Brexit Endgame: Stage 1

A characteristic of many endgames in chess where the result is clear is that pieces leave the board quickly to make the eventual win obvious. What we have seen with the resignations of some (Davis, Baker and Johnson at the time of writing) is but the first stage in that process. As I had anticipated, the Brexiters have split, probably for two reasons. The first may involve calculating what the best way of becoming May’s successor is (remember any calculation does not need to be correct). The second is about whether trying to bring May down is more dangerous to Brexit than accepting defeat and playing a very long game. Let me expand on this last point.

BINO (Brexit in name only, or something very close to it) is not a stable position in the long run for a large country like the UK. The very long game for Brexiters sees BINO as a first stage in a gradual distancing of the UK from the EU. The big problem with this strategy is demographic: Brexit was a vote of the old against the not so old. For that reason the instability of BINO is more likely to lead to rejoining, although when that happens depends in part on the EU. But bringing May down could simply backfire and halt or even end Brexit, as it can only be done by enough Brexiters joining Labour in voting against May’s Autumn deal with the EU. If the deal is voted down by parliament we are in ‘anything can happen’ territory, and that anything includes leaving with no deal, no Brexit at all, a new Prime Minister or even a new government. Remember also that it is easy for Brexiters to make threats now, but actually voting against a deal is something else. [1]

A vote of no confidence in May among Conservative MPs, although it will probably be talked about endlessly by the media, is also the least important event in all this. May will win, because Remainers do not want to risk a Brexiter Prime Minister. If Brexiters have any sense they will leave any vote until later anyway, for the reasons I will now explain. 

We have seen the first stage of the Brexit endgame, the first set of pieces to come off. The plan hammered out at Chequers, as Chris Grey explains, is the basis for negotiation that I said May needed to get on the table, but it also cannot be accepted by the EU for many reasons. In terms of pieces still to go, the elaborate attempt in the Chequers plan to give Fox the appearance of still having a job will not stand. But having to concede in effect staying in the Customs Union, and seeing Fox (and others) go? is the least of the three changes the EU will probably require compared to that plan. The EU is unlikely to accept a goods only Single Market deal for the whole of the UK, and is even more unlikely to accept the UK staying in the Single Market without also having freedom of movement.

How the endgame is played by the EU now becomes important, because it will determine when (not how) this all ends. The end result for Brexit if it happens - some form of BINO - is not in question unless something very surprising happens within the EU. But May will be desperate to avoid that becoming clear for as long as possible, and it is up to the EU the extent to which they let her play that game. To continue the chess analogy (my apologies for those who do not play), May wants an endgame that allows her to postpone the inevitable (i.e. to avoid agreeing to BINO) until the time control period of 40 moves comes to an end (we leave in March 2019, and enter transition). That requires a withdrawal/future framework deal that is vague enough that it is not obvious that freedom of movement will continue. Even that may not be enough for May to get any deal through parliament, but that is all she has to play for.

The calculation the EU now has to do involves working out what outcome is most likely in ‘anything can happen’ territory. If they think there is any risk of no deal they might play along with May’s attempts at fudge (although the Irish backstop cannot be fudged). But if they see as the most likely outcome that Brexit comes crashing to an end, then maybe they will play for that form of endgame. That calculation will have a strong influence on how this all ends. Which is not surprising. By triggering Article 50 the UK government gave up control and put our fate in the EU’s hands, like a novice playing a grandmaster.

[1] Actually ending a government is much harder than most imagine after the Fixed Term Parliaments Act. Would Brexiters really join the opposition parties in a vote of No Confidence in the government and become responsible for a possible/likely Corbyn led government? At the moment a vote against any deal with the EU would lead to a No Deal Brexit, but I suspect May has enough leeway to stop that (and the EU would always accept a request for more time to avoid that outcome). She could even threaten the Brexiters with ending Brexit if any deal falls: unlikely I know but it would put various cats among pigeons.

