Brexit – biggest trade deal in British history?

As the 31st of December Brexit deadline looms ever closer, we look back at over 4 years and 9 rounds of UK/EU negotiations on Britain’s withdrawal from the Union. The EU is Britain’s biggest trading partner, the UK is the EU’s second biggest trading partner after the US. Thus far, the Withdrawal Agreement, effective as of February 2020, is the most tangible evidence of the future EU/UK relationship. But if one ignores the politics and ideological chest thumping for a moment, does the answer lie in approaching Brexit simply as one of the largest, most ambitious trade deals in history.  

‘If we don’t achieve some sort of deal, history will not look kindly upon us’ says Director of the Bruegel Institute, Guntram Wolff. Although it might seem that little progress has been made on Brexit besides increasing levels of acrimony between the divorcees, one should not overlook the remarkably united and hence relatively rapid response from the EU. Composed of 27 member states, all of which have varied trading relations with the UK, most agree that credit goes to Michel Barnier and his team for ensuring a united EU stance.

André Sapir also credits the Trump presidency with helping the EU ‘to maintain cohesion on Brexit’. Perhaps more importantly, he predicts that a change of president in the US, will have a significant impact on EU/UK relations. This remains to be seen but Democratic candidate, Joe Biden, has made it clear that the Good Friday agreement must be respected. Sapir admits that Westminster’s recent amendment to the Withdrawal Agreement with regards to the Irish question, ‘was like a bomb’ that ‘very nearly derailed negotiations’. 

No to the European Court of Justice

Aside from this apparently intractable issue, two others remain. The need for a so-called ‘level playing field’, meaning agreement on a common dispute settlement mechanism that is not the European Court of Justice. And, the somewhat erroneous issue of fisheries. The latter has caused concern on both sides. It is more symbolic than real in terms of its economic importance to a Brexit trade deal. The contribution of the fishing sectors to the economies of both the EU and the UK are negligible.

However, fishing agreements affect coastal communities in France and Scotland as well as the Netherlands and Denmark, to a lesser degree. So politically, it is a highly charged issue. The EU has previously tied access to financial markets to fishing rights but commentators agree that this may prove counter-productive to a Brexit trade deal. As Deputy Director of Bruegel, Maria Demertzis, asks, ‘why are we spending all our dry gun power on an issue that is less important than other things?’

‘I’m not frightened at all by the fisheries issue’ – André Sapir.

But Sapir is more optimistic. ‘Personally, I’m not frightened at all by the fisheries’ he says. Pointing out that the fish which are taken out of British waters, are consumed on the plates of the EU27. This is the essence of a trade deal he insists. The Senior Bruegel Fellow also notes that the three major sticking points in Brexit negotiations  have remained largely unchanged. He sees this as positive. With regards to the level playing field issue, Sapir suggests that both sides would have to agree on a set of trading rules, ‘almost identical to what we have now’. They would then have to find an alternative to the European Court of Justice, to ensure enforcement. Clearly it would have to be ‘something that both sides can trust’ in order for a Brexit trade deal to work.

‘Trust based on mutual interests is really what lies at the core of this agreement’ he says. But the issue of trust is a delicate one. Although most agree that European and British interests lie close together, trust between the two sides has been stretched over the past 4 years of rocky negotiations. Demertzis points to the ‘symbolic significance’ of the UK’s recent decision to ignore previous agreements and go against international law. Such actions highlight the fact that trust alone is not enough. Guntram Wolff agrees, emphasising the importance of clear rules that can be effectively enforced. Essentially, it is about ‘finding the right balance between access to the market and ensuring a level playing field’. Deputy Director, Demertizis agrees that financial markets and access to them is a key issue. She also raises the issue of defence. Noting that this too is an important element for the EU to try and secure.

The time for game playing is over’ – Guntram Wolff

But it is Guntram Wolff’s comment that, ‘the time for game playing is over’, which  echoes the sentiment of many EU negotiators. Will there be a Brexit trade deal, at the very last minute? Maria Demertzis and André Sapir are optimistic that some sort of agreement will be reached. Wolff is less optimistic, insisting that there will be no more extensions. ‘We are in the tunnel and everyone will have to find a way to agree’ he says. As the economic realities of Brexit, made worse by the global pandemic, become increasingly clear, it is hoped that pragmatism triumphs over misplaced idealism. Trade has formed the foundation for many a peace treaty. Brexit, one hopes, will prove no different.

EU corona

Carpe corona: will the EU seize this moment and lead?

Coronavirus has spread from the wet markets of Wuhan, China, to the world. Each day new measures to contain its spread are announced, each day the death toll rises. Life in the time of corona is strangely like pressing the pause button and the fast forward button at the same time. In one sense lock down and social isolation have created a feeling of timelessness. At the same time there is an incredible sense of urgency as governments, scientists and health experts rush to find measures to contain the pandemic.  ‘Emergencies fast-forward historical processes’ as Harari put it. The EU project is one of the most ambitious in modern history. Will the coronavirus help to fast forward the creation of a stronger, more integrated European Union? One with the confidence to lead when leadership is so sorely needed?    

