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Last week, we highlighted the fact that the EU’s Brexit negotiator, Michel Barnier, was pressing the EU to approve having the Brexit talks move to include the consideration of the so-called “future relationship,” meaning trade. This is important because it is what we call a “shape of the table” issue, in this case, the order in which issues will be negotiated.

We had seen Barnier’s move as bona fide, since a big job of a negotiator is to try to move his side towards a deal. Readers rejected this idea. It now appears that our interpretation was correct, and Barnier is continuing to push the EU to relent. However, as we’ll discuss, he appears very unlikely to succeed.

Why Does This Wrangle Matter?

The short version is that the UK is certain to suffer at best a “hard Brexit” and at worst, a disorderly Brexit if the Brexit negotiations don’t proceed according to the original tentative plan. That was to start discussing “the future relationship,” meaning trade and/or a transition phase after this October round. The 27 remaining members of the EU need to approve having the negotiations move on to these new issues.

Frankly, I think a hard Brexit is inevitable. The UK side lacks a unified negotiating position, meaning it can’t credibly commit to anything. Even though the UK is so utterly unprepared for any kind of Brexit that it desperately needs a standstill of some sort, the hard Brexiters go to war and whip up the press any time that idea rears its head. They’ve had a go at Phillip Hammond at Treasury who is trying to steer a more moderate course, plus Boris Johnson has threatened a leadership challenge. No one seriously wants him as PM but Johnson has his use as a means of keeping the weak Theresa May in line.

If you read Article 50, Section 2 says:

In the light of the guidelines provided by the European Council, the Union shall negotiate and conclude an agreement with that State, setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the Union.

The European Council published the guidelines at the end of April. They included a section that said the negotiations would be phased, what would be in the first phase, and that the European Council would determine if the negotiations had made enough progress to move to the next phase. This document didn’t set a timetable for the first phase but the hope was that the European Council would approve starting to discuss “the future relationship” issues after the October round.

Note that the original negotiating guidelines, which were approved by the 27 remaining EU members, stipulated that only certain issues would be addressed in the first phase. One point contained general language that meant more to the EU than to me. It was originally deemed to cover the “movement of people” issue, meaning among other things, the rights of EU and UK citizens post Brexit. That point now includes the Irish border issue.

The second “first phase” topic was more clearly stated; it’s the so-called Brexit bill, meaning settling of accounts.

With this background, it’s apparent why the UK was out of line in being muley and effectively refusing to negotiate in August by insisting that it wasn’t going to discuss the financial settlement without discussing “the future relationship” in parallel.

Yes, it is to the EU’s negotiating advantage to proceed in its original order. The EU countries are unified in their desire to have the UK pony up, with the exception of obstructionist Poland and countries particularly dependent on exports to the UK, namely Denmark and the Netherlands.

By contrast, on the issue of trade in isolation, there are more countries that have more UK-friendly inclinations, particularly many of the Eastern European members.

However, had the UK bothered to read Article 50 before it invoked it, it would see clearly that the EU gets to set the guidelines. Their ball, their game.

And it hasn’t helped that the UK is playing poorly:

Whose court is the ball in? A cartoon from @kaltoons pic.twitter.com/QXsuSIZjQ2 — The Economist (@TheEconomist) October 10, 2017

Why Is Barnier Pushing the UK’s Case?

From our post over the weekend, quoting a Financial Times story:

The EU’s chief negotiator, Michel Barnier, made a good faith effort to get a waiver for the UK. But predictably, EU officials were not moved: The uncompromising positions in Berlin and Paris emerged on Friday as ambassadors from the remaining 27 EU members held their first debate on the union’s approach to transition talks, including the option of approving exploratory negotiations at an October summit. Michel Barnier, the EU’s chief negotiator, outlined the potential benefits of opening talks on a transition deal at the meeting. He argued that they could create space to resolve the big outstanding issues on a Brexit bill, as well as recognise Britain’s recent more accommodative stance. But this option was firmly rejected by a group of countries led by Germany and France, which took a stricter view on the sequence of negotiations, according to several diplomats briefed on the meeting.