Brexit: The Endgame

The logic of the Brexit project’s demise has been there for all to see as soon as it was clear the EU would stand by Ireland’s wish for no border. The need to avoid a hard border in Ireland, now accepted by the UK government, dictates that we stay in the Customs Union (CU) and at least part of the Single Market (SM). That is what the UK government signed up to in December, without apparently realising what it had done. The only alternative, which is to take the deal offered by the EU for Northern Ireland and have a border in the Irish Sea, is not politically acceptable to the Prime Minister and many in parliament.

The EU have now made it clear that the deal offered to Northern Ireland (staying in the SM for goods without Freedom of Movement (FoM)) is not available to the UK as a whole. It is a special deal recognising the unique problems of Northern Ireland, and cannot be something offered to any member state that decides to leave. The political reason is obvious, as such a deal might become attractive to populist politicians in other EU states.

That is the EU’s position, but the UK has not even tried to test it in negotiations, because it has spent all the time since the December agreement arguing with itself. The Brexiters, who include our chief negotiator, have with the help of their Legatum helpers spent their time making various proposals each more fantastic than the last. Their final argument is that we should leave everything to the last minute because only at the last minute will the EU cave and offer us complete access to the Single Market on whatever terms we like.. Perhaps some really believe that, but there is an alternative interpretation of what the Brexiters are doing. They are trying to delay because that way they may get their own favoured outcome of no deal by default. In short, by intent or not, they are trying to sabotage a Brexit deal.

That is not the only reason why Theresa May has to finally stop appeasing the Brexiters and formally make the proposal to the EU of extending the N.I. deal to the rest of the UK. She needs to impress on the EU, face to face, that a border in the Irish Sea is not possible, and that therefore the UK is also special in that particular sense. She also needs to argue that she needs to be able to go back to the people with something better than BINO, because BINO was not what most Leavers voted for. It might lead to, for example, the UK having something like the Swiss option of favouring (in a very small way) local markets for certain types of jobs. The EU of course may not be in any mood to be kind to a government and Prime Minister that has for so long been out of touch with reality, but just in case they are she needs to give them time to be generously creative on her behalf.

To do all this she has to finally break with the Brexiters. I have seen it said that this will bring her down - it will not. As the Brexiters are a minority she would win any vote of no confidence among her party. Would they take the ultimate step of supporting in parliament a vote of no confidence in the government? With many of the Brexiter leaders having ambitions to succeed May, I doubt it. Partly as a result, I suspect all most will do is register their dissent, and say forever more that if only the UK had hung on a bit longer the EU would have caved. It will also be difficult for some Brexiters in the cabinet to stay there, but somehow I don’t think that will worry May too much. The people who will go for her in a big way will be the Brexit press, but right now as far as Brexit is concerned they are paper tigers.

The reason why May needs to dress the deal up as something it is not (or persuade the EU to leave the door open to non-BINO options until after we leave the EU) is that otherwise everyone will ask what is the point of BINO: Brexit in name only. Like transition, it will be pay, obey but no say, and to all intents and purposes freedom of movement will remain. The Brexiters will be the first to make that point until perhaps they realise it might jeopardise Brexit itself. So May has to pretend we got something worth leaving for. As I wrote in January, Brexit will end not with a bang but a whimper.

If she does manage to do all this, Labour will find themselves in a very difficult position. In the days when they were triangulating, I said it was crucial that they always stayed the Remain side of the Conservatives to keep their members and voters on board. But now they have nailed their colours to the wall: stay in the Customs Union but leave the Single Market because of its position on state aid and maybe to avoid freedom of movement. It is a position that they can get away with so long as the Conservatives are still negotiating with themselves. But if May has to agree to stay in the single market to get a deal two problems with Labour’s position become clear.

First, how does Labour’s position prevent a hard border in Ireland? If the EU will not allow the UK to be in a single market for goods only, that means the Irish border dictates BINO. If May has finally recognised reality, why haven’t Labour. An argument that Corbyn could somehow achieve a settlement that May could not is not completely stupid, but I doubt it will play well. Second, they will now be arguing for a harder Brexit than May, which the majority of their members and voters will not like. You could even see the Brexiters joining with Labour in voting against what is essentially a BINO final deal. So if May is forced to accept staying in the complete Single Market as part of the deal, expect Labour to change their position or suffer some serious political damage.

