Predictably enough, negotiations between the Tory government and the European Commission over the terms of Brexit are running into difficulty.
The fundamental problem is the imbalance of power between the two sides. British capitalism needs an agreement on future trade relationships to avoid being cut off from its most important market. It risks suffering huge disruption to the supply chains that bind transnational companies based here to continental Europe.
Because the European Union (EU) is so much bigger than Britain, it is much less vulnerable to the negative economic consequences of Brexit without a deal. Moreover, continental financial centres such as Paris and Frankfurt are eager to win business away from the City of London.
The remaining 27 EU member states have two reasons, one general and one specific, for squeezing Britain hard. The general one is to make an example of Britain for leaving. Michel Barnier, EU chief negotiator, made this clear last Saturday.
“This is something educational,” he said. “We will explain what it means to become a member of union and everything that you lose when you leave it.”
The more specific reason is to do with money. The European Commission is demanding that Britain pays an estimated £92 billion exit bill.
The legal basis for this is pretty dubious. The famous article 50 of the Lisbon Treaty that regulates withdrawal from the EU makes no mention of any such requirement. Indeed it calls for agreement on “the framework for [the departing state’s] future relationship with the Union”. That’s precisely what Barnier and the EU 27 want to postpone till after Britain promises to pay up.
As we saw with Greece, the EU is very good at dressing expediency in legal jargon.
Britain is the biggest net contributor to the EU budget. Its departure would lead to massive and divisive cuts—unless Britain keeps on paying for the next few years as the price of continued access to EU markets.
So Tory international trade secretary Liam Fox isn’t wrong when he accuses the EU of blackmail. But the alternative touted by him and Theresa May—a “global Britain” making free trade agreements all over the world—is pure fantasy.
Fox made this comment as part of May’s team on a visit to Japan. They were told that any trade deal between Britain and Japan would have to wait till Japan had concluded its tortuous negotiations with the EU about their trade deal.
Tory Brexit secretary David Davis is resisting pressures from Barnier to name how much he’s willing to offer the EU 27 as a payoff. This is partly to prevent a rebellion by Tory Brexiteers, but it also makes sense in negotiating terms. Why throw in his biggest bargaining chip till he has seen the EU’s offer on trade?
But the imbalance of power is pushing Britain to make concessions. Already the Tories have tacitly accepted that they may have to make a transitional agreement. For years to come this would keep Britain much more closely integrated in the EU than May promised last year’s Tory conference.
And now Labour has said it will support staying in the European Single Market under such a transitional agreement. This may seem a cunning ploy to put May and Davis under pressure. Pro-Remain Tory backbenchers might be tempted to vote with Labour for such a concession.
But the shift is a big retreat on the part of Jeremy Corbyn and his shadow chancellor John McDonnell. In the past they have been ready to criticise the neoliberal single market. Now they seem to have caved in to pressure from right wing Labour MPs who don’t accept the EU referendum result.
The EU insists on free movement of labour as a condition of the single market. Campaigning to remain before the referendum, Corbyn opposed tighter immigration controls because they conflicted with Britain staying in the single market. More recently, he rejected both the single market and free movement.
Now Labour is considering staying in the single market without free movement. What does this mean for European workers in Britain? There are traps in the Brexit negotiations for Tories and Labour alike.
Crises are on the horizon