Brexit Stacked Deck? Which Way? Don’t Negotiate, Just Leave!

Yesterday, ECB president Mario Draghi warned Brexit will be tougher for UK than for eurozone.

Also yesterday, Irish Prime Minister Enda Kenny warned Brexit ‘impossible’ within two years.

by Mish

Both are quite wrong, and caught in obvious, self-serving bluffs.
There is nothing of substance in either claim.

Ireland does not support Brexit. In practice, Kenny hopes to drag out negotiations so long they don’t happen.

Everyone in the remain camp promotes their position with obvious bluffs.

Brexit Stacked Deck – Which Way

Brexit officials claim Cards Stacked in Our Favour.

UK officials claim they have the upper hand. But so does the EU. Let’s go over the claims and counterclaims.

UK Claims

  • Britain’s top negotiators are confident they have a strong hand to play. From London’s perspective, it is facing a 27-country bloc that remains economically fragile, worried about security, under populist assault and divided over the crisis of legitimacy facing its central EU institutions.
  • Britain’s exit blows a hole in the EU budget and will be costly for some members, stoking tensions between net contributors (such as Germany, France and the Netherlands) and recipients (many eastern member states).
  • The UK is the EU’s third biggest net budget contributor, paying £140bn since 1973. More importantly it is scheduled to pay another net £60bn in the EU’s agreed long term budget to 2020/21, including £26.4bn in the two years after 2019, its expected exit date.
  • If as part of a transition deal Britain agrees to continue payments to 2021, it would help the EU27 delay a divisive internal budget debate. But it would also mean Theresa May, UK prime minister, going into a 2020 election without any EU budget savings to show.
  • Gordon Bajnai, the former Hungarian prime minister, argues that a common EU foreign and security policy would be “very weak in the future if the UK is somehow not kept in the system”. “The UK could ask for much more in Brexit talks if it somehow remains part of security and defence structures,” he said.

EU Claims

  • Brussels sees Britain running headlong into a negotiating trap. It is smaller than the EU, has more to lose, and will be negotiating against a deadline controlled by the EU27. Crucially, it can largely only exercise leverage by hurting its economy or citizens. “The Brits have so cornered themselves that it is an unequal situation, whatever they do,” said one senior EU official involved in Brexit talks.
  • London’s leverage options cluster along four themes: common economic interests; Britain’s contribution in money and power; the threat of a hard Brexit; and tactical opportunities to divide the EU27.
  • Brussels is also aware it is in the UK’s interests to remain in some programmes, like research funding. “For every piece of influence it wants to retain in EU policymaking it will have to pay a price,” said Andrew Hood, a former UK government lawyer now at Dechert.

Trump Card

Boiled down to its purest terms, it would involve the UK effectively confronting the EU with a choice: continue a zero-tariff preferential trade arrangement, or accept World Trade Organisation terms. “The UK would recommend the former, but could live with the latter,” said a group of pro-Brexit former ministers, including Peter Lilley and John Redwood.

That’s a strong trump card, but the UK has another one that’s even stronger. First consider another obvious bluff.

Bluff from Schauble

Germany’s finance minister Wolfgang Schäuble boasts Britain can’t lower corporation tax because the UK still has EU commitments.

Obviously that claim flies out the window the moment the UK says “goodbye”. It is to the EU’s advantage, not the UK’s for the UK to enter negotiations.

The EU will try to drag the negotiations on forever. Heck, they won’t even have to try. Permanent negotiation is a natural process getting 28 nations to agree to anything, and under silly EU rules all 28 nations have to agree.

Don’t Negotiate, Just Leave!

Mario Draghi and EU officials are very anxious for May to trigger Article 50.

Why bother?

There is no legal requirement to file anything. All the UK has to do is proclaim the treaty null and void. By doing so, all these accumulated fees the EU is threatening the UK with immediately go up in smoke. So do current UK contributions.

That is the ultimate trump card, and I mentioned that prospect on day one.

A few days ago a reader emailed me a link to a Moneyweek article Don’t trigger Article 50 – Just Leave.

Despite my best attempts, says professor of international law Ingrid Detter de Frankopan, everyone has been deaf to the painstakingly simple course for the United Kingdom to take: don’t trigger Article 50 at all.

Second rate lawyers are misleading everyone in the country by insisting that, in order to leave the European Union it is essential to “trigger” Article 50 in its entirety. This line has been swallowed whole by the government, the media and commentators. It is, however, absolute nonsense. Under international law and under Article 50 (1) itself, only notice to leave is necessary.

The horror that I feel about this misdirection is compounded by that the fact that if Article 50(2) is ‘triggered’ it implies that the UK government accepts that the EU will decide the conditions of UK’s withdrawal. This has serious consequences. An arbitrary two-year negotiation window; a supreme agency problem between negotiating parties (the European Commission and various powerful governments) and a ratification process that is far from certain. All the while we will be contributing approximately £40bn gross, or £20bn net, to the European project. We will be paying for them to negotiate – and once we get to the end of the timeline there will be no real incentive to reach prompt agreement, as well as no reason to be true to their negotiated position. In fact any excuse of an election, a financial crisis or a small war – could derail years and millions of man-hours of work.

Now turn this situation on its head. The United Kingdom withdraws from the European Union (as directed by the people of the country in the referendum of June 2016) in March 2017 with immediate effect. The European Union loses almost 14% of its revenues overnight. I suppose our mission / delegation will be received with a great deal more alacrity then they would otherwise. This would turn the screw on the Commission and force them to conclude negotiations rapidly. It would give them less of a chance to strike back, ask for an “exit” premium and force a rapid conclusion on all parties. While it is true that this could descend into a tariff war – it is likely that we would end up with this situation at the end of two years anyway. There is the Commission, 27 other governments with diverse objectives ranging from using Britain’s exit to foster greater unity or to underline the need for retaining sovereignty within the Union.

The reader commented “You said this long ago.”

Yes, I did. But it’s nice to see the legal case presented by Ingrid Detter de Frankopan, a professor of international law who holds three doctorates, one specifically on European law.

Case closed. Just leave.

After the UK leaves, perhaps the EU will take trade talks a bit more seriously.

Mike “Mish” Shedlock

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