Brexit: The deal that never was

It’s looking likely that if there ever was going to be a UK-EU trade deal it would have happened by now. A no-deal “Australia-style” Brexit is more likely than not; and if there is a deal, it will be one that the stalwart Brexiteers decry, writes Victor Hill.

From extra time to a penalty shoot-out

As this article goes live the transition period which was granted to the UK when we formally left the European Union on 31 January (in those halcyon, pre-pandemic days) has 27 days to run. The final deadline for a deal (15 October) occurred more than seven weeks ago. The currency markets seem to suppose that a deal is imminent – but they are often wrong.

Even in the unexpected event that Lord Frost and Michel Barnier were seen reclining on the sofa, chortling together, on tonight’s edition of The Graham Norton Show, it is still unlikely that any putative deal could be approved by the EU leaders’ summit scheduled for next Thursday (10 December). And even if they were to approve it, it would still have to get through the European Parliament by the end of the year. For that to happen the text of the deal (probably about 1,000 pages of legal stodge) would have to be translated into all the EU’s 24 official languages. A suggestion that the Strasbourg parliament could just debate the English language version has already been torpedoed by the French.

There are whispers that there could be some kind of general agreement before Christmas with numerous fine details to be agreed in early 2021. But the Johnson government is still officially wedded to the notion that the transition period will not be extended. To depart from that position would cost Mr Johnson further political capital. And exporters and importers on both sides of the Channel will have to know precisely what the rules of trade are, come the wee hours of 01 January. While the UK government is imploring British business to prepare for the new dispensation, no one knows quite what that dispensation looks like.

In any case, the main bones of contention – the UK’s right to subsidise its industries and fishing – might never be resolved if the final deadline is removed. Either there will be an agreement literally in the next few days or there will be none at all.

If none, then the UK will trade with the EU on WTO terms (as Australia does) with applicable tariffs levied on all exports and imports. Except that, by the terms of the Withdrawal Agreement (Mr Johnson’s oven-ready deal which many people think won him an 80-seat majority in the general election of one year ago because it cleared the logjam) Northern Ireland would remain part of the EU customs union so as to avoid a hard border on the island of Ireland.

As such, goods passing between Great Britain and Northern Ireland, though not crossing any international border, would be subject to tariffs. It was even suggested in the last week that no foodstuffs could be traded between Northern Ireland and the mainland. The purpose of the Internal Market Bill – rejected by the House of Lords on 10 November – was to rectify this. But by just proposing this legislation the Johnson government was accused of playing fast and loose with international law – not least by the incoming US president, Joe Biden. Overall, the internal markets debacle has made it more difficult for Britain to disseminate its message. Perhaps Mr Johnson did not read or even understand the Withdrawal Agreement that he enthusiastically endorsed last year. Or maybe, like all classic chancers, he thought something would turn up.

Level playing fields. Really?

Apparently, the Europeans claim that the British are refusing to agree to a level playing field: that is to say that the British refuse to surrender the right to subsidise (I would say to support) industries in trouble. Yet the Europeans have been at it par excellence this year.

Last month Air France-KLM (EPA:AF) got another €6 billion from the French and Dutch governments on top of the €10.4 billion it pocketed in the late spring. Monte dei Paschi di Sienna (BIT:BMPS) – the ancient Italian bank that tilts more alarmingly than the Leaning Tower of Pisa – has been bunged more cash. Alitalia (state-owned) and others have been given funds while Italy’s sovereign wealth fund has been building up stakes in publicly quoted companies.

In Germany, Thyssen Krupp (ETR:TKA), the failing steel maker, has been gifted €5 billion. And travel company Tui (LON:TUI) has been given a stay of execution. Incredibly, Tui – a travel company (apparently a non-essential business in these islands) was given €3 billion in the spring and a further €1.2 billion last month. Lufthansa (ETR:LHA) has been glad-handed €9 billion while, in the UK, IAG (LON:IAG) the owner of British Airways, Virgin and EasyJet (LON:EZJ) have been given nothing from the British government and may indeed yet collapse. Moreover, these German firms have been consistently protected from foreign take-overs.