The Times today confirmed the Financial Times’ reporting, with a new wrinkle: Treasury’s Hammond has published an article in which he says he is refusing to set aside funds for a hard Brexit planning. He contends that there are indicators that the EU will relent and allow discussions on trade before the Brexit tab is settled. Note this is more important than it might seem because Hammond is due to present his budget next month.

As an aside, Hammond’s stance completely undercuts May’s farcical hard Brexit planning papers that we shellacked yesterday.

The wee problem is that the related story in the Times on Barnier’s efforts to get the EU to relent on its order of battle does not appear that different that the Financial Times’ story over the weekend. First, without specifying the time frame, it appears to be based on the same meeting on which the pink paper reported, that of a presentation by Barnier to EU ambassadors (the Times piece repeatedly mentions diplomats as its sources). In other words, this appears to be a second report on the same meeting.

Second, although the Times’ story gives a picture that that more countries support Barnier than the pink paper indicated, both agreed that France and Germany were opposed to cutting the UK any slack. This is important for two reasons. First, as we’ve regularly indicated, when France and Germany agree on anything, they can usually get the rest of the EU to follow. Their interests are generally opposed, so when they concur, it usually means it can’t be that bad for the smaller countries.

Second, it takes unanimous approval of all 27 EU countries to allow the negotiations to include new issues. Germany and France have no compunctions about voting no even if no one else were to follow (although one can imagine they’d try to persuade others to follow or at worst abstain to improve the optics).

From the Times’ account:

Michel Barnier is pushing European governments to give him permission to begin exploring transition and trade talks with Britain next week in the face of opposition from Germany. Behind closed doors the EU’s lead negotiator has unexpectedly become Britain’s best hope… But the German government is pressing hard for Britain to give further guarantees on the financial settlement… “Germany wants more and it wants it more or less in writing,” said one diplomat. “That is toxic for the British.”

But other European officials don’t sound as accommodating:

Donald Tusk, president of the European Council, will chair talks between Europe’s leaders next Thursday. He said that unless negotiations made progress over the coming weeks then Britain and the EU could be heading for a “no deal” scenario. “We are negotiating in good faith, and we still hope that the so-called ‘sufficient progress’ will be possible by December,” he said. “However, if it turns out that the talks continue at a slow pace, and that ‘sufficient progress’ hasn’t been reached, then together with our UK friends we will have to think about where we are heading.”

Note that Tusk is not on the same page as Barnier. The UK and Barnier (and whatever EU members Barnier has managed to get in his corner) want to get a “sufficient progress” approval in October, the original target, and not December. EU sources have been messaging for the last couple of months that approving moving to the next set of issues in October was looking unrealistic and that December was the current fallback date.

Again from the Times:

Mr Barnier first called for his existing negotiating “guidelines”, which rule out transition talks, to be relaxed last Friday and despite having the support of “almost all” countries he was firmly rebuffed by Germany, France and Romania in a decision that requires the consensus of all EU 27 governments. According to diplomats Mr Barnier suggested that while there was not yet “sufficient progress” on withdrawal negotiations to move on to a formal second phase of trade talks there was enough of a “positive atmosphere” after Mrs May’s concessions to permit analytical work on a transition to begin.

While this is more detailed that the Financial Times’ account, there is a significant difference in the impression given as to how much support Barnier has. Here is how the Financial Times reported on the same meeting:

Germany and France have dashed British hopes of fast-tracking talks on a two-year post-Brexit transition deal, insisting that the UK’s EU divorce bill be resolved first… But according to European diplomats, a Germany-led group of EU countries has demanded more clarity on the long-term financial commitments Britain will honour… But this option was firmly rejected by a group of countries led by Germany and France, which took a stricter view on the sequence of negotiations, according to several diplomats briefed on the meeting.

