The Brexit Column: red lines

The Brexit Column: red lines

Mark Essex discusses negotiation tactics, trade agreements and international relations in this week's Brexit column.

Director, Public Policy

KPMG in the UK

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Are both sides' 'red lines' as red as they appear?

EU leaders attending the summit in Bratislava earlier this month showed discipline in avoiding the subject of Brexit in their communiqués. But they failed in their efforts to put on a broader show of unity. Divisions around migration between the German and Italian leaders exposed the cracks in European solidarity. For the EU27  this is surely a sign of a difficult year to come as the Netherlands, France and Germany go to the polls.  

With that in mind, when EU leaders negotiate behind closed doors, are their red lines truly as red as they suggest? Or are they more like a party’s manifesto commitment that has to be scrapped once the realities of government intrude? Who can forget how Nick Clegg’s unambiguous pledge to block any increase in tuition fees crumbled as coalition horse-trading began.

It is clear that the principal audience for each EU leader’s remarks is their domestic electorate. Why does this matter for our clients in the UK? Because, as we try and predict the outcome of the UK-EU negotiations, we should not rule out a scenario just because continental leaders say it’s impossible. Many are battling populist movements for the voters’ hearts and minds.   

If we cannot take the claims of EU leaders at face value, what can we discern? We must look at the economic and political fundamentals that the deal-doers face. Even then, it is not as simple as examining the national interest: the forces at play don’t always fit neatly into national boundaries. Regions in northern Italy may find they have more in common with Bavaria than Italians in the south. Those regions have an interest in reaching a deal that goes beyond some of the more emotionally-charged issues that have dominated the political debate. EU leaders’ red lines are meaningless outside negotiations.

Just as Brexiteers have pre-imposed ‘red lines’ they will inevitably have to jettison in negotiations, we should also feel some scepticism about EU leaders’ early positions. 

Choosing between Norway Plus or Switzerland Minus

As Boris Johnson, the foreign secretary once said, “My policy on cake is pro having it and pro eating it”. In the context of Brexit that might look something like Norway’s access to the Single Market, Switzerland’s flexibility on regulations, Turkey’s control of its borders and Canada’s membership fee. Unfortunately, most ardent Brexiteers would admit that this deal is nigh on impossible.

Fortunately, the prime minister has already stated her determination to avoid copying any other, previous agreement between Brussels and its trade partners. “The model we are seeking is one unique to the United Kingdom and not an off-the-shelf solution,” Mrs May’s spokeswoman said. That makes sense – the UK ought to get a better deal than Norway: the UK has more than 12 times the population, and spends more than eight times more on EU goods. In particular, Brits buy 16 times more German cars than Norwegians do. Compared with Switzerland’s EU deal, the UK’s wish list is longer: the Swiss have accepted free movement of people and we will not.

The EU has an immediate interest in doing a good deal. The UK is slated to pay £47.5 billion into the EU budget from 2016-2020. That would leave a major funding hole that remaining EU states might want help filling. Many EU leaders have said that a “Switzerway” deal is not on the table. Time will tell whether that is just another not-so-red line.

Looking beyond Europe

Last week we published a report for global clients that looked at the opportunities to strengthen links between the UK and ASEAN states in the wake of Brexit. It comes as we hear governments in Asia hoping for closer economic ties with UK companies.

Over the past month, for example, we have heard India’s energy minister describe the UK as “a natural ally” and somewhere with great potential for closer collaboration on energy projects. Meanwhile, the Lord Mayor of London reported serious interest in developing trade links with the UK after trade missions to China and Hong Kong. He said the Chinese saw Brexit as an opportunity and pointed to plans by Chinese businesses to invest in several sectors in the UK. The positive messages coming from partners like India and China should strengthen the UK’s resolve in the Brexit negotiations.

Managing Brexit: risk and opportunity

Managing Brexit: risk and opportunity

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