Richard North, 09/01/2020  

Newly appointed Commission President von der Leyen hardly told us anything new when she addressed an audience at the London School of Economics yesterday, just hours before a "positive" first bilateral meeting with Johnson.

"During the Withdrawal Agreement negotiation", she said, "there was always the uncertainty around whether Brexit would happen. It was an uncertainty that made the negotiation inevitably tense".

As to the "fresh negotiation", von der Leyen  noted that it would "take place against a backdrop of clarity and mutual interest in making it work". The European Union, she said, "is ready to negotiate a truly ambitious and comprehensive new partnership with the United Kingdom. We will make as much of this as we can. We will go as far as we can".

But then came the "money quote" which the legacy media have picked up to make their stories. "But the truth is that our partnership cannot and will not be the same as before", says the Commission President.
And it cannot and will not be as close as before – because with every choice comes a consequence. With every decision comes a trade-off. Without the free movement of people, you cannot have the free movement of capital, goods and services. Without a level playing field on environment, labour, taxation and state aid, you cannot have the highest quality access to the world's largest single market.
Then she adds:
The more divergence there is, the more distant the partnership has to be. And without an extension of the transition period beyond 2020, you cannot expect to agree on every single aspect of our new partnership. We will have to prioritise. The European Union's objectives in the negotiation are clear. We will work for solutions that uphold the integrity of the EU, its single market and its Customs Union. There can be no compromise on this.
In effect, she is simply reiterating that which I wrote in my previous piece, echoing the sentiments of Telegraph writer Jeremy Warner, who points out that, if the UK government sticks to its plans for regulatory autonomy and insists on allowing divergence, any trade deal "may be quite limited in scope".

The story is amplified in the Guardian with add-on comments from Michel Barnier, who was also at the LSE event. He warned in an impromptu exchange that leaving the EU was not a simple process and involved renegotiation of "600 international agreements" as well as a new free trade agreement.

This "600 international agreements" issue is an interesting one, to which I alluded to nearly a week ago when I noted that, when the transition period ends, so do the 977 bilateral agreements the EU has made with the rest of the world. So far, I wrote, "very little progress has been made on reforging those severed links and, for an unknown number of them, matters will need to be settled with the EU before any progress can be made".

Now, it seems, the Commission is thinking that about 600 of those will need to be addressed once we have left the EU, representing a significant burden for the UK's negotiating teams.

With that in mind, it is unsurprising that von der Leyen is saying that, if Johnson insists on curtailing the transition period: "It is basically impossible to negotiate all". In an attempt to deal with a very difficult situation, she said the EU would prioritise the elements of a deal, doing what is necessary to prevent the UK crashing out on WTO rules. Obviously, though, the closer the UK could remain to the EU, the better the chance of a deal that would avert a cliff edge.

It is here that we now see a game of two halves. While von der Leyen and Barnier both are warning of the consequences of regulatory divergence, we have departing governor, Mark Carney, talking to the Financial Times about – amongst other things - the City's prospects after Brexit.

But, in a puzzling intervention, he argued that there was no point in London, as a world financial centre, being a rule taker from Brussels. Instead, he urges the UK government to avoid aligning its financial regulations with those in the EU in the hope of better trade terms after Brexit.

"It is not desirable at all to align our approaches, to tie our hands and to outsource regulation and effectively supervision of the world's leading complex financial system to another jurisdiction", he is cited as saying.

It is this "rule-taking" aspect which, according to Bruno Waterfield, is the reason why Efta/EEA option was a non-starter in Whitehall, killed off by Treasury hostility.

But what's puzzling about this is that it has been a long time since the UK was a rule-taker from Brussels. Increasingly since the 2008 crisis, financial crisis has been coordinated on a global level, through G20. And, as I pointed out in Flexcit, at a technical level, this organisation works through the Financial Stability Board.

Founded in April 2009, it has a mandate "to coordinate at the international level the work of national financial authorities and international standard setting bodies and to develop and promote the implementation of effective regulatory, supervisory and other financial sector policies".

It brings together national authorities, international financial institutions, sector-specific international groupings of regulators and supervisors and committees of central bank experts. It counts as its members the Basel Committee on Banking Supervision (BCBS); the Committee on the Global Financial System (CGFS); the Committee on Payment and Settlement Systems (CPSS); the International Association of Insurance Supervisors (IAIS); the International Accounting Standards Board (IASB) and the International Organisation of Securities Commissions (IOSCO).

This, in effect, is the standards setters' standards setter, positioned at the centre of a web of international bodies concerned with regulation at a global level. And, significantly, until recently, it was chaired by Mark Carney, the very same man who is complaining about the UK being a rule-taker from Brussels.

Currently, when one looks at the FSB's Regional Consultative Groups (RCGs), the co-chair for Europe, alongside the Deputy Governor of the Sveriges Riksbank, is none other than Katharine Braddick, Director General of Financial Services at HM Treasury.

Basically, while Carney is in line with Johnson about avoiding regulatory alignment, what he is saying – and Johnson for that matter – simply does not fit in with the way the real world works.

With standards regulation generally originating from global bodies, the EU is the rule-taker. And where the UK has its feet under the tables of these bodies, it has a central role in determining the rules that the EU will adopt, then to pass down to its Member States.

I cannot believe that Carney is unaware of this dynamic, so one really does wonder about the game he is playing. As for the likes of Johnson – and many of those around him – their horizons tend to stop at Brussels, failing to understand the global dimension of standard setting.

At stake, though, is a halfway reasonable settlement with the EU and, in their ignorance – or perhaps for more Machiavellian reasons – "team Johnson" seems to be willing to discard the concept of regulatory alignment when, in or out of the EU, we will all end up sharing the same global rules.

Nothing of what we're being told, therefore, makes any sense, and neither do the actions of our masters. We are being led up a blind alley, with only one certainty: this doesn't end well.

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