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22 February 2017

PM May’s Brexit “Battle Plan”

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The truth of the pithy statement by 19th century German General von Moltke must already be ringing in Prime Minister Theresa May's ears: “no plan of operations extends with any certainty beyond the first contact with the main hostile force.” (With translation into Japanese)

The Prime Minister finally announced the essence of her Brexit “battle plan” on 24th January but almost immediately had to accept she must publish a White Paper on the plan. The truth of the pithy statement by 19th century German General von Moltke must already be ringing in her ears “no plan of operations extends with any certainty beyond the first contact with the main hostile force.”

The `hostile force’ within the UK represent the 48% of electors who did not want to leave and the enemies without are probably seen by the British Government as the EU27 states – but until recently they were our best friends.

The hostile forces inside the UK are already battering at her plans and have succeeded in forcing change:

·         The Supreme Court has ruled  - by 8 judges to 3 – that Mrs May cannot use the `Royal Prerogative’ – a relic of the divine rights of mediaeval kings – to trigger the Article 50 notice of intention to leave the EU. Instead an Act of Parliament is required and an exceptionally short draft has now been published.

·         She has already had to reverse course and give Parliament two of its key demands: a White Paper on the negotiating demands and also a vote on the final deal. Realistically, Parliament will probably accept a little more detail than in the speech but, in the end, commercial planners should assume that Article 50 will indeed be triggered by March 31. So the EU Treaties will then cease to apply to the UK by 31 March 2019 and the UK will be out of the EU…unless hostile forces succeed in thwarting May’s advance.

·         Vote on final deal: Parliament is fully aware of the risk that it is actually putting a loaded, cocked gun to its head: refuse the deal in late 2018 (if all goes very well with the negotiations) and we crash out of the EU a few months afterwards with no deal at all.

These retreats have happened before the battle plan has been examined in any detail because the plan is riddled with inconsistencies:

·         There was much talk of wishing EU27 well and wanting to co-operate – but a blatant threat if they do not do as we want: we will compete as a low tax/regulation economy. Is this consistent with commitments to protecting workers rights. Presumably the low tax rates will be designed to attract US companies seeking to avoid President Trump’s taxes in the US. Will that competition be a cornerstone of the trade deal with the US? How will these corporate tax cuts be financed by a country already running a disturbingly large budget deficit?

·         She does not want to undermine the Single Market, and respects EU27’s insistence on keeping the “four freedoms” indivisible but “the Agreement may take in elements of current Single Market arrangements… the freedom to provide financial services across national borders…” This is what the EU 27 usually calls “cherry picking” and have frequently refused to countenanceas it would open the door to a complete undermining of the Single Market.

·         The inconsistency goes deeper: “A member of the Single Market would mean complying with the EU's rules and regulations… without having a vote… accepting a role for the European Court of Justice that would see it still having direct legal authority in our country…It would to all intents and purposes mean not leaving the EU at all.” The key step beyond simple Free Trade is adherence to one set of rules/standards agreed by all and enforced by the ECJ so her concept of such an Agreement seems inconsistent with the way the Single Market functions – a single financial market certainly needs a single set of standards

·         “Smooth orderly is in no one's interests for there to be a cliff-edge for business or a threat to stability… I want us to have reached an agreement … by the time the two-year Article Fifty process has concluded.” The concept of this proposed `deal’ has no parallels in trade negotiations so will have to start with a blank sheet of paper that is most unlikely to be agreed in two years.

Then comes the ratification of such a novel Treaty by the EU27 states unanimously, and the European Parliament. Then work can start on modifying existing EU law for this transition – so at least five years to be in force. Even if faster, why would a financial services firm pay any attention to such plans? The Prime Minster has reserved the right to walk away entirely from a `bad deal’. At the very last moment, Parliament might vote down the whole plan. Either way, the cost and effort of installing transitional systems may well be wasted. Media reports suggest a trickle of jobs are already being moved out of London but European cities are arranging roadshows to attract UK banks so the trickle may become a flood once firms are convinced the cliff edge is unavoidable.

The cliff edge effect is particularly important for the financial services industry where the key issue of clearing of euro denominated derivatives is likely to come to a head quickly. The concept of a “shared jurisdiction” between the EU27/ECB and the UK over London-based clearing has been floated by the some UK commentators but the Prime Minister’s re-iterated insistence on being free of the ECJ appears to rule out such a solution instantly – even if there were any prospect of the Eurozone shouldering potentially-immense liabilities without full control.

Von Moltke may have been too optimistic: the May plan is beginning to disintegrate at the first sight of hostile forces, let alone actual contact in the negotiations.


[1]This author is a member of the European Movement UK Executive and is a Liberal Democrat party – both campaigning for a further referendum on the exit terms.


This article was originally published in FACTA magazine on 25th January

Download the original article (in Japanese) below

© Graham Bishop

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