Why the 27 are taking a hard line on Brexit

Insight
03 October 2016

Britain’s partners have forged a common response to the forthcoming Brexit talks. Given their tough line – refusing ‘pre-negotiations’ and insisting that Britain cannot have the single market without free movement – how should Theresa May’s government respond?

The British government knows that the Article 50 exit procedure was designed to put the country leaving the EU at a disadvantage. So, prior to invoking the article, its envoys have been urging other EU governments to give some indication of which demands would be acceptable to them; they don’t want their opening bids to be shot down as soon as the procedure starts. But the 27 – fearing that British diplomacy may sow divisions among them – have refused any ‘pre-negotiation’. In the words of one senior German official, “we tell the British, ‘too bad, you’ll have to take your chances’.” Once the article is invoked, the British will have to negotiate with the European Commission, though the Council of Ministers, representing the member-states, will watch it closely.

The two years prescribed by Article 50 will weaken the British hand. The clock will be ticking when Britain seeks to complete not only the exit talks, but also an interim agreement covering the period between when it leaves the union and the entry into force (probably many years later) of a free trade agreement (FTA) between the UK and the EU. The UK will also have just two years to become a normal member of the World Trade Organisation (WTO), and to negotiate bilateral deals with the 53 countries with which the EU has FTAs, which will cease to apply to Britain on the day of Brexit (see ‘Theresa May and her six-pack of difficult deals’; technically, the two-year period may be extended, but only if the 27 agree to do so unanimously, and they will not). If these talks break down or Britain leaves the EU without having completed these agreements, the British economy would take a very big hit.

On recent visits to Berlin, Brussels, Paris and other EU capitals, I have been struck by the largely united approach of the 27 to the Brexit negotiations. They assert that if Britain restricts free movement after it has left the EU, it cannot be part of the single market. Instead, they suggest, it should negotiate a free trade agreement with the EU, along the lines of that between the EU and Canada. This could be very damaging to Britain’s services industries, including those in the City of London, since FTAs do not normally cover many services.

Boris Johnson, Britain’s cavalier foreign secretary, recently said that suggestions of a link between single market access and freedom of movement were “complete baloney…the two things have nothing to do with each other.” Britain’s partners think he is talking baloney. Wolfgang Schäuble, Germany’s finance minister, offered to give Johnson lessons on how the EU works and to send him a copy of the treaties.

British eurosceptics are onto something when they point to the EU’s inconsistent commitment to the ‘four freedoms’ of goods, services, capital and people. The liberalisation of services has been only partial, partly because of Germany’s reluctance to open up its own service industries and restricted professions.

But that will not help the British, because the indivisibility of the four freedoms is a mantra that European leaders believe in. British negotiators need to understand why the 27 are taking such a tough line on the four freedoms. Their obduracy is based on more than the attachment of EU politicians and officials to conservative, traditional thinking. There is a real worry that if the British achieve some special status, with their own institutional arrangements, other countries – inside or outside the EU – might ask for equivalent deals. And that could undermine existing institutional structures, to which the Commission and the European Parliament are especially attached, and possibly even lead to an unravelling of the EU.

The biggest reason why most governments take a tough line on the four freedoms is their fear of populism. Thus in Paris, mainstream politicians do not want Marine Le Pen to be able to say: “Look at the Brits, they are doing fine outside the EU, let’s follow them there”. Similar views colour thinking in The Hague, Rome and many other capitals. So the British must be seen to pay a price for leaving. They cannot be allowed to enjoy the benefits of membership, like participation in the single market, without accepting the responsibilities, like paying into the EU budget and accepting free movement (which both Switzerland and Norway do).

I found a strong consensus for this hard line in EU capitals. Many governments adopt a softer tone than the French, the Commission and the Parliament, but they differ little on substance. The British government needs to take MEPs very seriously. They must approve both the Article 50 agreement and the FTA governing future relations between the UK and the EU. If by some feat of brilliant diplomacy, Britain were to negotiate single market membership combined with limits on free movement, MEPs would certainly throw out the deal.

