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Brexit failure in sight

In the final months of the Second World War, Winston Churchill’s desire to launch dangerous military adventures in the far-flung reaches of the Empire caused the head of the Military, Field Marshall Sir Alan Brooke to remark that “before you plant your right foot somewhere you ought first to know where your left foot is going to go next.”  The same advice would have been appropriate for the current fools that pass for political leaders in Britain.  You see, Brexit – the process by which the UK will extricate itself from the European Union –  is without doubt the biggest British crisis since the panzers stood on the cliffs at Calais and the bombers and fighters of the Luftwaffe circled over Southern England.

Given the social and economic upheaval that must inevitably follow leaving an economic union after four decades, we might reasonably expect that those who campaigned to leave might have had a plan for what to do next.  They didn’t; and that alone was good reason to avoid doing anything hasty like triggering Article 50 of the Lisbon Treaty without fully understanding what it meant.  But they did it anyway.

Today, a full 18 months after the referendum result, Theresa May’s Brexit inner circle of trusted Ministers sat down for the first time to discuss – and apparently fail to agree – what they wanted the post-Brexit relationship with the European Union to be.

At this point, with just 15 months to go before the UK is unceremoniously dumped out of the EU (unless a deal can be reached) we can already see the barn door blowing back and forth in the wind even as the sound of horses hooves fade in the distance.  The harsh reality is that British businesses have not got 15 months before they have to come to terms with Brexit.  Their contingency planning requires that they begin preparations today.  Indeed, those businesses that are based around the current EU arrangements will have to relocate to somewhere within the EU27 states early next year if there is still uncertainty about post-Brexit trade arrangements.  Nowhere is this truer than in the banking industry – Britain’s main source of income from international trade.  As John Manning at International Banker explains:

“According to a report by TheCityUK, the lack of clarity at present is likely to force London’s financial-services companies to implement worst-case contingency plans well ahead of the March 2019 Brexit trigger date. The influential financial lobbying group believes negotiators from the UK and the EU ‘cannot delay discussing a transitional deal any longer if they want it to hold any real value’, given that most institutions will already have executed their worst-case plans by early next year. With banks requiring at least one year to set up their subsidiary operations in the EU in order to ensure smoothness and business continuity during the transition, it is likely that March 2018 will be considered as a major deadline for many London-based lenders.”

Perhaps the biggest concern is with so-called “passporting rights” that allow banks based in the City of London to conduct business anywhere within the EU:

“Passporting has contributed significantly to London’s preeminent status as the world’s foremost financial centre. It allows British lenders and financial-services companies to conduct cross-border business anywhere within the bloc. More than 5,000 British firms use this facility to bring in around £9 billion in revenue per year. But now this privilege looks to be under severe threat. According to the EU’s chief Brexit negotiator, Michel Barnier, ‘The legal consequence of Brexit is that the UK financial service providers lose their EU passport. This passport allows them to offer their services to a market of 500 million consumers and 22 million businesses’.”

According to Manning, European banks have already shifted their business away from London, while most London banks are setting up European branches in Dublin, Frankfurt and Paris.  In effect, what the EU27 stand to lose in the way of car, cheese and wine exports to the UK they will more than make up for in new financial sector business as the post-Brexit city of London shrinks into a shadow of even its current self.

At this stage in the proceedings a competent government would long ago have finalised its vision of a post-Brexit Britain.  Its negotiators would have a full understanding of which matters it is able to give ground on and which are absolute lines in the sand.  With a little over a year to go, a competent government would be well on the way to a post-Brexit trade agreement with the EU27 as well as engaging in initial (informal) trade negotiations with the non-EU states around the world. But the UK does not have a competent government.  So, instead, we learn that:

“Brexiteers Boris Johnson, Michael Gove and Liam Fox, alongside Gavin Williamson, who backed Remain in the referendum, were understood to be vocal on the need to ‘diverge’ from EU regulations.

“It is believed soft Brexit backers such as Chancellor Philip Hammond and Home Secretary Amber Rudd leaned further towards ‘alignment’ with Brussels rules to maintain close ties with the EU in the future.

“Ministers did not agree a position but there was discussion of the potential for ‘gradual divergence’ – a step-by-step move away from EU laws after Brexit and the conclusion of a subsequent implementation period in 2021.”

Meanwhile, out here in the real world, Britain’s key businesses are already packing up and preparing to leave for the continent the moment the holiday festivities are over.  By next summer – long before any trade deal can be made with the EU27 (assuming the UK government can agree among itself what it wants) – a large part of Britain’s exporting industries that are the subject of those trade negotiations will have already gone… after which it will not matter whether what remains of the UK gets a deal or not.

As you made it to the end…

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