Theresa May starts this week in a greater personal agony over Brexit than at any time before.
Over the past few months, the PM has tried to forge a middle way on Britain’s future trade relationship that avoids one of the two outcomes being urged on her by the EU.
Brussels has long argued that Britain should either accept a distant Canada-style free trade agreement; or alternatively the much closer relationship that comes with membership of the European Economic Area.
But at Salzburg last week, the EU made clear that Mrs May’s “Chequers” middle way, a proposal to stay in Europe’s single market for goods but not in services, will not work.
In these critical few weeks before a deal needs to be struck, the PM is therefore under pressure to find a new formula.
Some hardline Conservatives are urging her to move to “plan B” and adopt the Canada-style FTA as her central policy. Conservative MP Jacob Rees-Mogg said this would win the backing of the EU, Parliament and also “public opinion”.
Other Conservatives, however, argue that this would take Britain fully out of the single market and customs union and will not meet the need for an invisible Northern Irish border. They also believe that it will foul up supply chains for the manufacturing sector.
The challenge of agreeing the so-called Irish backstop, a kind of insurance policy to guarantee an invisible border across Ireland, also looks more stark.
Mrs May is under pressure from the EU to accept a low-visibility customs border in the Irish Sea, between Great Britain and Northern Ireland, in order to achieve this. However, the Democratic Unionist party, as well as many Conservatives, believe that this is a threat to the constitutional and territorial integrity of the UK.
Perhaps the biggest worry after Salzburg is that Mrs May has now lost one of the key weapons that would have made it easier to win the DUP round to a deal.
As Tony Connelly of RTE argued in an excellent piece at the weekend, the importance of Chequers was that it provided the PM with cover in order to reassure unionists that the backstop would not ever be needed.
This was because “Chequers would inform the future trade relationship in such a way as to remove the need for customs or regulatory checks either on the land border, or down the Irish Sea”.
Whether Mrs May can now find a way forward that unites her party and government is far from clear. The cross-channel recriminations after Salzburg, together with the looming Conservative conference, now make progress much more difficult.
An orderly Brexit, an Article 50 deal followed by a successful Commons vote, still remains the most likely outcome. Britain and the EU, deep down, want to get a deal and move on. But the prospects of other more extreme outcomes — either no deal or a second referendum — have increased in the past few days.
No-deal Brexit is the most likely outcome of the Salzburg summit
“The leaders of the EU have concluded that the UK will never accept a no-deal Brexit. That conclusion informs their negotiating position. The judgment may turn out to be right in the end. But as the dust settles after last week’s Salzburg summit, this looks like a recklessly risky bet.” ( Wolfgang Münchau in the FT)
If a new referendum is to settle anything, legitimacy of process is key
“Adding together the time for legislation and question testing, along with time for the subsequent campaign, makes it likely that Britain’s exit day would need to be delayed. This is not necessarily a fundamental barrier, as most believe that the EU27 would grant an extension to Article 50 to facilitate such a referendum.” (Professor Meg Russell and Dr Alan Renwick of the UCL Constitution Unit, in The Times)
Chequers is dead. And the only plan that MPs will now vote for is Norway
“There is no majority in the Commons for no deal, there is no majority for Ceta Mark II, at the moment there is no majority for a second referendum. But there is a majority for EFTA/EEA. It is time for the government to work out how they get from Friday’s statement to a deal which the Commons will approve. And they don’t have long to do it.” (Nicky Morgan MP, Chair of the Treasury select committee, on Conservative Home)
Brexit will fail to transform Britain into a global services powerhouse because geography matters almost as much to trade in finance, retail and other services as it does in goods, according to research from prizewinning trade economists.
Jonathan Eaton and Samuel Kortum, professors at Penn State University and Yale University respectively, found that even though transport costs do not weigh on trade in services, the volume of services exports and imports is just as sensitive to distance as the trade in goods.
If the distance between the buyer and seller roughly doubles, the volume of trade flows in goods and services more than halves and, while Britain’s trade is slightly less sensitive than average to distance, allowing big barriers to emerge with EU nations after Brexit would cut off many opportunities, the economists said.
Ahead of the EU membership referendum, economic assessments by the UK government found that trade in goods was more affected by EU membership than trade in services.
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