Meanwhile the Spanish government has created a €10 billion fund to take equity stakes in companies hit by the pandemic. Air Europa was the first beneficiary. But there are even bigger battalions on the way in the EU. The EU’s €750 billion recovery fund will be deployed shortly and will have a tacit bias towards green-tinged companies. I suppose all one has to do is to claim to be eco-friendly and then taxpayer-funded money will just roll in. 

If Britain signs up to Monsieur Barnier’s so-called level playing field, then British companies are going to face brutally unfair competition. Charles de Gaulle Airport (Paris) is, in Covid-times, a bigger hub, than Heathrow (which is entirely foreign-owned, by the way). That is a challenge that the French have set their eyes on for years. Competition, like rugby, means that you go in hard.

The EU’s hyper-active competition commissioner since November 2014, Margarethe Vestager seems determined to crush Apple and Amazon, yet is unconcerned by competition breaches in Europe. Ryanair’s wonderfully bellicose Michael O’Leary has complained volubly about the hypocritical bail-out of Air Europa – and has got nowhere, thus far. I wish him luck.

If we end up in the UK in “Australia” territory, then we would be able to access the WTO machinery and to impose retaliatory tariffs against aggressive and “unfair” competitors. We could even request our new trade partners (so far, Japan and Canada) to do likewise. If Mr Johnson and his fiancée really want to phase out the internal combustion engines altogether, then why not start with a total ban on all German and French cars? They are largely gas-guzzlers – and we do need to address our trade deficit with the EU.

But that would sour relations perhaps irreversibly. We need to cooperate with our French friends to control illegal immigration amongst many other things. A nasty trade war could easily get out of hand.

“Fisherpeople” and their challenges

I refer to the BBC’s Europe Correspondent, Katya Adler’s, woke reference to our fishing fraternity. (It is a fraternity since more than 99 percent of UK trawler fishermen are male. And as far as I am aware there has never been a transgender fisherperson.) What Ms Adler did not say was that French fishermen land about 85 percent of all the cod caught in British waters.

One month or so ago, Douglas Ross MP, the leader of the Conservative Party in Scotland, asserted that British fishermen are not ready to take advantage of the UK’s reclaiming total control of its territorial waters. After 47 years of the Common Fisheries Policy the UK does not have enough fishing boats nor sufficient processing fish capacity to harvest its natural precious marine resources. It will take time to rebuild that capacity.

That is why the government has reportedly offered the Europeans a three-year transition period for fisheries during which the catches of European fishermen would be progressively reduced until a new dispensation was finalised. Yesterday, it was reported that the UK has reduced its demand for its share of the total catch in British waters from 80 percent to 60 percent.

The idea that the UK should be treated as a third country in every respect except that its fisheries should be open to French and Spanish fishermen is seen as preposterous to neutral observers. But the loss of access to British waters by French fishermen would be politically costly to President Macron. It is likely that those French fishermen would cut up rough – marine gilets jaunes, if you will – and would invade British waters willy-nilly. The decline of the national coastguard is yet another national scandal. We would not be able to stop them.

Downside risks

In early November President Macron hinted that, in the event of a no-deal Brexit, the EU might cut off the interconnectors that supply electricity and gas to the UK from (in order of importance) France, the Netherlands, Belgium and Ireland. Collectively, those countries supplied about nine percent of the UK’s electricity in the first ten months of this year. The EU Commission conspicuously failed to deny the report.

But – fear not. The reason that the UK imports electricity from continental Europe is because it is cheaper – not because we lack generating capacity. National Grid (LON:NG) claims that it has the back-up capacity to handle any shortfall that arises – although, of course, there would be upward pressure on electricity prices. If the UK were to be forced to fall back on its 45 surviving gas-powered plants and its four remaining coal plants, that would be unwelcome in terms of CO₂ emissions, but the power grid would not fail. Unless of course there was also an Arctic winter with a North Sea anticyclone – in which case there would not be enough wind to power the growing number of wind turbine arrays; and winter sunshine would yield little output for our solar arrays. That scenario is unlikely, if possible.

