Richard North, 06/09/2017  

There was a revealing episode yesterday during the debate on David Davis's statement to the Commons when John Redwood congratulated the Secretary of State for explaining that we have no legal liability to pay money above our contributions up to the date of departure.

He then put to Davis that the EU had "a simple choice to make". It could either trade with us with no new tariffs or barriers, because we have made a very generous offer (on a cash sum), "or it can trade with us under World Trade Organisation rules, which we know works fine for us because that is what we do with the rest of the world".

Someone who actually knew what they were talking about (which, of course, rules out Davis) would have sought to correct Redwood, telling him that we did not trade under WTO rules – and nor will we be able to do so once we have left the EU.

But this was the Commons where facts are not at a premium. Davis cheerfully responded to Redwood, saying: "My right hon. Friend is exactly right".

One of the things I have picked up going around the European Union countries, he said, "is that most of those nations also understand that fact very plainly". That, he added, "is particularly true of those on the North sea littoral - Holland, Belgium and France I have mentioned, and Denmark - which all know that the impact of no deal on their economies would be dramatic, and more dramatic than for us".

Although said and gone in a flash, that short exchange has important implications. It says that the Secretary of State responsible for guiding us through the Brexit process is labouring under the illusion that a "no deal" walk-away option is viable. That, after all, is what Redwood was suggesting and it is that with which Davis agrees.

Worse still, though, although he concedes that there would be an effect on the economy, it would be "more dramatic" for EU Member States – a scenario which also has important implications. It suggest a line of thinking all too prevalent in government circles, that the "colleagues" would buckle under a UK walk out and would quickly call for us to return to the negotiating table, offering us multiple inducements to make that an attractive proposition.

Looking at the Brexit negotiations in the round, it is clear that the UK is not making any real progress and, since Davis reported to the House that, in respect of the financial settlement, "there are significant differences to be bridged in this sector", the government is not confident of an early (or any) resolution of the talks, as currently structured.

Since the UK is now trapped in a seemingly endless spiral of talks which give the EU the upper hand, allowing it to stick to its "sequencing" and decide when or if "sufficient progress" has been made, there appear to be serious discussions within Mrs May's "inner circle" about the possibility of changing tack.

Specifically, bolstered by the illusion that the WTO option is largely free from adverse consequences, and that a UK walk-out would trigger an EU response that could work in our favour, there is a growing caucus in favour of applying "shock therapy" to the EU and engineering a walk out in the near future. "Sooner rather than later" is the dominant theme.

One of the strongest advocates of this line is said to be Dominic Cummings, who has had several recent meetings with the prime minister. Some believe that he has managed to convince her that opting early for the WTO option is a win-win situation.

We can, he argues, trade successfully on that basis but, if pulling out of the talks in preference to taking this option has the effect of forcing concessions out of the EU, we gain further in being able to insist on trade talks without the conditions currently being imposed.

Risks are considered to be minimal as the long-standing ethos that "they need us more than we need them" has taken firm root in Number 10. To that effect, it is felt that Mrs Merkel will intervene on behalf of her car-makers after her re-election as chancellor on 24 September – which is regarded as a foregone conclusion.

It is on the intervention of the Member States that the UK government is particularly relying. Having been unable to browbeat Barnier or shift him from his mandate, Davis is now convinced that there is no further value in seeking any movement from the chief negotiator. Thus, the mood music has been increasingly directed at by-passing him and appealing over his head to the Member States.

However, simply asking for the "sequencing" to be relaxed is not thought to be an effective strategy – hence the emergence of the "shock therapy" idea. A high profile, dramatic move would place the talks in an area outside Barnier's mandate and more or less require him to go to the European Council for further "guidance".

Another opportunity for increasing leverage are the growing fears that prolonged uncertainty will not only affect the UK economy but also choke off the fragile economic recovery being enjoyed by EU Member States. An early, decisive move, it is felt, might have a positive effect on market sentiment, further inducing Merkel and others to agree to UK terms.

This is the theory, at least, which is driving the discussions at the higher levels of government, divorced so far from reality that long-discredited options are being given a new lease of life. And, in particular, as no down-side is being attached to the walk-away option, restraints on its use are melting away.

Crucially, there is no expectation that the UK will ever be forced to rely on the WTO option. There is absolute certainty within the higher levels of government that Barnier's current stance is a bluff, aimed at maximising the UK's financial contribution.

Thus did Davis tell the House yesterday that the Commission is saying, "Unless we give approval that sufficient progress has been made, we will not go on to the main substance of negotiation: the ongoing rights". In his view, there is only one objective here. "What is it seeking to get from that?", he asked rhetorically, then triumphantly delivering the answer: "It is seeking to obtain money". The sequencing is simply "a pressure tactic to make us pay".

A display of strength, under these circumstances, will send the clearest signal to the Member States that the UK will not yield to "blackmail" and thereby force a rethink on strategy. Since, in the UK government's view, the "colleagues" want a trade deal as much as we do, faced with the prospect of getting neither the money nor a trade deal, they will opt for the deal as the better option.

As to timing, with the German federal elections on the 24 September, following which Merkel is expect to act – preferably in time to give Mrs May a victory to parade at her party conference – there is actually only a very narrow window for "Operation Shock Therapy".

This may then explain the media reports that Mrs May is to use a speech in late September – possibly on 21 September, three days before the German election - "to try to force the pace of Brexit negotiations".

We are being told that she is to explain how a raft of British position papers offer a vision of a "deep and special partnership" with the EU, and make the case for continuous talks with a view to inject urgency into the discussion and tilt the direction toward trade.

The idea of a speech has in fact been under discussion for some weeks, with the European Parliament's Brexit coordinator, Guy Verhofstadt, appearing to give away the date while explaining in Brussels why the next round of talks could be pushed back a week from the scheduled date of 18 September.

The UK government is refusing to confirm the delay in negotiations and Downing Street is saying that Verhofstadt has got the date wrong. However, officials have confirmed that the speech will see Mrs May "reflect on the UK's position, eight months after she first set out her Brexit vision".

Between now and then, anything could happen, but there is absolutely no doubt that a walk-away strategy is being considered. Whether Mrs May will use her speech to trigger it is anyone's guess, even if there are rumours that the decision has already been made.

But if Mrs May does decide to walk, it will be an error of huge magnitude. The UK government is badly misreading the EU's stance and its determination to stand behind their chief negotiator. It could be the start of a long, solitary journey for the UK, ending in disaster.

One hopes that saner counsels will prevail before Mrs May is put to the test.

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