If things go as I outline here, there will be a short period where people who are not Remainers will rightly ask why are we doing this if the only substantial thing we have achieved is to have no say on how the budget we pay into is spent, and how the rules and regulations we have to obey are changed. But our political class will not draw the obvious implications of that. A true statesman of a Prime Minister would say I did the best I could, but for the sake of peace in Ireland and the unity of the UK Brexit cannot happen, and so the best thing for the UK to do is to remain in the EU. And if I then ask why that does not happen in the UK, my best answer is because of an ideologically driven right wing press. Their great achievement will have been to campaign for a Brexit that gives sovereignty back to the people which ends up doing the opposite.

Theresa May’s perpetual Brexit and Labour's forsaken base.

Two pieces of recent Brexit news are that a majority of the ‘war cabinet’ outvoted May on the choice between two unworkable, and therefore unacceptable to the EU, proposals to keep the Irish border infrastructure free, and Labour plans not to support a Lords amendment to keep the UK in the Single Market (SM). I want to consider each in turn.

The Brexiters, and their followers who just want to be PM and are signaling to party members, have put their collective foot down over the Irish border. This could imply that May will have to finally break with the Brexiters. But first she will try to do what she has done since negotiations began, which is to find a fudge that is good enough for the EU and which just keeps the Brexiters on board. I have no idea if such a fudge is possible, but suppose she manages to achieve one and prevents a revolt from the rebels in her party, so we leave in 2019 as planned.

If that happens, we are in danger of having perpetual Brexit. A final deal cannot be fudged, and the reality is that no deal is possible that will keep the Brexiters happy and be acceptable to the EU. The stumbling block is the Irish border: the EU will not negotiate an FTA that requires a hard border, and the Brexiters will not accept either the UK staying in the Customs Union (CU) and SM for goods, or a border in the Irish Sea. A crunch point could come at the end of 2020, but to avoid that May will plead for an extension which the EU may grant. And so it will go on: perpetual Brexit.

In a strange way, it is in May’s interest for this to happen. No one thought she would last for more than a few years after the 2017 fiasco, but Brexit keeps her in place. The majority of the parliamentary party dare not allow her to go because they will get a Brexiter in her place, given that it is members who ultimately decide. Furthermore, the closer we get to 2022 the less the party will want a bust up over how transition ends, so she fights another election.

If she wins the 2022 election would that finally give her the confidence to do a deal with the EU and ignore the protests from the Brexiters? Two factors suggest not. First, the new intake of Conservative MPs could mean that she would lose a vote of no confidence over Brexit. Second the right wing press, with the election out of the way, might not hesitate to call betrayal if she agrees any kind of deal with the EU. Both the press and Brexiters, knowing that BINO was not at all what they had in mind, would be looking to break off negotiations with the EU and go for No Deal. If she gets an outright majority a deal that puts a border in the Irish Sea becomes possible, but I doubt she will take it or the party will allow it.

The underlying logic is simple. For Brexiters, transition is only bearable because they see it as a stepping stone to a hard Brexit. The EU will not negotiate an FTA without a border in the Irish Sea and no hard border in Ireland. These are irreconcilable positions, a point which the media have just not taken on board. So if May does fudge her way to agreement on the withdrawal bill, it means perpetual Brexit negotiations. Transition, or Brexit in Name Only (BINO), may not sound too bad, but it means never ending uncertainty because business cannot rely on this arrangement lasting decades.

One way to stop fudge is to force the government to break with the Brexiters. One of the difficulties Tory rebels will always have is that it is difficult to vote against a final deal that is fudge, because just as with the original Leave vote fudge can mean almost anything the fudgers want it to mean to get votes. As the polls I discussed here show, it is only by talking about something concrete that voters say wait a minute that was not my Brexit. Which is why votes on Lords amendments to the UK’s withdrawal bill to stay in a CU and (tomorrow) the SM via the EEA can be so useful. Conservative rebels think that with Labour’s support they could win both votes in the Commons. But while Corbyn has been persuaded to back the rebels on a CU, he appears unwilling to do the same on the SM.