As a pandemic, corona virus is a global phenomenon that requires a global response. Although nations have thus far responded individually, there is increasing pressure on leaders to unite and share expertise and resources in the face of an enemy that knows no borders. A microcosm of the global system, and the new epicenter of the corona outbreak, the EU has thus far been characterized by a lack of real leadership at supranational level. Member states have hunkered down with national governments coordinating their own individual responses to the virus. But there are signs that this is changing.

“Extraordinary times require extraordinary measures.” – Christine Lagarde

Last Friday, the European Central Bank (ECB) announced a €750 billion stimulus package. It was accompanied by a statement from ECB president, Christine Lagarde, that, ‘Extraordinary times require extraordinary action’.  Greek bonds will also be included in the bank’s asset purchases for the first time. Further, EU Commission president, Ursula von de Leyden stated that the EU is also willing to consider backing common debt issuance in the eurozone in the form of coronabonds. ‘If they help and if they are correctly structured, they will be used.” Von de Leyden said. Perhaps more importantly, two of the staunchest resistors to debt pooling in the eurozone, Germany and the Netherlands, agreed for the first time last week, to consider this option. 

Closer fiscal union has been a sticking point for a long time in the eurozone. The wealthy northern member states have been reluctant to take on the debt of the ‘less disciplined’ southern economies. However countries like Italy, Spain and Greece provide markets for much of the north’s goods and services. Not to mention cheap holidays, second homes, food and drink.  The financial crisis highlighted the north/south divide. A civil war, in financial terms, broke out between the two regions. The sacrificial lamb was Greece – small and guilty enough to be bullied but not big enough to require a serious overhaul of the eurozone debt mechanisms. Covid 19 is different. It cares little about who has balanced their books and who hasn’t. The pandemic is threatening all sectors of eurozone economies and will continue to do so for the foreseeable future.

How things have changed!

One of the most tangible and dramatic results of the financial crisis and the eurozone’s struggle to coordinate a response to it, was Brexit. It did not happen immediately but June, 2016, saw Britain vote to leave the European Union. The ensuing process has been long and arduous. Just a little over two weeks ago, I attended an event dedicated to discussion of a final Brexit deal. At the time, British Ambassador to the Netherlands, Peter Wilson, described himself as ‘chipper’, in the wake of the clarity brought by recent British elections. He reiterated the UK’s desire for a Canada-style deal, based on precedent. There was substantial discussion about Prime Minister, Boris Johnson’s ability to ‘sell’ the deal back home, given the no compromise attitude that brought him to power. How things have changed since!  

Boris Johnson, like his counter-parts across the globe, is now struggling to coordinate an effective response to corona virus. Britain will not be eligible for the above mentioned stimulus package nor indeed any further relief, yet to come. Corona is changing the landscape of Johnson’s premiership, shifting it away from nationalist concerns over sovereignty and escape from the long arm of the European Court of Justice. It now finds itself confronted by a pandemic that is putting the healthcare system and economy under pressure hitherto unimagined. Suddenly Brexit is revealed for what it really is: a somewhat misguided response to a yearning for Britain’s glorious past combined with a lack of strong leadership at EU level. 

Fortune favours the brave.

The Union which Britain voted to leave has struggled to provide the kind of comprehensive leadership so desperately needed by 27 different member states, all with different cultures and economies, particularly in times of crisis. The 2007/8 financial crisis was  its first real test.  The EU came out intact. But dithering, disagreement and division meant that recovery was arduous and the seeds of populist rancour were sown.

Covid 19  has unwittingly provided Europe with an opportunity to step forward with confidence and lead. Numerous commentators have already pointed out the gap in global leadership left by the US. A pandemic like corona provides good reasons for individual member states to look beyond their national borders to the greater opportunities that a united Europe would provide. Fortune, as they say, favours the brave. Europeans and their leaders would do well to find the courage now to lead Europe and the world into a post-corona future.   

Did Trump and Johnson rely on an outdated voting system to come to power?

More than 50% of UK voters actually voted for a pro-Remain party in last month’s general election. So how was Johnson’s pro-Brexit party able to come away with such an apparently resounding victory? Trump’s victory in the 2016 US elections was  equally counter-intuitive if you look at the numbers. Hilary Clinton won the popular vote by nearly 3 million votes – 48% to 46% but Donald Trump is president. The answer lies in the so-called winner-takes-all or First Past the Post voting systems used in both the US and the UK. Increasingly recognised as divisive, out-dated and often undemocratic, this system continues to hold sway, with serious consequences.  

In the 2020 US presidential elections, it is predicted that campaigning will be concentrated in just four states – Pennsylvania, Michigan, Wisconsin and Florida. Former campaign manager for Barack Obama, Jim Messina, describes it as ‘the smallest map in modern political history’.  It is typical that no more than 12 states are the focus of campaign events in recent US elections. Candidates focus their time, energy and money both before and after voting day on these so-called swing states. This is largely because of the winner-takes-all voting system in operation in 48 US states. In practice, this voting system means that that even if a candidate wins with a very small majority, all electoral votes go to the winner. For example in 2012, Obama won 1.5 million votes in Minnesota while Romney won 1.3 million. However the winner-takes-all approach meant that all ten of Minnesota’s electoral votes for president were cast by Democrats.   

