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Will May face down those who want no deal?

Summary:
In which I find a silver lining around the current weak state of the Labour partyThe negotiations between the UK and EU that will take place over the next two years involve two components. The first will be about non-trade issues, such as how much does the UK pay to the EU to cover pensions etc, and agreeing the rights of EU citizens currently in the UK and vice versa. The second will be the terms of the transitional arrangements for trade while a full trade agreement is negotiated. The obvioustransitional arrangement is for the UK to stay in the EEA, which means staying in the Single Market and customs union while a new trade agreement can be negotiated. It would also mean on the face of it accepting free movement and European Court judgements. What will be difficult for May is continuing free movement, accepting European Court judgements and paying as much as the UK currently pays during the transitional period. It may be possible to fudge all of those, such that May can appear not to cross her red lines in accepting a transitional arrangement. But to agree to this, the EU will want something else that allows them to say the transitional arrangement is clearly worse than staying a member. That may be the detail that the negotiations over a transitional arrangement are all about.These negotiations will not be about meeting somewhere between the UK's and the EU's position.

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In which I find a silver lining around the current weak state of the Labour party

The negotiations between the UK and EU that will take place over the next two years involve two components. The first will be about non-trade issues, such as how much does the UK pay to the EU to cover pensions etc, and agreeing the rights of EU citizens currently in the UK and vice versa. The second will be the terms of the transitional arrangements for trade while a full trade agreement is negotiated.

The obvioustransitional arrangement is for the UK to stay in the EEA, which means staying in the Single Market and customs union while a new trade agreement can be negotiated. It would also mean on the face of it accepting free movement and European Court judgements.

What will be difficult for May is continuing free movement, accepting European Court judgements and paying as much as the UK currently pays during the transitional period. It may be possible to fudge all of those, such that May can appear not to cross her red lines in accepting a transitional arrangement. But to agree to this, the EU will want something else that allows them to say the transitional arrangement is clearly worse than staying a member. That may be the detail that the negotiations over a transitional arrangement are all about.

These negotiations will not be about meeting somewhere between the UK's and the EU's position. That would be a major misunderstanding. The moment the UK triggers Article 50, all the cards are in the EU’s hands, because the UK has a lot more to lose by falling out of the EU with no agreement than the EU has. And Frances Coppola is right is sayingthat the EU is quite capable of playing hard ball. So the negotiations are more about the UK exploring the EU's trade-offs rather than a genuine give and take.

The key criteria for the EU is that any deal has to be obviously worse than EU membership. A lot will depend on whether the EU negotiators are prepared to take the UK not having a say on the rules of the game as sufficient to indicate a worse deal compared to full membership. That will help determine how much the UK pays the EU during the transitional phase.

That is obviously the sensible way for both parties to proceed. The only uncertainty is whether the UK feels able to accept it. The problem for the hardest of Brexiteers (which includes the Mail and Sun) is that a transitional arrangement of this kind makes it very easy for the UK to change its mind. That could easily happen if the prospective trade agreement makes firms start to leave the UK and public sentiment changes because the promised land was not as advertised. That has been their nightmare all along, which has led the Mail to calljudges enemies of the people. Based on what has happened so far, we could expect these Brexiteers to start turning their guns not on the EU, but on May herself, if it looks like the deal will go the way I suggest.

If this happens, how will May react? You can look at what has happened so far as a guide. The trouble with doing that is all the ‘bad deal is worse than no deal’ stuff may just be Econ 101 game theory: make it appear as if you might walk away to get a better deal. The reaction of the press to the NIC changes in the Budget were an obvious warning shot from them towards May. Her climbdown makes it appear as if the press are calling the shots, but that may simply be a sweetener for the major let down that is yet to come.

So recent events provide no clear guide as to how May will react if the hard Brexiteers turn on her. It all comes down to a question of character. In this respect, a discussionby David Runciman in LRB of Rosa Prince’s biography of May is very interesting. He writes
“May didn’t do negotiation; in the words of Eric Pickles, one of her cabinet colleagues, she is not a ‘transactional’ politician. She takes a position and then she sticks to it, seeing it as a matter of principle that she delivers on what she has committed to. This doesn’t mean that she is a conviction politician. Often she arrives at a position reluctantly after much agonising – as home secretary she became notorious for being painfully slow to decide on matters over which she had personal authority. Many of the positions she adopts are ones she has inherited, seeing no option but to make good on other people’s promises. This has frequently brought her into conflict with the politicians from whom she inherited these commitments. By making fixed what her colleagues regarded as lines in the sand, she drove some of them mad.”

I have written before that it was unfortunate that our post-referendum Prime Minister should be the minister who had tried and failed for six years to reduce immigration. Runciman's description above also helps explain why she did not do the two things David Cameron would have done if he had remained leader: given the close vote seeking the softest Brexit possible, and before doing that going back to the EU to see if they were now prepared to be more flexible on free movement. But it does not really tell us how she will play the next two years.

I can see one hopeful element that could allow May to see off those pushing for no deal, and that is the hopeless position of the Labour party. If Labour was strong, the last thing she would want was a 2020 election dominated by internal Conservative fights over her ‘Brexit sell out’ and the press against her. That might have forced her to appease the ‘no deal’ Brexiteers. Luckily in this respect the official opposition is the last thing she has to worry about during these negotiations.



Simon Wren-lewis
Professor of Economic Policy at the Blavatnik School of Government, Oxford University, and a fellow of Merton College. This blog is written for both economists and non-economists.

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