I have talked a lot about Labour’s triangulation strategy. That strategy works best when all those who want something that is softer than Theresa May’s Brexit think Labour in reality wants what they want, whatever Labour might actually say. In a purely two party system with rational voters Labour can get away with disclosing that they really only want a slightly softer Brexit than May, because Remainers have nowhere else to go. But reality isn’t like that in two important respects: Remainers can vote for the LibDems or Greens (many thought the Greens would be hammered in the local elections - they gained seats), or they can not vote at all.

Until now, I think we have evidence that Labour has largely succeeded in being all things to all those wanting something softer than May, including those who want to Remain. But as crunch time comes closer this is going to be difficult to sustain. So what does whipping your Lords against voting for the EEA option disclose: that, as long as May is in charge, you are content to see the UK leave the Single market. [1] That might firm your support among some Labour leavers, but it pisses off all Remain supporters and those Leavers who want to stay in the SM.

I think this is a mistake, although I am happy to have experts tell me otherwise. I think it is a mistake because you will lose more votes from disillusioned Remainers than you will gain from reassured Leavers, even when you allow for where each are in parliamentary seats. I keep being told that this is the Tories Brexit, but the moment Labour enable it they become complicit. If car factories in the North East go because we leave the SM, they cannot claim this is not our fault because we abstained on a vote that could have prevented this. Voting to stay in the SM indicates economic competence, which always matters in elections and particularly matters for Labour. 

It also seems like a political mistake beyond votes and reputation. The theory seems to be that a vote to stay in the CU, which the Lords did pass with Labour’s help, will do all the required damage to May. But there are those who argue that such a vote can help her, by giving her an excuse to ignore the Brexiters and do a deal. The Brexiters will be furious, but what can they do at the end of the day, as May can defeat any vote of confidence because Conservative Remainers do not want a leadership election. Wth UKIP dead, they have nowhere to go. May, free of the Brexiters, might even achieve a final deal by 2020 (although crossing her own red lines to do so), and fight the subsequent election as the Prime Minister who got Brexit done.

Which is a long winded way of saying that a vote on the CU may not be enough. If Labour does kill a vote on the SM, they lose another chance to cause problems for May, and this time over an issue she really does not want to lose. Put simply by doing this Labour may be passing up a chance to do great, and possibly terminal, damage to May’s leadership. So the Lords decision looks bad in terms of votes, and bad in terms of politics.

Perhaps most importantly it is also bad in principle. Staying in the SM as well as the CU is the right thing to do if someone else is doing the negotiation. We need to stay in the SM for goods to avoid a hard border in Ireland, and therefore to get a deal with the EU. But the UK is really strong in exporting services, so leaving the Single Market for services is just another act of self harm. I have always been worried, since my time on Labour’s EAC, that the leadership underestimated the damage leaving the SM could do. And if truth be told the Leave vote was won on false pretenses, which means few voted Leave thinking they would be poorer. Which is why there is no mandate to leave the Single Market.

To those who say that Labour have to appease those who voted Leave in our traditional heartlands I would say this. Past Labour leaderships have for many years neglected their traditional heartlands, partly in efforts to appeal to the middle class and partly by embracing neoliberal ideas. They have subsequently tried to win back their traditional base through appeasement over immigration. It did not work then, and it will not work now with Brexit. You win Leavers back to Labour by focusing on the economic issues that matter to them, and not by votes in the House of Lords. 

Appeasement over Brexit is a mistake because Labour alienates its base, just as happened with austerity and immigration. It is time Labour stood up for its principles, which include better public services. Leaving the Single market will mean less money for public services [2], which is why 87% of Labour party members want to stay in the Single Market. Leaving the Single Market is a policy that should be opposed, not enabled.  

Postscript: The Lords amendment was passed by 247 votes to 218. 83 Labour and 17 Conservative peers defied their party and voted for the amendment. Only 3 Labour peers voted against the amendment. Jeremy Corbyn now has to decide whether he regards leaving the Single Market as more important than inflicting what could be a mortal blow to Theresa May. 

[1] We need to dispense with one red herring here. Abstaining does not mean neutrality. If the Lords amendment succeeds it puts the issue on the table, and Conservative rebels think they have the vote to support it with Labour’s support in the Commons. If it fails, it is less likely to be resurrected in the Commons. To say that the EEA option is not Labour's preferred option is irrelevant because they are not in charge and they have limited influence on the outcome. This vote is one point of influence, and they have gone for the worse option. 