So the extraordinarily harsh reaction in most EU capitals to the recent and much-discussed Bruegel paper is not surprising. Written by a group of respected thinkers – including Jean Pisani-Ferry, head of policy planning in the French government, and Norbert Röttgen, chairman of the Bundestag foreign affairs committee – the paper proposes a ‘continental partnership’ that would give Britain (and potentially others) membership of the single market, the right to be consulted on its rules, and the ability to limit EU migration. In return Britain would have to accept rulings of the European Court of Justice (ECJ) and pay into the EU budget.

One principle underpinning the Bruegel paper is that it is in the interests of the 27 to have as close as possible an economic relationship with the UK; another is that, in economic terms, absolute free movement of people is not necessary for the good functioning of the single market. But EU governments do not necessarily accept either premise. When I asked a senior German official if he agreed that it would be good for Germany for the UK to be as closely integrated as possible, he demurred. He said that a bad deal for the British would divert foreign investment from the UK to Germany. As for the second premise, German and other officials point out that one cannot have free movement of non-tradeable services (like hair dressers, nurses and teachers) unless labour is free to move around the single market. In any case, a British government would probably be unable to accept either EU budget payments or ECJ rulings (as the Bruegel scheme would require), since many of those voting for Brexit did so to be rid of them.

A lot of British politicians believe that the hard line of the 27 is merely an opening stance, and that once negotiations get underway, they will soften. Some Britons hope that the Americans will help. It is true that most American politicians favour a soft Brexit and will encourage the 27 to keep the UK as close as possible. But the US has little sway over the policies of most European governments.

Rather more Britons assume that, in the end, Angela Merkel will look after the UK. One French official told me that he worried that the Germans could go soft on the British. The Chancellor certainly laments Brexit and wishes Britain well. But her main responsibility, as the EU’s unofficial leader, is to keep the 27 together, and that means working closely with the French to do so. For Merkel, the interests of the EU come first. She believes that maintaining the institutional integrity of the EU, and the link between the four freedoms, is in Europe’s interest and therefore Germany’s. One friend of Merkel told me that if the French maintain a hard line she would not be able to soften hers.

Furthermore, British politicians should not assume that German policy is driven only by economic rationality. German industry would like a very close relationship with a post-Brexit UK, but does not necessarily determine policy. German manufacturers have spent the past two years lobbying against EU sanctions on Russia, without any impact. In any case, an FTA between the EU and the UK, removing tariffs on goods, would suit German industry. It would not be so good for the service-dependent UK economy.

A lot of British politicians urge May’s government to delay invoking Article 50, on the grounds that France and Germany have general elections next year, and that they may be more amenable to UK demands when new governments are installed. But in my view those elections will make little difference to the Brexit talks. Merkel is likely to remain German chancellor. And the next French president, whether Alain Juppé, Nicolas Sarkozy or someone from the centre-left, is likely to pursue the French national interest, which – in the views of the French elite – is to be tough on the British. (It is true that Sarkozy has floated the idea of a new EU treaty to lure the British back in, but any new treaty requires the accord of 27 governments, most of which, including Germany, think his scheme a mad idea).

One reason why British politicians may be over-optimistic about the kind of deal they can achieve is that many of them misread continental debates on migration. In the UK, everybody agrees that EU migration is a big political issue. British politicians tend to assume that people in other EU countries must think the same way; therefore, argue both Conservative and Labour MPs, the 27 will in time come round to Britain’s viewpoint and wish to restrict free movement. And that could, they hope, allow the British to achieve some sort of single market membership combined with limits on free movement.

It is true that migration is a big issue in many EU countries. But in most of them the salient problem is inflows of refugees and economic migrants from outside the EU. In Germany, for example, mainstream politicians do not see intra-EU migration as a big problem (though far-right politicians do, as is the case in France, the Netherlands and elsewhere). So British politicians should not count on their EU peers adopting their own views on migration.

Having listened to continental viewpoints, I have a few suggestions on how the British government should handle the Brexit talks. On migration, the British should not rush into a new system for restricting free movement without consulting partners (once Article 50 is invoked). Unilateral actions in this area would go down badly. One German official said that if the British decided to exclude only unskilled workers, with the result that many poor Romanians ended up in Germany rather than the UK, it would be seen as an unfriendly act. The longer the British delay announcing the details of their restrictions on free movement, the greater are the chances that they could choose a system that is tolerable to the 27.

