, it’s fair to say that the governmental machinery of DExEU vis a vis the Cabinet Office was never properly designed nor viable (it is surprising that May hasn’t taken this opportunity to address it).

Johnson, of course, has never had any principled attachment to Brexit. The issue for him is, obviously, just personal ambition and, I also think, the fact that he revels in making a drama just because he can. It’s the lazy politics of ego and entitlement. I doubt, by the way, that he will ever become PM so shop-soiled is his reputation, and my sense is that even Brexiters regard him with contempt. But he has his uses to them as a figurehead for the ‘betrayal’ narrative.

It is telling what that consists of. As per his resignation letter, it is that the “Brexit dream is dying through unnecessary self-doubt”. Note the complete absence of any concrete alternatives or practical plans. It’s all about dreams and beliefs. As with his ‘road to Brexit’ speech in February it shows that whilst he can campaign for Brexit he has not the glimmerings of an idea about, or any interest in, how to deliver it. That is singularly useless in the present circumstances.

Whatever the reasons, the resignations were triggered by May taking just a small step away from hard Brexit. This can be read as showing that the Brexiters were always on a hair trigger, ready to jump. This is an illustration of a point I’ve made before – the Brexiters are far more ready that the remain or soft Brexit ‘rebels’ to act forcibly and ruthlessly (witness the ‘meaningful vote’ climb down). It can also be read as indicative of how narrow is the tightrope that May must walk – although, again, note that she created a rod for her own back in her early embrace of the Ultras. She should have known that whatever they were given they would want more, so to offer them what they wanted and then take some of it away was always going to be a problem. Maybe she thought she could boil the frog. If so, it has jumped before the water has boiled.

May is taking the pain without making the gain

The crucial consequence of this is that May is now experiencing the ‘pain’ of resignations and party civil war without having got the ‘gain’ of a pragmatic, workable, soft Brexit policy. For the Chequers proposal is most certainly not workable for reasons pointed out it in one of my recent posts. In brief, the split of goods and services is a nonsense (and highly unlikely to be negotiable with the EU-27), and the role of the ECJ and the issue of freedom of movement of people would almost certainly need to soften further. As, indeed, the Brexiters suspect.

So Chequers now looks like a big mis-step. It would have been better to have got all the softening out of the way – in other words, to go full on to proposing soft Brexit – and get all the resignations and rebellions out of the way as well. Then May would have got the gain of something workable – and eminently acceptable to the EU – and paid the price. Instead, she’s just paid the price.

Further softening remains quite likely, but what then? Dominic Raab, for a start, would surely walk. Presumably in taking the job he has accepted Chequers, but it’s inconceivable (to me) that he would accept the next logical step of softening it further. How many Brexit Secretaries can be shed? And others – Fox, Leadsom, Mordaunt – might well go with him in this scenario, extending and deepening the crisis.

The Brexit that no one wants

The other main consequence of what has happened is that, rather extraordinarily, pretty much every one, regardless of where they are on the Brexit spectrum, is now unhappy. The hard Brexiters see it slipping away, the soft (EEA/EFTA) Brexiters are not getting their version of it, the remainers are still stuck with it, and those that might be called ‘pragmatists’, who just want some kind of workable solution, haven’t been offered it. Brexit in its nature is divisive, but it’s quite an achievement to have alienated every shade of opinion.

Worse than that, wherever people are on the spectrum, there’s no obvious route to achieving what they want. For various reasons – time, political numbers, party political structures – there are almost insuperable barriers to getting to hard Brexit, to soft Brexit or to remain. All of these outcomes are still possible, but each of them is currently snookered. That makes the possibility of an application to extend the Article 50 period slightly more likely, as David Allen Green argues in the FT today (£), but of course there are many barriers to that as well. Ultimately, it will not be until there is an even greater political crisis, which throws all the pieces into the air again, that one or more of the outcomes will become possible. But no one knows where the pieces would land and whether their preferred outcome would be the one that the new configuration would favour.

In the absence of the logjam being broken, of course, there will be an outcome simply by virtue of the Article 50 process: no deal. Which is, indeed, the outcome that some of the Ultras want. For almost everyone else this would be a disaster on an unprecedented scale: massive economic and social dislocation leading to goodness knows what political calamity. This now seems more likely than it ever has done before, simply because it is the default if all other outcomes are rendered impossible (and the prospect of it is what increases the chances of an extension to the Article 50 period).

We are not there yet, but we are getting close. Standing back from the detail of the domestic political drama it is simply extraordinary that just a couple of working months before the Withdrawal Agreement is meant to be ready for ratification Britain has an entirely new (and yet still unworkable) model of what Brexit looks like and a new person in charge of negotiating it (and one, moreover, who almost certainly doesn’t really agree with that model). Some of that might have been avoided. Most of it stems from having elevated to the status of the sacred ‘will of the people’ a narrow vote for something unspecified, which then became interpreted as something impossible. The end game is fast approaching.