[2] Whether they intended it or not, the writings of MMT seem to have convinced many people responding to me on twitter that lower UK GDP has no implications for the level of UK public services. Lower GDP, caused by lower labour productivity because Brexit diminishes UK trade, reduces the resources available to go to private and public consumption. The only way you can avoid less resources going to public consumption is to cut those going to the private sector. Nothing in that statement contradicts or can be changed by anything in MMT theory. If resources are underutilised they should be fully utilised, whether we are in or out of the EU. This is not about utilisation of resources. 

What ignoring Ireland tells you about our governing elite

The hapless progress of the Brexit negotiations continues. I do not mean the almost childish nonsense of May’s new wheeze. Instead I’m talking about the Irish border. It seems, if you read most of the UK press, that out of the blue this new obstacle has been sprung on the UK at the last minute. Some of the press talk about surprise, while the Guardian talks about it ‘emerging’. Some have even decided to cover up their ignorance by inventing conspiracy theories. With political commentary in the UK largely reflecting the beliefs of the UK side, then this also means that this surprise extends to our negotiating team.

In reality there is nothing to be surprised about. The Irish border was one of the three issues to be dealt with in the first stage. As the UK government has consistently said they are leaving the Customs Union and Single Market (CU/SM), and have failed to convince even themselves that they can invent a new magically invisible border that can police countries that have different customs and regulatory regimes, it was only natural that an EU paper would suggest that Northern Ireland stay in the CU/SM to avoid a hard land border.

So why did the UK, and its media, seem to forget about this third issue, when even I had flagged it up as the critical issue a couple of months ago. What I think happened is that the Brexit side convinced itself that, because a hard border would only arise as a result of different trade regimes, then the border was really a trade issue and so should be in stage 2. In other words the EU had simply made a mistake in putting it in Stage 1, and would therefore quietly forget about it.

That reasoning was part wishful thinking and part delusion. Wishful thinking because, as I wrote back in September, it is a problem with no obvious solution that Brexiteers would accept. And delusion because the UK side continues to imagine that the EU is governed by Franco/German interests, and why would these countries be concerned about what happens in Ireland. What it completely failed to understand, and what the EU had understood, was the importance of the border issue to the people on both sides of it. It was an important reason why Northern Ireland voted to Remain.

But I wonder if there is something deeper behind the UK attitude. For too many people in England, the ‘troubles’ in Ireland were a quarrel in a strange country between people of whom we know little, to paraphrase Neville Chamberlain. As a result, there is little comprehension of why a hard border should be such a big deal. You would think memories of bombs going off in England’s cities would change that, but I’m not sure it did, anymore than more recent terrorism has led to a better understanding among English people of tensions within Islam. In contrast, most people in Northern Ireland would move heaven and earth not to go back to those times.

Even while all this might be true, it is no excuse for the same attitudes to be held by our political leaders. John Major knew better than this, as did Tony Blair. Only the arrogant disdain for different realities displayed by Brexiteers can explain a mistake of the magnitude of ignoring the border issue. I suspect any politician that lied the way the Brexiteers lie, or lived in the alternative reality they appear to live in, would not have survived long in UK politics two decades ago, whereas now it has become a criteria for holding high office.

At the end of the day there is little difference between Brexiteers who tell people that new trade deals with countries outside the EU can make up for trade lost with the EU, and Republicans who say scrapping Obamacare will extend coverage and their tax bill reduces taxes for most people. In both countries when the ability to gain office is determined by how well you can fire up or charm a base, because a large part of the media will then assure you have a good chance of winning elections, is it any wonder the political system fails to select for competence, understanding or respect for wisdom and knowledge.

There is a simple solution to the problem of the border. It is for the UK side to commit to only negotiate new trade arrangements that would be consistent with a soft border. [1] That would mean staying in the Customs Union and parts of the Single Market, but it could leave open the possibility of negotiating over the remaining parts of the Single market and perhaps free movement. Anyone who tells you that this concession by the UK side does not respect the referendum result is once again lying: Leave won precisely because they ruled no arrangement out. Any red lines erected after the referendum carry as much weight as the Prime Minister currently has authority.