More generally, the British need to sort out their priorities and not have too many of them. And if they really wish to pursue a hard-to-obtain objective like ‘passporting’ for the City of London, they will need to offer a substantial trade-off, such as payments into the EU budget (German officials told me that British offers to pay into the budget would not be a game-changer, but I suspect they would like some British money).

Finally, the British should be polite. Because Article 50 puts them in a weak position, they cannot hope for a good deal without the goodwill of their partners. An acrimonious divorce would damage both parties but be worse for the UK, since much more of the UK’s trade is with the EU than vice versa. Thumping the table and making threats – for example, to block EU defence integration or withhold budget payments – would erode the goodwill that Britain will depend on. Nor do inflammatory comments help, as when international  trade secretary Liam Fox recently said that the EU was “going to sacrifice at least one generation of young Europeans on the altar of the single currency, and you can only rip out the social fabric from so much of Europe before it starts imploding.” Theresa May must ensure that her ministers deal with their EU counterparts in a modest, sober and courteous manner.

Charles Grant is director of the Centre for European Reform.

You can also listen to CER podcast: Charles Grant on negotiating Brexit – priorities on both sides of the channel

 

Comments

Excellent, politicians on every side have pointedly ignored the role played by universities, and R&D and the 'digital economy' in this 'Brexit' process. There is abundant evidence that the EU market has the potential to be the world's deepest market for digital products and services by 2030. It is clear that the global behemoths [Google etc] understand this. It is equally clear that UK-based operations currently derive substantial advantage from ever-closer integration within the EU, and their markets [under 29] must remain EU-wide. They need the German and other governments to dilute the barriers to freedom of movement for protected professions if they are to grow their businesses. Their markets [under 29] also voted 'remain'. Why is the sector ignored? What framework can be created to increase the UK's participation in the EU, and preserve its acccess to R&D funding?
I'm not sure that an FTA between EU and UK is so important to Germany:
1. UK will have to get its imports from somewhere, so it is likely that a good portion of the 7.5% of German exports which go to Britain would still continue, despite WTO tarriffs.
2. WTO tarriffs would make British exports more expensive, creating an opportunity for German industry to out-compete Britain in other EU markets.
So, it essentially comes down to spite.
Britain must be punished for daring to no longer wish to be ruled by that lush Junker.

It says a lot for the EU that it will certainly try to hurt both the European & British people to keep their ailing project on track.

In truth though, this line of attack just accelerates their certain demise.


Man divorces faithful wife so he can pursue new girlfriends. Despite this, he demands free and open access to the old marital home, a share in the joint bank account and a continuation of his conjugal rights with his ex-wife. Is outraged she can't see the sense of this.
Brilliant analysis.
HMG may regard this as a poker game and think it has more options than it actually does have. Most EU27 leaders must think that whatever may have prompted the Brexit vote, its effect is simply to give populist Tory Brexiteers (not least our 'cavalier' Foreign Secretary -- I could think of other adjectives to describe him) the whip hand? The EU27 couldn't give them an inch. Added to this the demand (given weight by Ms May just yesterday) that the UK will never accept the rulings of the ECJ means not just that we can't continue to be part of the Single Market but that we can't even have access to it (on the grounds that it is the ECJ that adjudicates on regulations and if the UK won't abide by them, then there can be no access. The EU27 no longer owe the UK anything and have everything to lose from a compromise deal. Tory Brexiters, on the other hand, have everything to gain from there being no deal, including being able to blame the EU27 for the economic problems that even HMG now foresees as a consequence of Brexit.
The problem with modest, sober and courteous is that it flies in the face of domestic politics. Brexiteers have overpromised and need to continue to assert that they'll be immodestly successful. Worse, UKIP taught some Brexiteers that rhetorical flamboyance translates into political success at home. The next two years will be messy.
Something I observed when seconded into Whitehall from the EU was how the Bubble (Westminster and Whitehall) does not 'get' the EU Institutions, to the point that it seems almost wilful. What do I mean by this? I mean that Whitehall - even UKREP veterans - deploy almost all of their resources in lobbying other members of the Council while ignoring the other institutions, the Commission and Parliament. London seems to think that building alliances with other capitals is the only way to get things done in Brussels. It almost felt like wishful thinking on their part - "we want it to be intergovernmental so we're going to pretend that it's intergovernmental". Yes, the Council is the most powerful of the EU institutions and yes Member State positioning counts but not exclusively so. As much as Whitehall would like to pretend that Berlin and Paris will be conducting these negotiations, they won't be. London will have to deal with the Commission. And boy it is not going to be an easy ride. The Commission are very used to tough negotiating on behalf of EU citizens and EU Member States.

