After several false starts, political disputes within the British Government and bouts of take it or leave it bravado, some clarity is beginning to emerge.
About time too, since twelve of the twenty-four months of the withdrawal procedure have elapsed. Unless the deadline is extended (by unanimous vote of all EU countries) or the UK changes its mind (highly unlikely in the foreseeable future), Brexit will take place at midnight (Brussels time) on 29 March 2019.
Within the UK, there is now a clear difference between the Government’s and the opposition Labour Party’s positions. The former wants to leave both the EU’s single market and its customs union, while the latter wishes to remain in a customs union with the EU (which would require an agreement to replicate it between the EU and the UK as a non-member). The customs issue is important for trade in goods between the UK and the EU, on land at the border between Northern Ireland and Ireland and by air and sea with other Member States. However, customs arrangements have little to do with services, the access of which, to markets, is governed by regulation not by border checks.
The new buzzword on London to solve the financial services conundrum (and by extension some other services too) is “mutual recognition”. The UK suggests that the UK and the EU acknowledge that they both pursue the same goals in their regulatory and supervisory policies, which share roots in international commitments above them both, and therefore agree to trade openly with each other. The problem with this approach is that the indispensable mutual trust to underpin mutual recognition cannot be assumed to exist. Within the EU itself at the best of times, some harmonization of specifications and standards proved necessary before member countries were able to say “if it’s good enough for you, it’s good enough for me”. In addition, Continental assessments of the quality of regulation in the City of London are not as positive as the British like to believe.
Nevertheless, Prime Minister May’s recent acknowledgment that negotiations require give and take and that neither side gets all it wants is welcome recognition that an end game is approaching. Her reference to a "collaborative, objective framework that is reciprocal, mutually agreed, permanent and therefore reliable for businesses " is also important. The EU and UK will need administrative and judicial mechanisms to manage whatever they agree. The EU side knows what it wants, its existing institutional structure culminating in the supreme European Court of Justice. The British want something else, except in respect of European agencies in which it wishes to remain.
Debate and negotiations are now expected to accelerate, although deadlines may come and go. Business pressure is building up as decisions about investment and where to make it become urgent. March 2019 is a year away and, given the time needed for Parliamentary processes, autumn 2018 is a more realistic deadline for agreement between the negotiators. Companies in all sectors of the economy have pointed to the need for certainty. Investment is about more than money. At a basic human level, people need to know where they are going to live and educate their children.
We can expect increasingly dramatic headlines in Britain about offers and refusals, snubs and betrayals. The domestic political situation in the UK remains volatile. Jeremy Corbyn’s Labour Party is not far from power.
Across the rest of Europe, there are many other issues jostling for attention. Euro governance, the fate of Italy, 2019 as a year of European elections and senior appointments in European institutions are, to name but a few, preoccupations of continental European Governments. They and the British Government should also remember how many common challenges they face, be it in recent events the attempted murder of a former Russian spy in a provincial shopping center or the gleeful references to trade war by the US President.
The financial and wider corporate worlds are hungry for reliable information and increasingly frustrated as cans are kicked down the road and vague language is used to cover cracks and failures. The next few months will be decisive as the content and duration of a transitional agreement are negotiated and the future relationship between the UK and its neighbors begins to take shape.