Already we have many people in the UK saying why should we adapt our policies to keep the people of Ireland happy. This is the Chamberlain type attitude that I talked about earlier. The Irish border is at least as much our creation and our concern as it is of anyone else. Maintaining peace within the UK should be any government’s top priority. The fact that it has failed to make it onto Brexiteers to do list tells you as much about their outlook and competence as you need to know.

[1] Whether the UK will be forced to take this position I do not know. I stand by what I wrote recently that there will almost certainly be a deal, one element of which will be a transition where we stay in the EU/SM. Indeed I understated my case there. First, there can be no such thing as no deal. As Davis has explained, there are things that have to be sorted to keep planes flying and the like. He has described this as “some sort of basic deal without the bits we really want”. What that remark shows is that the ‘no deal is better than a bad deal’ line is simply a bluff and he knows it. The bad deal is no deal. And finally there is parliament. I know it has been pathetic until now, but that does not mean it would sign off on the worst possible kind of Brexit. But what the border issue will most likely show is that it is unlikely we will get to a deal involving transition without cabinet resignations.

Why is the UK making such a mess of A50 negotiations?

The obvious answer to this question is that the negotiator, the UK government, is completely split on what it wants. But that is only part of an explanation for this shambles. In the first year I think actions were dictated by a completely unreal perception about power, and perhaps more recently by a need to avoid a coup by the hardline Brexiteers.

The people who might have thought about the negotiations before the vote itself, the Leave side, didn’t do so partly because they didn’t expect to win. But they also had completely unrealistic expectations of the relative power of each side. This was an advantage during the campaign, because they could say ridiculous things about the economic consequences of Brexit without knowing it was a lie. But once they had won, there were only two ways to go, and either of them led to an early implementation of Article 50.

The first possibility is that after the campaign they continued to believe that German car makers would pressure the German government and the EU to give us what we want, so why not bring that on by triggering A50. The second was that they began to doubt this, but that in turn led to a fear that once the people found out they had been told falsehoods about leaving they would change their minds. That too lead to an urgent need to trigger A50 before this happened.

But Leavers did not have a majority in parliament. Remain MPs must surely have realised that the EU had much more power than the UK (the proportionate cost of no deal is much greater for the UK), and that once A50 was triggered the clock was ticking for the UK, not the EU. David Allen Green has justifiably said I told you so, and I knew when I wrote a post entitled “The Folly of triggering Article 50” in November 2016 that I was just repeating expert opinion, and to be honest common sense. As I said there

“this has absolutely nothing to do with whether you voted to Remain or Leave. Anyone who actually wants a good deal from the EU when we leave should realise that the UK’s negotiating position becomes instantly weaker once Article 50 is triggered.”

The worst explanation for why the majority of MPs ignored this advice was that they didn’t hear it. (We know the Prime Minister did hear that advice from Sir Ivan Rogers.) Almost as bad was that they heard it but thought it was just a desperate ploy by experts to delay leaving. Those who want to say it is all because of mixed motives from the Labour leadership will do so. But I suspect there is a simpler explanation: MPs felt voting to delay was ‘politically impossible’.

Part of the reason it was ‘politically impossible’ is that the standard of reporting and debate among broadcasters on these issues is so poor that the argument that triggering A50 was bad tactics would simply not have got a proper hearing. In addition the tabloids would have screamed “enemies of the people” just as they did when three judges allowed MPs a vote. In this sense our media not only gave us a Leave vote, they forced an early triggering of A50 which was not in the country’s interests.

As I wrote in that earlier post, it “would only be a slight exaggeration to say [triggering A50] allows the EU to dictate terms” which is exactly what they are doing. In these circumstances, the best approach to the negotiations is to treat them as a cooperative exercise rather than a zero sum game. Yet we were led by Theresa May and David Davis, who were instead determined to treat this as a classical zero sum negotiation where, because you had more power, your best hope was to make the other side believe you will walk away. Yet that walking away threat was never credible, partly because of reasons already given, but more importantly because a deal on the EU's terms was better than no deal.