Pursuing this thought, it's quite possible that UK negotiators will actually be handicapped by their experience as Member State officials. Third country diplomats are quite familiar and comfortable with lobbying the Commission and Parliament, in parallel with the Council. Member State diplomats on the other hand work in Council Working Groups and are used to building alliances in those Groups and using Council procedures as their means of shaping policy and legislation. As a third country, the UK will be in a completely different game and it requires a fundamental retooling of its diplomatic arsenal not to mention a rewiring of its diplomatic brain. That's quite a big ask.
The precedents with Norway and Switzerland are clear -- common market access in return for free movement of people. The latter is designed to create a common European population and identity. Why is insisting on it a "hardline" position? Or is the UK entitled to Europe a la carte in a manner denied to anyone else?
I thought the above article was thought provoking and possibly even fairly accurate in parts. I don't agree with the assumption that all 27 EU members will have an equal say, in fact I seriously doubt if 21 of them will do much more than vote the way the'y're told. The EU may be a private club with 27 members but quite frankly, if you're not from France, Belgium, Germany, Luxemburg, Holland or Italy then your chances of being given a seat on the executive committee are zilch. The perfect example of this was post Brexit Saturday when the above 6 met to discuss the potential repercussions, the minions, the unworthy's weren't even invited to the photo shoot and to me highlighted the utter contempt The Big 6 show towards everyone else. The other bone of contention was in the final summary where CG suggests the Brits are being rude. From what I've read in the media and watched on the TV, when it comes to mud slinging and name calling, Juncker, Tusk and co are up there with the best of them.
1.The Brexiters forget that English is de facto EU language, everyone speaks it or at least tries. If U.K. leaves this may not be so in 20 years or so.
2. One smart guy told recently that EU was created not to make us rich but to stop us from killing each other. This can also change in a generation, plenty of old grudges are still around.
Basically we're screwed. We have no traction in these negotiations, nothing we can threaten to withhold, nothing we can promise to give, that would influence the opposite side. Added to that these negotiations will be conducted at government level on our side by rank incompetents, fantasists, a proven chronic liar and someone who was obliged to resign from Cabinet in disgrace. In three years or so time it's Garage and the rest of them who won't be laughing now. How were things ever allowed to get this way?
"Man divorces faithful wife so he can pursue new girlfriends. Despite this, he demands free and open access to the old marital home, a share in the joint bank account and a continuation of his conjugal rights with his ex-wife. Is outraged she can't see the sense of this."

What if the wife forces so many guests and lodgers on their household that the man is driven to ask for a limit and is told there can be no limit? What if the wife controls the bank accounts of many in the neighbourhood and doles out the cash so stingily that a lot of others are desperate to escape from her grip? Maybe the poor man has a case after all?
"international trade secretary Liam Fox recently said that the EU was “going to sacrifice at least one generation of young Europeans on the altar of the single currency, and you can only rip out the social fabric from so much of Europe before it starts imploding.” "