Chequers agreement: medium Brexit?

The outcome of the Chequers summit has been to produce, really for the first time, the beginnings of a proposal that can at least be the basis of a serious negotiation. For this, it seems we must thank Olly Robbins in particular. Although the detail is to follow in a White Paper next week, the three-page summary published last night indicates a substantial softening of the hard Brexit approach that has held sway since the Lancaster House speech. It does not, as yet, represent a soft Brexit approach either: what we have is a proposal for what might be called ‘medium Brexit’. As such, for now, the cabinet have signed up to it, although hardcore Brexiters in the Tory Party don’t like it, and those outside the party, like Nigel Farage, loathe it.

As expected, a core part of the proposal is for Britain to stay in a goods-only single market but, significantly I think, it is not described in that way but as a UK-EU “free trade area for goods”. This wording is either a sop to the Brexiters or represents the continuation of what has long been one of their core misunderstandings, namely that a single market is the same a free trade area. This confusion, discussed in detail in my blog post of 20 February 2017 is, as I wrote there, evidenced by an interesting insider account of the referendum campaign, written by Daniel Korski, formerly Deputy Director of David Cameron’s Policy Unit. He records the frustration during the pre-referendum re-negotiation with the EU: 

“Nor would our counterparts in Europe acknowledge that the EU’s four freedoms are very much divisible. A country can reduce tariffs and remove trade barriers and still maintain restrictions on which foreigners are allowed to enter the country. This is what the United States has done since World War II, with NAFTA being the best example.”

Later in that post, I suggested that the government’s approach to Brexit at that time was to try to shoehorn together the two fundamentally different models of international trade, a single market and a free trade area. On the basis of the wording of the Chequers statement that is still the approach or, at least, Brexiters are being allowed to believe that it is. It also panders to the ‘country cousin’ of the single market/ free trade area confusion, namely the habitual canard that ‘when we joined, we were told it was just a trade area’.

However, in other respects, the Brexiters are being asked to swallow something which looks more like ‘Ukraine plus’ or ‘Switzerland plus’ i.e. a goods but not services single market; some kind of UK-EU institutional arrangement which might look rather similar to the EFTA Court, or to the kind of ECJ-backstopped arbitration system associated with the Ukraine DCFTA; and an as yet unspecified ‘mobility framework’ that would be more or less close to free movement of people as per Switzerland. In addition to all of this, and very much in addition to Swiss or Ukraine models, there is the proposal for a new ‘facilitated customs arrangement’.

Will the EU-27 agree to this? Ultimately, no, for the reasons set out in my previous post. But they will almost certainly take it seriously and negotiate seriously about it, if only because, as noted above, it is the first time Britain has produced a basis for such a serious negotiation. In the course of it, I would expect the court arrangement to land up pretty close to the EFTA court and the mobility framework to get pretty close to freedom of movement.

As for the customs arrangement proposal – this remains a mess and it is very hard to see how it can generate something workable and, if so, not any time soon. So that implies a much longer transition period than is presently envisaged. Perhaps more likely it morphs into a straightforward replication of the existing customs union. What is most significant here is that by committing to a single market for goods and a customs arrangement, the statement also commits to agreeing to the existing Northern Ireland backstop agreement from phase 1, if only by dint of the assumption that it will never be used. That, at least, removes what has been the biggest obstacle to progress since the publication of the draft Withdrawal Agreement text.

Clearly if this does become the direction of travel, and it is hard to see how May can not expect it to be, it may fracture the very fragile unity of the cabinet and might provoke rebellions within the Tory Party. The question is whether what happened yesterday was that the Brexiters crossed the Rubicon and will now swallow pretty much anything that comes, or not. One irony, which I noted as a possibility in my post on the recent Withdrawal Bill votes is that the Brexiters have engineered a situation whereby a ‘meaningful vote’ on Brexit terms will not happen. They may live to rue that.

If things develop in the way just outlined, it will become increasingly difficult to see what the case is for not remaining in the single market for services, of course. It certainly makes no sense in terms of British economic interests for reasons set out by Charlotte Moore in a recent incisive article on the politics.co.uk site. By implication, the government still expect mutual recognition agreements to do far more heavy lifting than can be asked of them. And there is very little mileage in having an independent trade policy for services given that free trade agreements rarely liberalise service trade to any depth (the implication to the contrary in the Chequers statement is wholly fanciful and, presumably, just a sop to Brexiters along with the reference to potentially joining TPP; for that matter, it’s hard to see how the Chequers proposals give much scope for free trade agreements in goods).