But despite this, in our negotiators minds the delusion that we have power in these negotiations as long as we threaten to walk away seems to persist. The lack of flexibility by the EU can be dismissed as them playing hardball. As firms move abroad because they need to plan and they cannot be certain of any transition arrangements, the cost of delusion will be paid for in lost UK output and lower incomes.

It is just possible that both May and Davis have begun to realise this, but the delusion of power has been replaced by something else, which is the fear of a coup by Brexiteers. The pro-Brexit views of Tory party members makes such a threat credible, but any coup would have to happen well before the negotiations ended. Perhaps the reason May is now being so slow to move is to make the possibility of a coup less likely. But perhaps that involves a level of strategic thinking the Prime Minister is not capable of and Davis has simply given up.

Whatever the motivation, the end result has one certain consequence: the economy is damaged. As one final example, take the length of the transition period. The logical thing to do is to have a transition period until a new trade agreement is agreed. Anything else involves significant economic and administrative costs. But the UK government does not seek this because it pretends a trade agreement can be done quickly, and it pretends this nonsense to avoid a confrontation with the hardliners.

Even if this turns out to be pretend and extend, because the transition period will keep on being rolled forward at the last minute, this arrangement suits the EU and damages the UK. It is good for the EU because their exports to the UK do not suffer. It damages the UK because the uncertainty continues to make moving production to the EU rather than exporting to the EU attractive. Just one more way that the fantasies of Brexit hardliners are costing us all.

The real obstacle for the Brexit negotiations

I’m not going to say anything about the content of yesterday’s speech: I talked about the likelihood of a transition arrangement that involved us staying in the Customs Union and Single Market back in March. My only uncertainty then was whether May could be pushed to a No Deal outcome, but as the government has done absolutely nothing to prepare for that outcome it now seems an empty threat. As for a two year transition period, its an insider joke. You have to have no idea about trade negotiations to imagine it could be done in that time, but as that includes most Brexiteers it serves its purpose.

Instead I want to talk about is what could be the real obstacle to the negotiations moving on to the next stage, and that is the Irish border issue. Many have noted that putting it as a first stage issue seems illogical, because what happens to the Irish border will depend on future trade arrangements between the UK and the EU. There obvious answer to why the Irish border question got put in the first stage is that the EU want to force the UK into staying in the EU’s Customs Union precisely to avoid recreating a border between the two parts of Ireland.*

The UK’s paper on this question makes it clear that there is no realistic compromise on this issue, as Ian Dunt’s discussion makes clear. There is a third way, which is for Northern Ireland to remain part of the Customs Union while the rest of the UK is not, but the DUP will have none of that. This was a major implication of the election result and May’s bribes to obtain a confidence and supply arrangement with the DUP.

A key political question will therefore be whether the Irish government and the EU will play this card that they have dealt themselves. The Irish government would like to, but I suspect (from past experience) that if they came under pressure from the rest of the EU they would back down. But the EU would also like the UK to remain in the Customs Union to resolve the border issue. Indeed everyone would be better off if the UK committed to staying in the Customs Union on a permanent basis. The only obstacle to this are the fantasies of Brexiteers, personified in the department led by Liam Fox.

I said I was not going to talk about it, but perhaps this was one reason why May gave her speech yesterday. By confirming that there could be a transitional deal (which Richard Baldwin might call a pay, obey but no say period), she hopes to dampen the resolve of the Irish government and the EU to make this a sticking point in the negotiations. Will either party think to itself 2 years will become 5, by which time we will have a different government that is likely to make the transitional permanent, or will they use their dominant position in the negotiations to try and force the UK to stay in the Customs Union to avoid creating a border (and perhaps also force the resignation of Fox and others)? At the moment we do not know, but I suspect once again Mrs. May and her cabinet have misjudged the EU side.

*I've added to this sentence and elsewhere compared to the first version of this post, which might have been construed as implying the border was being used as an instrument to achieving an economic goal. I do not think that is the case.     

Will May face down those who want no deal?