And the UK has Europe’s biggest liquid natural gas (LNG) storage depot on the Isle of Grain (Kent). This facility can be topped up by tankers (coming mostly from Qatar) if the need arises. French companies such as EDF (EPA:EDF)and Engie SA (EPA:ENGI) would be badly hit by an energy blockade of the UK.

In fact, it is the EU which has the energy problem. Dutch gas fields are almost depleted. The Nord Stream 2 Russia-Germany pipeline will probably not be realised for political reasons. And a swathe of European coal-powered generators, not least across Eastern Europe, will have to close soon. If Mr Johnson’s dream that Britain will become the Saudi Arabia of wind power is fulfilled, then we might end up exporting renewable energy to France.

Why Boris will probably cave in and what the political fallout will be

By one of those extraordinarily subtle twists of fate with which world history is replete, the no-deal Brexit will come at exactly the moment when a game-changing vaccine (the Pfizer-BioNTech one) is being shipped to the UK from the plant where it is manufactured in Belgium, mostly by truck through Dover. I don’t think even Robert Harris, whose world-historical thrillers remind us that nothing in history is inevitable, could have dreamed that plot line up.

Mrs May came to power in July 2016 with no opposition: just as the unhappy Mr Brown came to Number Ten in June 2007 entirely unopposed. That is always unseemly. She had no idea what her mandate was beyond the moronic slogan Brexit Means Brexit. She refused the quick and easy route to go for EFTA status, at least short-term, which have might have obviated the need for the unfavourable Withdrawal Agreement that we ended up with. The venerable lady then made a total Horlicks of the June 2017 general election (which she didn’t have to call). The effect was to convince the Brussels Illuminati that Brexit would be overturned internally in good time.

Monsieur Barnier’s mission impossible (and, yes, he accepted it) was to convince the British that any deal would leave them worse off that the status quo ante bellum. That was reinforced by Europe’s playing the Irish card – with little understanding of the deep subtleties of Anglo-Irish relations.

Boris’s Oven-Ready Deal, gobbled avidly by the British public just one pre-coronavirus year ago, was really a microwave re-heat of Mrs May’s dog’s breakfast. And Boris got away with it for a time – just as short-cut take-away chefs always do. Until the greasy microwave explodes…

Of course, Mr Johnson knows that the perceptible cost of no-deal has shrivelled with the coronavirus pandemic. UK GDP will be down more than 10 percent this year and, presumably, with the roll-out of a vaccination programme, there will be some rebound in 2021 – though not enough to take us back to 2019 levels of economic activity. But the go-slow in Dover will look bad as the Pfizer vaccines begin to arrive in quantity.

The political outlook for Mr Johnson’s government is, if possible, even more dire than the economic one. The Holyrood elections set for May next year are likely to go the separatists’ way. That will unleash an almighty constitutional crisis as Sturgeon & Co. demand a second referendum on separation – and Boris refuses it. Assuming no-deal, this political crisis will coincide with maximum dissatisfaction with the Australia-style trading arrangements.

To compound the prime minister’s discomfort, Mr Biden will formulate a more cooperative strategic architecture with the EU. Britain will look both side-lined and fissile. No-deal will be globally hailed as a historic failure.

If, as I anticipate, there will be a last-minute concessionary deal next week which ties British hands on state aid and offers the Europeans a high degree of access to UK fisheries in the short-term, the Faragistas will strike back. Mr Farage is already about to re-launch his considerable political machine as Reform UK, which will dangle the promise of string of policies popular with right-of-centre voters such as more forceful crackdowns on crime and illegal immigration.

The Lib Dems will double down as the party of Rejoin – but they are a spent force. I predict that Labour, which still commands deep tribal loyalty in England, though it is finished in Scotland (where the SNP ate its lunch long ago), in 2021 will become the EFTA Party. The end of freedom of movement will ultimately be unpopular with a wide section of British voters.

***

I was a Brexiteer in 2016 for reasons I still think cogent: but I’d resent not being able to settle in France if I wanted to. I might yet end up spending my dotage in the Languedoc, where my only surviving sibling lives. The climate there is more congenial than Norfolk’s; and the food isn’t bad either.