Britain close to abandoning hope of Brexit trade deal
Britain must break free from EU faux-federalism to rescue its economy from this crippling lockdown
MINISTERS now believe that Britain and the EU will fail to sign a post-brexit trade deal, with just days to go until Boris Johnson’s July deadline for one.
The Daily Telegraph has learnt that the Government’s working assumption is that Britain will trade with Europe on World Trade Organisation terms when the transition period ends on Dec 31.
Negotiators began their latest session in London yesterday, but remain deadlocked on fishing rights, so-called level playing field guarantees, governance of the deal, and the role of the European Court of Justice.
Senior sources said there was now an assumption that “there won’t be a deal”, though it remains possible that a “basic” agreement could be reached if the EU gives ground in the autumn. Businesses have already been told to start preparing for a no-trade-deal exit.
The current round of formal talks between David Frost, the UK’S chief negotiator, and the EU’S Michel Barnier is due to finish tomorrow, with no expectation on either side of a breakthrough.
No more face-to-face talks are scheduled this month, meaning Mr Johnson’s July deadline will have passed.
A senior source said: “The Government has been making it clear for a while that it is prepared for no deal. Britain isn’t going to budge on fundamentals like fishing rights, so it’s all in the hands of the EU.”
Britain is seeking a zero-tariff, zeroquota trade deal, but trading on WTO terms would mean tariffs on goods and red tape that could lead to delays in the passage of goods entering and leaving the country. Mr Johnson has made clear it is a price he is prepared to pay if the EU refuses to back down over its insistence on retaining some say over British laws and fishing waters.
Diplomats in Brussels insisted that the EU was ready for whatever the outcome of the trade talks. “They are right to work on the basis of no deal. We are as well,” a diplomat from an influential member state said.
A UK negotiating-team source said: “We wanted to see an agreement this month. It’s clear from the EU side that’s not going to happen. No trade deal has to be the working assumption. But it doesn’t mean it’s what we want or are working to make happen.”
The EU insists the real deadline for a deal is the end of October, allowing time for member states to ratify the agreement before the end of transition.
A source on the UK side said: “There is a chance of a basic deal, not a phenomenal deal. We should know by midaugust whether there’s any chance.”
Finally, they struck a deal. Early yesterday, the fifth of a two-day meeting, European leaders agreed the details of a €750 billion (£678 billion) Coronavirus Rescue Fund. Emmanuel Macron hailed the outcome of this epic haggling battle as “a pivotal moment in EU history”. It could be, but not in the way he hopes. What this half-cocked outcome certainly demonstrates, though, is that Britain was right to choose Brexit.
The EU just took a big step towards a more federal Europe. For the first time, the Commission will borrow against the EU budget, breaking a longstanding taboo. Under the cover of the Covid emergency, Brussels has secured permission to raise large amounts of common EU debt – dividing it between the member states hardest hit. Millions of voters in fiscally conservative nations like the Netherlands are now wondering why, as they struggle to emerge from lockdown, their governments must spend even more to help Italy and Spain. That’s why Dutch Prime Minister Mark Rutte led the “frugal five” nations – including Austria, Denmark and Sweden, later joined by Finland – to protest against this previously unthinkable move.
Rutte endured a rhetorical barrage, with Macron accusing the Netherlands of “acting like Britain” – the ultimate Brussels-based insult. By reflecting public opinion in the countries where they were elected, the “frugal five” were, according to other EU leaders, no longer “good Europeans”.
After Germany switched sides, they lost – and, unlike the bailouts of 2010-12, billions will be dispersed across the EU in the form of grants rather than loans. Richer countries will give cash directly to poorer ones – just as the UK’S South-east subsidises the North-east, or Massachusetts bankrolls Montana. Such a “debt-pooling” move was on the cards long before coronavirus, given that the eurozone was already struggling for survival.
But with unemployment in some member states now set to double, this virus has exposed the incoherence of monetary union as never before – with more productive northern economies set to benefit from a relatively low currency, as southern members suffer under an exchange rate which for them remains far too high. While the new rescue fund includes grant aid of €390 billion, with the rest in loans, total cross-border flows will be little more than 1 per cent of GDP for most countries, compared with intra-state transfers of 15-20 per cent in genuine fiscal federations likes the US.
Faced with elections next March, Rutte’s conservative VVD party could now lose serious ground to Eurosceptic rivals. The same is true in Sweden which, despite being outside the euro, will contribute to a rescue fund which, however it is sold, is about holding the single currency together. Already, this epidemic has generated major intra-eu tensions, with some member states hoarding medical equipment.
Now, EU leaders have crossed the
Rubicon of fiscal integration in a way that not only bends EU treaties, but for which there is absolutely no legitimate democratic support.
Were Britain still in the EU, we would be on the hook to pay billions of pounds into this latest rescue fund. So what if the Government has just borrowed a colossal £128 billion between April and June, as we’ve shelled out to keep over 9 million workers on furlough? We’d need to take on even more loans to finance further spending by Brussels in nations by no means much poorer than us.
Yet as the EU fiddles with fauxfederalism, there is an opportunity for Boris Johnson to seize the agenda and explain not just how we’ve dodged this financial bullet, but how and why Brexit can help Britain to recover from this crippling coronavirus lockdown.
Freed from EU “structural fund” restrictions, an active regional policy could close the income divide between the South East and elsewhere – a gap made so much worse by this Covid crisis. That means far more widespread infrastructure spending – diverting funds earmarked for HS2 towards regional commuter services and full-fibre broadband.
A dozen low-tax “free ports” – also stymied under EU rules – would similarly help spread wealth across the regions, as would strong post-brexit agricultural and fishery policies. Subsidies should be shifted towards smaller farmers, while reclaiming UK fishing grounds, restoring modest prosperity to parts of the country that have suffered badly over the past 50 years.
Our sovereign industrial policy should avoid “picking winners”, based instead on low, simple taxation – with corporation tax put on hold in inland “opportunity zones”, another move possible post-brexit. Business rates should be slashed to help struggling high-street retailers, amid other targeted tax breaks. As well as worldclass broadband connectivity, we also need, despite incoming migration controls, a steady labour supply. That means better skills – a priority made more urgent by the jobs dislocation caused by lockdown.
Securing a high-wage, highproductivity economy means putting vocational training at the heart of the post-brexit policy mix, with its own dedicated Cabinet position. There need not be an erosion of workers’ rights and a regulatory race to the bottom and I don’t believe there will be – not least as our own Parliament will be in charge, with the Tories keen to retain support in newly won seats in former Labour heartlands.
The EU has agreed a rescue plan that is, at once, both incendiary and inadequate. Eurozone banks are now facing €800 billion in loan losses – and the single currency remains in grave danger. National parliaments could yet block this deal and, even if they don’t, the money won’t start flowing until the middle of next year at the earliest.
The EU has set an end-of-october deadline for the deadlocked free trade agreement with the UK to be finalised. Despite this latest display of contrived unity, Britain must continue to negotiate on the basis that trading on World Trade Organisation terms – the basis on which we already conduct the majority of our global trade – is fine.
While European Council president Charles Michel claims that “Europe is solid”, it is nothing of the sort. Yesterday’s “deal” is less about genuine convergence around a common vision of its future than a last-ditch attempt to ensure that the “grand project” survives.