In which I find a silver lining around the current weak state of the Labour party

The negotiations between the UK and EU that will take place over the next two years involve two components. The first will be about non-trade issues, such as how much does the UK pay to the EU to cover pensions etc, and agreeing the rights of EU citizens currently in the UK and vice versa. The second will be the terms of the transitional arrangements for trade while a full trade agreement is negotiated.

The obvious transitional arrangement is for the UK to stay in the EEA, which means staying in the Single Market and customs union while a new trade agreement can be negotiated. It would also mean on the face of it accepting free movement and European Court judgements.

What will be difficult for May is continuing free movement, accepting European Court judgements and paying as much as the UK currently pays during the transitional period. It may be possible to fudge all of those, such that May can appear not to cross her red lines in accepting a transitional arrangement. But to agree to this, the EU will want something else that allows them to say the transitional arrangement is clearly worse than staying a member. That may be the detail that the negotiations over a transitional arrangement are all about.

These negotiations will not be about meeting somewhere between the UK's and the EU's position. That would be a major misunderstanding. The moment the UK triggers Article 50, all the cards are in the EU’s hands, because the UK has a lot more to lose by falling out of the EU with no agreement than the EU has. And Frances Coppola is right is saying that the EU is quite capable of playing hard ball. So the negotiations are more about the UK exploring the EU's trade-offs rather than a genuine give and take.

The key criteria for the EU is that any deal has to be obviously worse than EU membership. A lot will depend on whether the EU negotiators are prepared to take the UK not having a say on the rules of the game as sufficient to indicate a worse deal compared to full membership. That will help determine how much the UK pays the EU during the transitional phase.

That is obviously the sensible way for both parties to proceed. The only uncertainty is whether the UK feels able to accept it. The problem for the hardest of Brexiteers (which includes the Mail and Sun) is that a transitional arrangement of this kind makes it very easy for the UK to change its mind. That could easily happen if the prospective trade agreement makes firms start to leave the UK and public sentiment changes because the promised land was not as advertised. That has been their nightmare all along, which has led the Mail to call judges enemies of the people. Based on what has happened so far, we could expect these Brexiteers to start turning their guns not on the EU, but on May herself, if it looks like the deal will go the way I suggest.

If this happens, how will May react? You can look at what has happened so far as a guide. The trouble with doing that is all the ‘bad deal is worse than no deal’ stuff may just be Econ 101 game theory: make it appear as if you might walk away to get a better deal. The reaction of the press to the NIC changes in the Budget were an obvious warning shot from them towards May. Her climbdown makes it appear as if the press are calling the shots, but that may simply be a sweetener for the major let down that is yet to come.

So recent events provide no clear guide as to how May will react if the hard Brexiteers turn on her. It all comes down to a question of character. In this respect, a discussion by David Runciman in LRB of Rosa Prince’s biography of May is very interesting. He writes

“May didn’t do negotiation; in the words of Eric Pickles, one of her cabinet colleagues, she is not a ‘transactional’ politician. She takes a position and then she sticks to it, seeing it as a matter of principle that she delivers on what she has committed to. This doesn’t mean that she is a conviction politician. Often she arrives at a position reluctantly after much agonising – as home secretary she became notorious for being painfully slow to decide on matters over which she had personal authority. Many of the positions she adopts are ones she has inherited, seeing no option but to make good on other people’s promises. This has frequently brought her into conflict with the politicians from whom she inherited these commitments. By making fixed what her colleagues regarded as lines in the sand, she drove some of them mad.”

I have written before that it was unfortunate that our post-referendum Prime Minister should be the minister who had tried and failed for six years to reduce immigration. Runciman's description above also helps explain why she did not do the two things David Cameron would have done if he had remained leader: given the close vote seeking the softest Brexit possible, and before doing that going back to the EU to see if they were now prepared to be more flexible on free movement. But it does not really tell us how she will play the next two years.

I can see one hopeful element that could allow May to see off those pushing for no deal, and that is the hopeless position of the Labour party. If Labour was strong, the last thing she would want was a 2020 election dominated by internal Conservative fights over her ‘Brexit sell out’ and the press against her. That might have forced her to appease the ‘no deal’ Brexiteers. Luckily in this respect the official opposition is the last thing she has to worry about during these negotiations.