You cite this remark as an example of Brexiteer's rudeness to the EU. I don't like Liam Fox and favour Remain, but is there not a smidgeon of truth in what he is saying? Could you be less biased and not claim a monopoly of justice?
It's perfectly clear that the British do not possess a single politician who is competent to handle the economy and understands that diplomacy must be based on a sober, intelligent understanding of Britain's diminishing place in the world. Alas, the poorly-educated, under-skilled British people have chosen to do something that they do not understand, based on the jingoistic dishonesty of those same mediocre and lazy politicians. The only outcome of bad strategy is disaster - and Theresa May will be remembered as even worse for the UK than Cameron because of the way she blundered into this idiocy.
Of course the EU will make a free trade deal without free movement difficult or impossible. It is because of our difficulties with the rest of the EU, and France in particular, that we decided to leave, and make the best of it. There is bound to be economic repercussions, so we have to adapt, find new markets and live as free people. The liberation will be cathartic.
Of course the EU will make a free trade deal without free movement difficult or impossible. It is because of our difficulties with the rest of the EU, and France in particular, that we decided to leave, and make the best of it. There is bound to be economic repercussions, so we have to adapt, find new markets and live as free people. The liberation will be cathartic.
Before Bexit the G20 said what a danger it was and we have already had Japan unusually telling both sides it wanted a transparent process. I wonder how non EU G20 members, the IMF etc will react to an EU agenda that will damage the world economy ? Surely we can expect considerable international pressure to compromise.
I also wonder if the stated cost/ benefit trade off's on the single market are fully understood as of yet. The presumed consensus is that a lack of passporting hit's the UK hard, but of course EU banks such as DB are reliant on their City operations and would be hard hit by restrictions on its ability to serve the EU. The broader point is that the EU needs the City as there is no other EU financial centre and its financial sector is so weak that it can do without further challenges.

t is true that migration is a big issue in many EU countries. But in most of them the salient problem is inflows of refugees and economic migrants from outside the EU.

It's worth adding that in some EU countries - notably Portugal - the issue is not with immigration, but with the fact that young Portuguese are emigrating at an alarming rate, hollowing out the country's economy.
'There is bound to be economic repercussions, so we have to adapt, find new markets and live as free people. The liberation will be cathartic.'
Find new markets... price of product = manufacturing costs + transport. Either you keep your neighbouring markets, or you lower your production costs. The prices for raw materials depend on international markets, to a certain extent, so does the price for energy; remains the wage factor... Cathartic indeed.
The referendum was firstly advisory, and secondly based on populist miss-information. Therefore the UK government is under no obligation to Brexit. It is only doing so because May and a few other parliamentarians want to. The UK is ruled by parliamentary democracy not populist referenda; otherwise we would have re-introduced capital punishment and probably deportation of foreigners.

Parliament should and still has the opportunity to put the referendum into context and remain in the EU. Not disregard it but address the real issues. The ballot paper did not include the question "do you wish to cripple the UK economy".

The referendum had raised real issues, but exiting the EU is self destruction and not the solution.

France had problems with Romanians; they returned them to Romania - legally. French steel industry are supplying for our submarines while UK steel industry is being closed. Likewise EDF and the Hinkley Point nuclear site. Other EU countries do not provide automatic health and welfare benefits to new arrivals - the UK is a free-for-all - change the UK system if it is oversubscribed and abused.