Now the finer points of the reporting don’t matter much at this juncture, since the opposition of Germany and France alone are enough to scupper having the UK be allowed to talk trade soon. But it seems unlikely that several sources would all say something along the lines of Germany and France represented “a group” if their only ally was Romania.

The other reason I give the Financial Times’ account more weight is that historically it has had far and away the best Brussels desk of all the UK papers. It was heads and shoulders above any English language paper on its reporting on the Trokia’s negotiations with Greece in 2015. By contrast, the Times has a scoop in the form of publishing Hammond’s letter justifying his budget plans. That means its related report runs the risk of being overly dependent on sources aligned with him, which also means aligned with Barnier.

But we get back to the question: Why is Barnier sticking his neck out this way?

We gave one explanation in comments on Saturday:

Barnier has been a highly respected EU negotiator for many years. I see his conduct as consistent with what you’d expect from a professional negotaitor. One thing that happens in negotiations is that the negotiator is or becomes as loyal to getting a deal done as he is to his principal. Indeed, if you don’t understand that dynamic as a principal it can really bite you. One of the reasons this dual function matters is that principals inevitably want too much even when they are in the power position. So a key role of the negotiator is to make them accept less than they want. The cliche in dealmaking is a good deal is one where both sides feel bruised. Barnier thus needs to preserve the best relationship he can with the UK side under the circumstances even with the Brits looking like they are doing their best to poison the well. That means making a solid case for demands they have that are reasonable. This UK demand isn’t nuts in substance even though they went about it all wrong (as in this is something they should have explored with the EU before triggering Article 50). Moreover, on a different level Barnier knows his principal would have to do a lot of wrangling on its side and take a lot of procedural steps to indulge the UK (as in they’d need to change his negotiating parameters formally). Given the very high bar for getting the EU to adopt the UK position, he has very little to lose by acting as a fair broker of the UK position. It demonstrates that he has made a good faith effort while knowing full well that the die is pretty much cast and the odds of a course change now are low.

A second reason is that the European Commission has long positioned itself as the friend of smaller EU countries, as in a forum that can serve as a counterweight to Germany and France. Juncker tried to play this role ineptly during the Greek negotiations. Right after Syriza took office, before opinions in Europe had hardened against them, Juncker tried acting as the young government’s advocate, only to be slapped down by Germany.

There is a third possible reason, and this is speculative. Recall Theresa May’s speech in Florence on September 22, in which she proposed funding the UK share of the EU budget during a two year transition phase. That funding commitment was seen in the UK as a major sop to the EU, although it was also a clever gambit, since the Eastern European countries who are potential UK allies on trade are also the most eager to see the UK pay up. But that also made the proposal controversial among the hard Brexit camp.

Barnier was initially unreceptive. From the Financial Times two days after her speech:

David Davis, the UK’s Brexit secretary, has been told that Britain’s request to have an EU transition deal will only be discussed once the UK has settled its divorce matters, including its exit bill. Arriving just ahead of the fourth round of Brexit talks in Brussels today, Michel Barnier, the EU’s negotiating chief, said prime minister Theresa May’s explicit request for a transition deal of around two years after 2019 would only get a hearing in the second phase of talks. To get to this point, the two sides will have to overcome the sticky issue of money.

But the story also included this bit:

Brussels is demanding more detail on the positions laid out in Florence, including the size and scope of the financial settlement and the legal position of EU citizens after withdrawal.

First, is it possible that the UK sounded its most likely allies before the Florence speech? Or perhaps a group of foreign diplomats from countries with significant UK exports pointed out that being willing to write a large interim check could split the united EU position?

Second, the UK might have made enough in the way of additional private assurances to persuade Barnier that the British were more prepared to deal than their public posturing would lead one to believe.

Or it may simply be that Barnier can see that these negotiations are going to be a colossal train wreck, and he is doing everything in his power to make sure that the histories of this sorry affair will hold him blameless.

It would be nice to be more hopeful about the Brexit talks. But I don’t see the hyperventilating stories about Hammand’s hopes for the negotiations as being well founded. It would be better if I were wrong.