Brexit Update – Untested Divorce Talks

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Posted on March 29, 2017

The Prime Minister has now signed off on the letter to trigger Article 50, now delivered by Sir Tim Barrow, the UK’s chief negotiator, to Donald Tusk, President of the European Council. The UK will now start the process and negotiation to leave the European Union (EU), some 40 years after the country joined. Unless there is mutual agreement by all Member States to extend the talks, the UK will leave the EU on March 30, 2019.

What do we know?

The UK, the EU and EU Member States are now heading into divorce talks, which have never been tested before. The Prime Minister has called for unity, aware that the UK remains very divided along in/out lines rather than more traditional party lines. She expressed her ‘fierce determination to get the right deal for every singe person in this country’.
The likely timetable is that, within the next 48 hours, the EU will issue a strategy statement, with formal talks starting sometime towards the end of April. There is pressure within the EU to get Member States to speak with one voice, i.e. the voice of the Commission. This will not be an easy task, and it will remain to be seen whether the UK will try to divide and exploit any differences, depending on how the negotiations go.

Diplomacy will likely kick in with individual Member States. The EU will be coming to the table with the express intention to protect the fundamental integrity of the EU bloc, which Brexit is seen to have undermined. At the same time, May has already said that it is not in the UK’s interest for the EU to be weakened.

The red lines

At the moment, the red lines in advance of the negotiations are squarely on the UK’s side: withdrawal from the EU and European Court of Justice jurisdiction, departure from the Single Market, immigration control (the main reason the UK people voted to leave), and the return of Parliamentary sovereignty to Westminster. The EU will do everything to retain the bloc. In addition, the rhetoric suggests an exit fee of ᆪ50 billion for the UK to cough up in order to comply with the UK’s obligations. Of course, all of this is up for negotiation.

The known unknowns

The French and German elections will be key. If ultra-right winger Marine Le Pen wins in France, there is almost certainly a Frexit in the cards, with the polls indicating that the French are even more Eurosceptic than the Brits. In-between the French and German elections, you have the Greek debt renegotiation to take place in July, i.e. will the Germans still keep writing the cheques? The Greeks have to find タ7 billion and default is looming. Further, in early 2018, the Italians head to the polls, which could see the anti-Euro (but not anti-EU) populist Five Star party take control.

The negotiations

The hope and expectation is that both sides, in a closed room, albeit with continual scrutiny, will do just that: negotiate. However, we should be aware that there will be huge pressure to get out at any cost on the UK side or to retain the integrity of the EU in very uncertain times on the other.

Excitement and worry

The UK is right to be simultaneously excited and worried about Brexit. The country remains very divided and, depending on how the negotiations go, that is likely to remain. Despite some of the rhetoric, we know the PM is a globalist. She will be wanting to keep the customs union and passporting for financial services. It’s difficult to see at this stage whether the UK will be able to cherry pick bits of the Single Market, i.e. free movement of goods. If conceded, it would be a win for May.

Upcoming electoral events within Europe may throw such goals off track and well change the dynamics of how the UK negotiations go. The next 12 months, irrespective of Brexit, will be rocky for some of the Member States as their countries head to the polls.

The other complications remain the devolved administrations, in particular the Northern Irish and the Scots. On Northern Ireland, there is still no clear alternative worked out with the Irish government on a potential hard border between Ireland (as an EU Member State) and Northern Ireland within the UK. Scotland will continue to be a thorn in the PM’s side as Nicola Sturgeon plays a longer game, seeking a second referendum for Scotland to leave the rest of the UK within the next two years.

Both the Parliamentary opposition in Westminster and the House of Lords won’t be easy bedfellows, particularly if the UK is heading for a ‘hard’ Brexit that inclues withdrawal from the Single Market without a replacement trade deal in the pipeline, and no customs union nor financial passporting. London-based banks and financial services may be forced to vote with their feet. Indeed, some have already done so with jobs leaking to Germany, France and the U.S.

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