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Brexit negotiations off to a bad start

On July 20, the chief Brexit negotiators Michel Barnier, for the EU, and David Davies for the UK held a press conference to mark the conclusion of the first instalment of divorce talks between the UK and EU.

Oddly enough the two gentlemen looked like brothers, if not twins, given their full heads of gray hair. Alas, that was where the similarities ended.

During this round of talks, the two sides need to come to terms with what rights EU citizens will have in the UK and vice versa, what the UK has to pay before exiting the union, and the future relationship between Northern Ireland and the Republic of Ireland. The EU has made it clear that it is only prepared to negotiate on market access after these issues are settled. We have seen minimum agreement except for maybe on the Northern Ireland issue, where both parties agree on the validity of the Good Friday Agreement and the maintenance of a common travel area.

 

Lack of clarity

Earlier in the week, the British negotiation team took some flak over a photo opportunity in which Davies and his team were pictured seated at a table with no papers, while their EU counterparts had stacks of dossiers in front of them. The optics were poignant: Despite all the diplomatic language during the press conference, Barnier aired his frustration with the UK’s apparent lack of clarity over its position time and time again.

While the EU seems to have gotten its act together, the UK wasted close to four months by calling for an election immediately after starting the divorce proceedings with the EU. That saw Prime Minister Theresa May lose her parliamentary majority, leaving the government much weakened. Leaks from the Cabinet have become a daily occurrence in Westminster, and Her Majesty’s Government seems to be all over the place. Proponents of a soft Brexit — which would allow more concessions to the EU position, but also more access to the European market — openly battle their counterparts advocating a hard Brexit, which would involve exiting the EU with minimum concessions, especially on immigration, and little access to the common market.

Last weekend, the business community voiced its frustration over the lack of clarity in the UK government’s position. May’s assurances this week that her government intends to ensure an orderly transition did not do anything to assuage the anxieties of business leaders.

Brussels can be forgiven for being frustrated at the apparent lack of clarity coming from London during the EU divorce proceedings.

Cornelia Meyer 

While these arguments are raging, other politicians like the former Prime Minister Tony Blair and the new Liberal Democrat leader Vince Cable advocate revoking Brexit. This would be politically difficult at this stage, because “the people have spoken,” and it is unhelpful to send more mixed messages to Brussels, especially given that neither Blair nor Cable have a seat at the negotiating table. To top it all off, government ministers are now openly debating extending the negotiating period beyond two years, despite there being no provision for this in EU law.

 

New realities

Brussels can be forgiven for being frustrated at the apparent lack of clarity coming from London. While Westminster politicians are busily disagreeing with one another, new realities are created day by day. Business must act and it must act now. Banks have to decide what to do should the City of London lose its right to clear euro-denominated transactions. Moving people and systems takes time. The banking community needs visibility over what the end game will be.

Pretty much at the same time as Barnier and Davies spoke to the press, Deutsche Bank CEO John Cryan announced that he would move people from London to Frankfurt. Earlier in the week, JP Morgan decided to move from London to Frankfurt. Several Japanese banks are seriously contemplating making Frankfurt their European headquarters at the expense of London. Frankfurt is not the only beneficiary of the Brexit shambles: Dublin, Paris and Luxembourg are all poised to take their share of the pie.

The EU and Japan have recently reached an in-principle agreement on a very comprehensive trade deal. They got there in a little over three years, a record-breaking time in the world of trade negotiations, especially for the EU. They got there because each side knew what it wanted to achieve and because they agreed on broad parameters. The agreement on this deal shows that the EU is open for business, but only if there is visibility of what the other party is trying to achieve.

 

Cornelia Meyer is a business consultant, macroeconomist and energy expert. She can be reached on Twitter @MeyerResources.