Thursday was a bad day in Brussels for both the EU and the UK. There is a massive chasm in terms of what Michel Barnier and David Davis required out of this latest round of negotiations. An expected unpleasant tone to the deliberations has manifested itself.
But we should all calm down, take a deep breath and reflect on the last eighteen months, starting with David Cameron’s abortive negotiations with Chancellor Merkel in the early spring of 2016.
First, let’s be clear, David Cameron came back from his deliberations with “zippo”, whatever he and his team think or said. Secondly, Angela Merkel should never have sent him back with nothing. She should have thrown him a bone to bring back to London to prevent a referendum defeat. Then, of course, the referendum for such a titanic political decision – certainly the most momentous in my lifetime – should have offered two bites at the cherry with the vote requiring a 65% majority.
It is too easy to be wise in hindsight, but such was the importance of this decision, anything short of a thumping majority would mean disgruntlement on an industrial scale. Though the official Leave campaign did not cover themselves in glory, making wild promises without substance, David Cameron and George Osborne’s ‘Project Fear’ was also pitiful and inept. In all fairness it is generally accepted that George Osborne wanted no part of any referendum.
Anyway, on 23rd June 2016 the Leave campaign won on the terms set down by David Cameron. It is a fact of life. Let’s move on and forget the cretinous election campaign, orchestrated by Sir Lynton Crosby, Nick Timothy and Fiona Hill. There, words fail me and millions of others. The UK Government, without an overall majority, needs to deal with reality with their eyes wide open.
Some say that David Davis’s team is-under-prepared and under-staffed with quality negotiators. That may well be the case. Leaving the EU was always going to be difficult regardless of the government losing its majority. The EU realises the ramifications of a successful UK release from the house of bondage. Others could follow eventually – perhaps Greece, Italy, the Czech Republic, Poland etc.
That being the case, logically I cannot see there is any way Barnier, Verhofstadt, Juncker, Uncle Tom Cobleigh and all, could possibly be prepared to negotiate a successful divorce. It is not in the EU’s interests. Understandably they want the Brexit project to fail. Also, however cute a negotiator Michel Barnier is, he is but a mouth piece for 27 other countries.
So after several rounds of frustrating and less than constructive talks, little has been achieved. David Davis cannot and will not sign a cheque for circa 100 billion euros, and certainly not without proper scrutiny for the benefit of taxpayers. But to anyone who has the time to read this missive on either side of the debate I ask them to consider the following:
– 25 years ago Europe was responsible for 35% of global GDP – today 10%. China, Asia, US, Commonwealth, South America and Africa offer greater prospects a few years down the line for growth.
– The German and Italian banking sectors are creaking. It is felt that there may be a rationalisation of Italian banks down from 600 to just over 100. There are far too many German banks and their sector may not be properly regulated.
– Unemployment in Spain, Greece, Portugal and France is still at heinously unacceptable levels. Unemployment in France even went up last month from 9.6% to 9.8%.
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– The population in the EU is an aging one, best illustrated in Germany and Italy. The cost of social services will spiral.
-Germany’s exports are based on cars about 250k a year to the UK and heavy engineering (companies like Siemens). A great deal of Germany’s exports end up in the UK. French agricultural produce and wine as exports to the UK are vital to France.
Against that backdrop, it looks as though these talks are going nowhere fast. Though we in the UK love our European neighbours individually and want to trade with them, the EU is not “the be and all” to the UK’s success and the EU certainly does not hold all the aces, as it would have us believe.
Ultimately, the politicians will not bring as much influence to bear as they think. It will be the pragmatism of business, industry and commerce that counts.
If there is total impasse and the UK just walks away and I’m not recommending that as a solution, but it is an option, the sheer weight of business opinion should force the politicians to see sense. When Chancellor Merkel sees the German Union IG Metall rattling her cage as the dole queue lengthens in Wolfsburg and Stuttgart, and the same protests from French agricultural workers, who are slamming on the doors of the Elysee Place over labour market reforms, they will make the politicians see sense.
So, before this spat gets totally out of hand, the politicians should stop contemplating their navels and get back to the table in a positive frame of mind. I make it sound easy and no it isn’t, but an unnecessary economic mess is the ludicrous alternative.
David Buik is markets commentator for Panmure Gordon & Co.