LEADING THE WAY OUT OF THE EU

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Tuesday 19 December 

Leafing through Leave.EU’s inbox yesterday, your humble correspondent picked up on an unsurprising consensus in favour of a no deal.

As eyes turn to the “end game” with the failing bloc, the most likely alternative to a no deal remains a conventional trade agreement, but to sign such a deal with the EU would represent a failure.

The EU buys our services, particularly financial services and we buy their goods, but according to Michel Barnier, in an interview with the Guardian:

“There is no place [for financial services]. There is not a single trade agreement that is open to financial services. It doesn’t exist”.

The EU’s chief negotiator envisages a conventional deal orientated in the EU’s favour: they get access to our market, but shut out our stronger competition in services. If that’s the case, a no deal is the only option.

David Davis is more optimistic however, echoing Barnier’s own words from over the weekend. The Guardian also writes of the Brexit Secretary’s intention to tell the European Commission (i.e. Barnier) that it cannot “cherrypick some sectors”.

Furthermore, according to Theresa May, Stefaan De Rynk, one of Barnier’s top negotiators, promised a bespoke deal. But for his boss, it’s either the full-fat Single Market deal or the super-skinny goods-based alternative, there is no scope for finely tailored add-ons.

“We will not accept from the other side, regulatory competition against social rights, against environmental rights, against consumer rights and against fiscal regulations … Or against financial stability.”

“We will not accept chlorinated chickens, nor other products that do not meet our food standards”.

On the one hand, the EU’s chief negotiator is saying how limited a standard trade deal would be, on the other he is saying how expansive a Single Market arrangement would be. Both are bad, one would be weighted in the EU’s favour, the other would encroach on UK regulatory freedoms and the ability to add a handful of growth points to the economy by cutting EU red-tape – “regulatory divergence” in very modern parlance. Single Market membership would also entail open borders of course.

Both scenarios would represent significant climbdowns. The fact remains however, Britain has a £60bn trade surplus with the EU, a bargaining chip we must use to our advantage.

But May and Davis must not stake their reputations on privileged access to the EU’s burdensome services market, which is protected from foreign competition by layer upon layer of national, as well as EU rules. The US is our biggest export partner for services by far for a reason.

Within Government, consensus is said to be building between the Remainers and the Leavers, with even Philip Hammond getting excited by a regulatory bonfire.

The debate within Cabinet now is not about whether we diverge from EU rules or not, but how quickly, with Hammond and Rudd typically favouring a slower paced approach. But as Robert Peston rightly points out, you cannot have a trade deal built on sharing the same standards and then move away from them. In other words, the EU is setting up a trap that we are about to walk into, the debate over the speed of divergence is a misleading one, there will be no divergence.

We know this already of course. The open border settlement over Ireland means British standards will have to remain in line with the EU’s. Merry Christmas.