So perhaps the model then shifts towards ‘Norway plus’ (i.e. Norway plus customs arrangement). If so, another irony emerges: since most Brexiters have, since the Referendum, insisted that this would not be Brexit at all they would really have no convincing argument against simply abandoning Brexit altogether although (as always) the route and timing to that outcome remains unclear. In any case, to the extent that Chequers makes a soft Brexit more likely it may also reduce pressure to abandon Brexit in the face of a possible ‘no deal’ crash exit which, by contrast, is now less likely.

We’re not, of course, at anything like the point of knowing anything for sure yet. It is still perfectly possible that the Tory Party will implode into civil war over the Chequers position, or that for fear of that the government refuse to make the accommodations which might, conceivably, make something like this position fly in the negotiations with the EU.

The whole situation remains absurd, needless to say. None of this is remotely worth doing, and if it was worth doing it would have been better to have arrived at this proposal before embarking on Article 50. Still, yesterday was, by Brexit standards, slightly less absurd than usual.

 

Note: I’m aware that people who have signed up for email notifications of new posts are not receiving them. I’m afraid I have no idea why this is, or what if anything I can do about it.

Reaping what has been sown

It is being widely reported that at this Friday’s cabinet ‘away day’ at Chequers, the Prime Minister will seek to face down the Brexit Ultras and propose a substantial softening of Britain’s red lines. If this is so, then the first thing to say is that Theresa May is reaping what she sowed when she – reportedly without any cabinet discussion – established those red lines in her Lancaster House speech in January 2017.

The practical consequences of insisting on no single market membership, no form of customs union, and no role for the ECJ were abundantly obvious then, had she chosen to apprise herself of the facts. She could, for example, have listened to Sir Ivan Rogers who was forced out of office just a few days before that speech. And, of course, at that time she still had a parliamentary majority and the authority that she lost in the ill-fated election a few months later, so would have been better-placed to deal with the Ultras had she wished.

Now, it is not a case of ‘better late than never’ but of ‘too little, too late’. Because what appears to be in prospect – even assuming she gets her way with her warring ministers – is some kind of ‘hybrid’ Brexit in which Britain stays in the single market ‘for goods’ (with, it would seem, some role for the ECJ but without freedom of movement of people), and also creates an amalgam of the customs ‘partnership’ and ‘maximum facilitation’ models. These latter were the models the cabinet could not decide between but which in any case have already been rejected by the EU (what the amalgam will look like is unclear).

It remains to be seen whether this ‘hybrid’ Brexit plan is what will actually emerge from this meeting and, if so, what the EU will make of it. My own view is that it is entirely fantastical that such an arrangement could be workable or that the EU would agree to it. And that is principally because it betrays the way that – even at this very late juncture – Britain, or at least Brexiters, fail to understand what the single market is, and why the four freedoms (for goods, services, capital, and people) are indivisible. This is not because of theological dogmatism on the part of the EU, but to do with the very definition of what a single market is.

What is a single market?

A single market, in principle, entails the unification of all of the things that go to make up the production, consumption and distribution of the outputs of economic activity (meaning both goods and services); and this in turn entails a unified regulatory framework and enforcement mechanism. It is true that as a matter of political expediency some parts of this unification are waived (although, most often, where the direction of travel is towards unification). For example, temporarily, accession countries may not participate in freedom of movement of people (FoM). Or, as in the case of the Ukraine Association Agreement, there is neither FoM nor much services provision. Or, in the EU as a whole, by no means all services are yet within the single market. Or, in relation to Brexit, the NI backstop proposal would not entail FoM.

But in all of these cases, what results is something other than the ‘ideal type’* of a single market as an economic and business construct. We can readily see what this ideal type looks like: it is pretty close to the common form that national markets take. We don’t have different product standards in, say, Norfolk and Suffolk, nor do we restrict the movement of people between such counties. Any such differentiation is, by definition, an erosion of unification. Small amounts of differentiation may, for various political or historical reasons, be necessary but at some point if the quantity of differentiation gets too great then a qualitative change emerges: a unified or single market no longer exists.

What quantity of differentiation becomes a qualitative shift is not something to which there is a precise answer: but if an economy the size of Britain’s were to be tagged on to the EU in terms substantially differentiated from the European single market it would surely be well over the dividing line. For this reason, the idea that the EU could accept such a situation is delusional: it would mark the de facto end of the single market. And Britain, a prime architect of the single market, would be the first to say so if it were, say, Germany that was seeking to leave. That would not be political intransigence; it would be a recognition of the fundamental meaning of a single market – whether the European single market or any other. It is for this reason that, in debates about Scottish independence, unionists repeatedly point out that such independence would mean Scotland leaving the British ‘single market’.