The UK public at large and government should stop whinging and blaming all the UK's problems on the EU, and learn from other EU countries how they manage to deal with these problems which they clearly do.
I am somewhat suprised that this article doesn't even mention the new EU member states. It was the failure to integrate them that produced such unprecedented scale of migration of workers and families of workers into the UK. May be it is time to face the harsh reality, which is that only some in Europe are united and others have very little say over anything. Who really thinks that Romania has a say over Brexit negotiations, or Bulgaria? These countries are so poor and corrupt that the EU can possibly never quite fix them.
Excellent article. As brexit looks increasingly like an imminent car crash following an indefensible referendum and the PM's apparent capitulation to her discredited brexiteers perhaps it is time to consider a glide path to continued membership and no action under Article 50.
The opportunity is available for the government to declare that the UK debate has added urgency to the debate on radical reform which was already well established across the EU and that before irrevocably breaching relations with our closest neighbours and allies the UK will join that debate and vigorously promote its blueprint for a renewed EU designed to meet the challenges of the future.
is this realistic? All 27 members would prefer us to stay. The French and Germans have no wish to be alone as leading members. Tusk said recently that radical change is needed and that there has been too much intervention in matters best left to member states. There is no appetite for a super state, tho closer relations between euro members are desirable for us as for them. The Germans value our liberal economic approach; we have well established military and related links with France. Schauble, German finance minister has commented that "integration has gone too far".
The French foreign minister recently commented that all topics are on the table for discussions on the future of the EU, including the principle of freedom of movement. Last month Valls raised the problem of the terms on which EU migrants contribute to social security systems. The French Republican party is likely to win next years presidential and legislative elections. The party wants stricter border controls, a reduced role for the Commission and more national government influence over common EU policies.
In July a group of leading French commentators called for the existing EU treaties to be renegociated and a new confederal EU established. In brief an EU of nation states. Historically the preferred approach of France and the UK. The French Liberal party has asked whether the British might invent a confederation which could secure prosperity and security for Europe while returning to the nations some of the powers now exercised centrally.
Particularly since the financial crisis the trend has been towards intergovernmentalism rather than supranationalism. Has there ever been a better time for the UK to achieve what it has always claimed to want - continued membership of a reformed EU?
What ever fraught deal may eventually be painfully obtained from brexit it will be inferior to our present membership Far better to reform from within than to act on Article 50 and turn ourselves into supplicants.
The commonsense move to negociating reform would settle markets and might strengthen the weakening pound.
Important to remember the old diplomatic adage - if you are not seated at the table you are on the menu! How unfortunate to commit to leaving and find our economy preyed upon by erstwhile European partners and their industries.
"Man divorces faithful wife so he can pursue new girlfriends. Despite this, he demands free and open access to the old marital home, a share in the joint bank account and a continuation of his conjugal rights with his ex-wife. Is outraged she can't see the sense of this."

"What if the wife forces so many guests and lodgers on their household that the man is driven to ask for a limit and is told there can be no limit? What if the wife controls the bank accounts of many in the neighbourhood and doles out the cash so stingily that a lot of others are desperate to escape from her grip? Maybe the poor man has a case after all?"

What if the wife doesn't mind who fixes the taps as long as they are fixed, and isn't to blame for the husband's failure to build a spare bedroom for decades? What if the husband provides no more than a generous bung to the wife, who gives what she can, while he with his greater wealth is mean as hell to everyone around him, and blames the wife for everything?

The point being, who is he going to blame after he has left her?
Unfortunately, while there is a lot of mention about the UK government not taking note of the reality of the various institutes within the EU, there is limited mention of the real aspect that these same institutes have failed to consider the direction that the various people across the EU are considering going; there have been numerous moments across the years where the populace have had differing views to the "elites" but there has never been any change of approach by the EU. If every EU nation went to a referendum tomorrow in response to "Should country X remain in the EU" how would that nation vote? While there may well be a majority for staying in the EU, the real issue is the large number that would vote to leave; perhaps it is truly time for the EU institutes to take a hard look at themselves and resolve to make changes that benefit the people they represent?
As for BREXIT, perhaps the focus should be on what relationship all parties need beyond the eventual departure of the UK, as resentment will have a detrimental impact for the long term; think of how UK "populist" politicians and media still refer back to WWII and try to understand that decisions over the next 2 years will put in place a relationship that will have impact across decades. Short term political gain may lead to a total disintegration of relationships that the decision makers never foresee; if BREXIT and Trump are shocks to the "elites", even though they were both just a 50/50 decision, then just what may come about from something as complex as Article 50 negotiations? Be careful what you wish for; no one can really foresee what pain and resentment can generate in the future.
As a proxy of the US, Britain has always been in the EU to deter it, not to advance its agenda. Now, the child is having a episode of "my way or no way", and the rest fo the class is telling it, no way!
Hopefully, the rest of the 27 countries can find it in themselves to move ahead of the UK period, perhaps in spite of it, and achieve more polictical, cultural, military and economic integration. Finally, to say that a tame bear is better than an angry bear, and Germany in particular should be a little more accomodating to the Russian, particulalry given the historic precedent, and the potential for conflict.

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