It’s the final hand in the great UK-EU card game – let’s see who is bluffing

The greatest illusion – or delusion – cherished by hardline Brexiteers since negotiations over a trade deal started out in 2017 is that Europe will cave in at the last moment, allowing the British side to claim victory.

The most widely held misapprehension was the belief – nay the certainty – that Germany’s carmakers would make sure that Angela Merkel rejected any deal that threatened the UK market for BMW, Volkswagen and Mercedes. It didn’t matter how often the auto companies themselves denied this, subscription to the myth became an act of faith for followers of Vote Leave.

More generally, there was the conviction that Brussels was bound to offer Britain pretty well everything it wanted, because, in the end, they sold more to us than we sold to them. It didn’t matter that the European Commission, backed by the French and German governments, explained that such was not the case, Leavers continued to insist that Britain held all the cards.

Much the same could be said about financial services and the role of the City of London as Europe’s banker. Champions of the Square Mile – though not, in most cases, the banks themselves – have consistently said that the Eurozone (which Britain, pointedly, refused to join) would be shooting itself in the foot by depriving the City of its European passport. Brussels disagrees. So does JB Morgan-Chase, one of the biggest banks in the world, which last week transferred $230 billion of its assets from London to Frankfurt.

And now, with a skeletal trade deal (almost certainly the last available in the time remaining) almost in our grasp, the suggestion is doing the rounds that the Commission is only kidding when it says that any settlement reached is entirely dependent on Britain removing the Northern Ireland clauses from its recently published Internal Market Bill.

Yesterday, the Commission sent formal word that it is opening legal proceedings against the UK in respect of the Bill, which the British Government has accepted breaks international law by revoking commitments enshrined in the UK-EU Withdrawal Agreement.

This is serious. The European side has demonstrated on many occasions that any trade deal with Britain has to take serious account of two facts: (1) that Britain (unlike, say, Canada, Australia, or even Japan) is a large economy intimately linked to the European market; and (2) that Northern Ireland must be treated differently from the rest of the UK to prevent the reimposition of a meaningful border on the island of Ireland.

Britain rejects both claims. Its demand, largely unaltered since the heady days of 2016, is that it be freed from all existing restraints when it comes to trade but that – and here is the rub – it should in addition be awarded unfettered access to the Single Market. It sees no reason, moreover, why provisions in the withdrawal agreement that would create a de facto customs border down the Irish Sea should be honoured once Britain recovers its sovereignty.

Europe has made clear repeatedly that the cake and eat it formula is not going to work. And now it has underlined that unless Britain gives way on the Internal Market Bill, nothing that may otherwise be negotiated will enter into force. In other words, nothing is agreed until the Irish Protocol (previously the Backstop) is agreed.

In recent days, while the Northern Ireland issue was put to one side, hope has been growing that a deal of sorts may yet be salvaged from the wreckage of the last four years. Both sides have indicated a willingness to compromise on the two issues on which little or no progress has been made: fisheries and state aid. The result would not be a fully-fledged trade agreement, it would be more like a lash-up designed to prevent chaos once the transition period ends at midnight on December 31. But it would still be a step forward, possibly the first of several in the course of the next few years.

A deal, in whichever form it eventually comes, would probably present Boris Johnson and his acolytes with a chance to climb down from the controversial clauses of the Internal Market Bill. That is, of course, assuming that the British government is approaching the issue in a rational manner (a fatal assumption, some might say).

But unless Britain offers something solid on the Northern Ireland Protocol, the entire shebang is at risk. The EU is not bluffing, just as it wasn’t bluffing on car sales and, in my view, is not bluffing on financial services. Either Britain moves or everything stops. Not so much all the cards as the last throw of the dice.