All this can be expressed in far less abstract ways simply by considering what a single market means for businesses. In order to operate, they need to mobilise both capital and labour and hence benefit from free movement of these. Moreover, very often (and, increasingly) businesses produce things that do not fall neatly into the category of ‘goods’ and ‘services’. That might be because of things like maintenance contracts associated with goods, or intellectual property embedded in software embedded in goods. Again, to understand how this works at the level of the European single market just imagine how the British economy and British businesses could (not easily) operate if, at county level, there were only a single market in goods but not services; or if capital and labour could not move freely across county borders. Something as simple as a paper round would become far more difficult to organize (it's a good and a service and it might well require FoM across counties).

Is it a matter of political will?

Might it, even so, be the case that with sufficient political will the kind of model that May is apparently going to float at Chequers could be agreed with the EU? In other words, might a very radical departure from the ‘ideal type’ of a single market be entertained in order to get a deal done? I think that is unlikely, for the reasons given above. It would entail sacrificing – or at least very substantially compromising – the central part of the European economic project. It would also open the possibility of future, further sacrifices as other member states sought to exit this or that aspect of the single market for domestic reasons. So it would really risk the fundamental integrity of that market by, for the first time, shifting the overall direction of travel away from unification and towards (open-ended) diversification. It doesn’t make sense to do so, especially simply to accommodate a departing member state.

I certainly think that it is unlikely that the EU-27 will be very sympathetic to May’s reported “pleas” (£) for them to do so in recognition of the political pressures she faces from the Ultras (and perhaps especially the Brexit press, as per Simon Wren-Lewis’s recent blog**). The first thing to be said about these pleas is how different they are to the pre-Referendum promises that Britain would quickly and easily get a superb exit deal (see an earlier post on this blog for more detail on this point). More to the point, the EU has for decades been asked, and has very often agreed, to do special deals for Britain in recognition of the problem of domestic Euroscepticism. That in itself has left a legacy of resentment.

In any case, whilst it is one thing to do that for a member state, it is quite another to do so for a departing member. Britain’s domestic problems are, I suspect, seen as its own to deal with. The more so as those causing the problems are also those to blame for creating this whole, unwelcome mess for the EU-27. And, moreover, the EU have long ago twigged, even if Mrs May is only just learning, that the Ultras are unappeasable anyway. Once again, we are reaping what has been sown.

None of this is to deny that the Prime Minister is correct if she thinks that, if this latest ‘out and yet in’ Brexit fudge is proposed and rejected by the EU, the Ultras will then say that a ‘reasonable compromise’ had been tried and its failure mandates a no deal Brexit. They will indeed do so, and no doubt they will be delighted if that is what comes about. My point is that this is a genuine and very real problem but it is a problem for our country, which would suffer accordingly, rather than being something that the EU-27 can be expected to care about. If Brexiters think that proves the EU is ‘nasty’, all that can be said is: welcome to the real world of international relations. Again, imagine that it were another country leaving, and Britain that were remaining. Would Britain be minded to care much about the internal political difficulties of the departing member? Hardly.

Beyond all of this there is something else, which is in danger of getting forgotten in the debate about whether a) the cabinet and b) the EU will agree on the emerging ‘hybrid’ Brexit model. It is that even were such agreements forthcoming, this would be a lousy, highly damaging outcome for Britain. Admittedly it would not be as bad as no deal at all. But the idea that a service-based economy, with a large services trade surplus with the EU-27, would seek a deal that excluded services would be seen as crazy in any world other than the topsy-turvy one of Brexit. As would the idea of creating at enormous expense, in unknown timescales and with unknown efficacy a customs system to replicate something that already exists and works. There is no conceivable economic upside to this (certainly not in terms of the supposed benefit of an independent trade policy).

TL;DR

So, in short: having rejected a soft Brexit that might have brought together most remainers and most leavers, and which would have been acceptable to the EU, the government proposed a hard Brexit. It is now seeking to soften this position to something disliked by most remainers and most leavers, and which is unlikely to be acceptable to the EU. This is the latest of the endless contortions which reflect the fundamental structural paradox of Brexit: that it must be done and yet it must not be done. As such, they will not end with the meeting at Chequers, but will continue until one or other side of that paradox is disowned, whether by force of politics or simply by the elapse of time as the Article 50 clock – started by Britain - winds inexorably down to zero. In these things, too, the government is reaping what it has sown. 

*In social science, ‘ideal type’ is used to mean the pure, full, consistent form of a particular entity (concept, institution etc.). It doesn’t, in itself, imply that the thing itself is ‘desirable’, or even that it actually exists in practice. It just defines the ‘perfect’ or ‘ideal’ characteristics that the thing in question would have.

**Well worth a read for its wider arguments, not just this particular point about the Brexit press.