The political consequences of Brexit Transition

Jacob Rees-Mogg is apparently the bookies favourite to succeed Theresa May. It is the same Rees-Mogg who has declared the UK would become a vassal state if we accepted a transition period under the terms on offer from the EU: staying in the Customs Union & Single Market (CU&SM) and accepting all the rules therein (the full Acquis, to use the technical term). I think the vassal state remark means he does not like the idea.

In one sense this is all rather silly. As with the first stage agreement, the Brexiters will march Theresa May up the hill only for May to march them back down again as the reality of the UK’s position becomes clear. As ever, the logic of Article 50 means that the EU can dictate terms. The Brexiters probably understand this, but they have an eye on who will replace May so they have to play the game: Johnson played catch-up on the vassal state meme pretty quickly.

There is a deeper and much more serious concern about the transition phase. A much simpler and logical alternative to a transition period would be to extend Article 50 until the outlines of any future trade arrangements were clear. It is the Brexiters who will have none of this. The transition phase is itself a creation of the Brexiters, and their fear that parliament or voters will change their mind about leaving the EU. What this amounts to is another piece of deception, or perhaps self-deception. The UK is being forced to leave without being told anything about the final deal, including whether freedom of movement will be curtailed in any way.

It is a deception because the nature of the final deal is in reality already clear. I last wrote about the Brexit negotiations in the days before a first stage agreement was finalised, but I still wrote:

“Having signed up to staying in CU&SM as a default, the EU has zero interest in concluding any other kind of agreement, particularly as it will not safeguard the border. It will just be a matter of time before the arrangement whereby we stay in the CU&SM is formalised.”

I was a little nervous about writing that, but I was relieved to see that other economic realists reached similar conclusions. (Economic realists is a term due to Alasdair Smith, to contrast to the magic realists in the government and elsewhere. See also Jill Rutter.) This result, whereby we stay in the CU&SM, apparently goes by the name of BINO: Brexit in name only.

I doubt the government (by which I mean Davis and May) sees it this way, partly because they still have faith that the cavalry, ridden by German car exporters, will come to the rescue at some point, and the larger economies in the EU will put Irish concerns over the border to one side. But why should they? The best result for the EU is BINO, and what the first stage agreement shows is they can get it, because at the end of the day the UK will fold.

As Rick explains, the Ireland border constraint may still allow some flexibility as far as the single market for services (rather than goods) is concerned. Of course there are good economic reasons why we would want to stay in the single market for services. The only point of trying to negotiate not to be from the UK government’s point of view would be if that allowed some kind of opt out from freedom of movement.

However, if there has been one overriding mistake that even the economic realists have made throughout this process, it is thinking too much about what the UK’s options are and too little about what the EU will tolerate. The moment it was clear that the Irish border question was a first stage issue for the EU, talk of a Canada+ deal should have been quietly forgotten. Equally the key question now is what tinkering with the single market, if any, the EU will allow and whether anything will buy flexibility on freedom of movement.

In an ideal world, I would agree with Jean Pisani-Ferry who writes that it should. Once the Eurozone was formed, the EU should have thought more seriously about a two-speed EU or whatever you want to call it. Besides the UK, both Sweden and Denmark do not wish to give up an independent currency, and Norway, Iceland and Switzerland have very close relationships with the EU. Unfortunately, however, I suspect what will drive what the EU will tolerate with Brexit is the need to remove any temptation for any member to exit. So rather than thinking about what options the UK could go for, it makes more sense to think of final arrangements that everyone in the EU can agree leaves the UK at a disadvantage compared to being a member.

Would an arrangement which involved being partially in the single market and ignoring free movement be such a relationship? This must be questionable, because so many in the EU see free movement as integral to the single market. Although being out of the single market for services would be a big economic cost to the UK, so is restricting EU immigration. What matters are political costs, and such a deal looks too much like the UK gaining something significant by leaving.

In contrast BINO is a relationship the EU would be happy with, because following EU rules but having no say in those rules would appear obviously worse to any politician than being a member. It will certainly appear that way to any Brexiter. If Rees-Mogg calls the UK under a BINO transition a vassal state, what is he and others likely to think of a permanent agreement along these lines? It would be the ultimate humiliation for Brexiters.

What can they do about it? They could go for the nuclear option, and quickly trigger a leadership contest. But this close to us leaving the EU, MPs may persuade May to stay on (for the moment at least), and May might then win a contest among Conservative MPs, and as a result there would be no election involving the membership. A safer tactic for Brexiters is to look towards a leadership contest after we have actually left the EU i.e. during the transition period. [1] But the road ahead is full of minor humiliations, like the end of the ‘nothing agreed until everything agreed’ myth. Who knows what they will be provoked to do, or their backers and right wing press will provoke them to do.

If BINO is the final destination, this should in an ideal world give Remainers a very strong weapon. As David Allen Green suggests, they can constantly ask what is the point of this Brexit? But we are very far from an ideal world. Besides Remainers, the group that should see most clearly that BINO is obviously inferior to remaining in the EU are MPs, [2] but they are still bound by the will of the people. What they should do is vote to extend Article 50 until the nature of the final deal is clear, but while this can still be portrayed as frustrating Brexit they will not. Not enough of the public will change their minds because the government and the media, with the usual exceptions, will do all they can to obscure BINO as the ultimate destination, and the transition period will help the government to keep its magic realism going. 

[1] I have previously assumed that May would not be allowed to fight the next election. But if the logic I describe above still holds in 2022, she might yet. It will mean I underestimated the Conservative zugzwang.

[2] Just as a single politically binding referendum was absurd because it allowed a vote to leave without knowing the destination, so giving MPs a final say on the deal before we leave in 2019 is pointless because the government will not make clear the nature of the final deal.