The Daily Update - Brexit deal or no deal

The UK has finally caved to the EU’s disaggregated approach to Brexit negotiations: agreeing in principle to give around €55bn (as part of the eventual package deal) to compensate for retracting from future funding of the EU budget. The argument that such a stance was illogical (as they certainly wouldn’t enforce a leaving subsidised-member to continue receiving payments or impose a leaving-bonus) gained no traction after many precious months; neither did the previous €20bn and €40bn offers by Prime Minister Theresa May. Given that early talks of what the UK ‘owed’ were in the range of €60bn it seems that already in the first few items the UK as conceded much, and the EU precious little. The 1% Sterling rally on the back of this news puts it around 1.34 (to the dollar); this is up almost 9% this year, meaning that the hit on the currency’s value since Brexit has now shrunk to just under 10%. Hopefully, this small step forward puts the UK through the doorway into long-postponed trade-talks where our nascent negotiators will try to get our money’s worth, whatever €55bn in beneficial agreements looks like. Equivalent to around €1,000 for British every man, woman and child one would hope that any deal including such capitulation would have similarly-proportional economic benefits above and beyond what we could achieve with a no-deal.

Indeed the best route to achieve a good trade and services deal with the EU is to have a good negotiating position: which in-part means being prepared and clear on the strengths of a possible no-deal. Perhaps only when the obstinate forces amongst EU negotiators see the UK with a viable alternative will they drop their disproportionate demands and consider the best mutually beneficial option. There is sense for all parties to pursue effective regulatory equivalence and fair trading terms: that don’t pillory the UK for exiting the bloc, but account for it no longer being obliged to the EU’s “four freedoms” (goods, capital, services and labour). Those cynical that the UK doesn’t have a viable alternative to pandering to the EU’s demands (and indeed all involved politicians and negotiators) would do well to firm up their confidence and understanding of the UK’s plan-B. A great starting resource, perhaps, would be the trilogy of works by Barnabas Reynolds and Politeia, including yesterday’s release of “The Art of the No Deal” outlining (though not advocating for) the strengths, undertakings and opportunities of a well-prepared(!) no-deal exit from the EU.

If this hurdle of a settlement fee is indeed overcome we can expect much more substantive news on Brexit deliberations in the coming days/months and some long awaited and much needed clarity. Whether all of this will be unanimously agreed by the EU-27 bloc by March 2019 is an entirely different question.