Voting is a postcode lottery  

Voting systems such as these encourage candidates to ignore states in which they are either well ahead or far behind. The chances of them changing the status quo are small and the pickings are much better in the swing states. The result; in the 2016 election, 94% of general election campaign events took place in the twelve battle ground states.

A similar situation exists in the UK where each constituency has a winner who will represent that constituency in parliament, irrespective of how many actual voters live in this constituency. Hence there are a lot of wasted votes. Thus, despite receiving just 1.2% more of the popular vote, the Conservative party managed a huge swing of 48 seats out of 650, compared to the last election. As a voter, where you live determines what, if any, power your individual vote will have. It also means that ruling parties like the Conservatives or Labour in Britain can get an absolute majority in parliament with approximately 35% of the votes. Local MPs are generally required to tow the party line creating a gap between voters and their representatives in parliament.

What are the alternatives?

There are a number of other options but Proportional Representation (PR) is widely used in many European countries. A version thereof, Alternative Voting (AV) or proportional instant run-off voting, was proposed in the UK, in a 2011 referendum. The AV system ensures that the winning candidate in a constituency has to gain 50% of the votes. Voters put candidates in order of preference. If a candidate receives 50% of first preferences they are elected. If no one has 50% then the bottom candidate is eliminated and their second preference votes are allocated to the other candidates.

Surprisingly perhaps, there was an overwhelming majority against the idea of changing the current voting system. Only 32.1% of Britons voted in favour of it. Critics maintain that this system leads to the election of a least disliked candidate rather than a real favourite. However, defensive voting strategies, often employed in winner-takes-all systems, lead to similar results. Voters vote simply to block the candidate they dislike most.

Going Dutch

When voting in the Netherlands, one is faced with a rather large, initially complicated looking, ballot paper. Candidates from all parties, all over the country, are listed in rank order. Voters thus choose from a single national list of candidates rather than selecting representatives for their local district. You pick a party and then choose an MP from that party – in this way one can vote for a local or a national candidate. Any candidate who receives a certain percentage of the vote wins a seat in the Dutch parliament.

Proportional Representation (PR) results in a wider range of parties in parliament, including smaller ones. Thus coalition governments are common. In the Netherlands it is not uncommon to have as many as four parties forming a coalition government. Supporters of the First Past the Post voting system argue that this leads to unstable governments that lack strong leadership. However, in the four UK national elections since 2010, half have produced hung parliaments where no single party had a majority.

What if?

An academic from Strathclyde University, Heinz Brandenburg, experimented with the recent UK election results using the Dutch PR system. Although some things could not be factored in because of obvious differences between the two countries, he found that with the Dutch voting system, the Conservative party would not have won an outright majority. Smaller parties like the Lib Dems, the Greens and the Brexit party would have done better. As one commentator put it, ’Britain has a multi-party politics trapped in the decrepit body of first past the post.’ A recent report by a British thinktank, the Constitution society, concluded that First Past the Post encourages extreme politics. Increasing polarization of political views in both  the US and the UK seem to support this claim.

Launched at the United Nations in 1998, the ACE Electoral Knowledge Network is the world’s largest online repository of electoral knowledge. It shows that the global movement towards democratic governance in the 1980s and 1990s has resulted in a growing awareness of the importance of voting systems as one of the most influential political institutions. They are charged with fostering stable and efficient government, coherent coalitions and strong parties, among others. But perhaps it is the general principles of design that need revisiting in these turbulent times. Principles of fair representation, transparency and inclusiveness.

The Calculus of Consent

Over fifty years ago, two American academics, James Buchanan and Gordon Tullock, wrote a seminal book on democratic theory, The Calculus of Consent: Logical Foundations of Constitutional Democracy. Fusing economic methods and political theory, this groundbreaking work argues that the essential function of democratic institutions is to induce mutual gains by resolving conflicts through exchange. Buchanan calls this ‘politics as exchange’.

It offers a solution to the problem of democratic justification in political theory. It also shows that dissent and the requisite negotiation that leads to what economists would call ‘exchange’, is a healthy thing. Thus leading to more optimal decisions in so far as satisfaction levels of greater numbers of individuals are higher. Calculus of Consent provides convincing theoretical and practical justification for voting systems like Proportional Representation, that take into account the increased number and plurality of views in modern day states. No voting system is perfect but the real question is whether it is an improvement on the current one. Recent rises in populism and polarization in both the US and the UK suggest that it may well be.

Brexit

‘Getting Brexit done’ and the UK undone?

Boris Johnson has lead his party to the biggest Conservative victory since the 1980s. Winning 364 of the 650 seats in parliament, the Tories now have strong majority and Johnson a clear mandate to ‘get Brexit done’. However voters in Scotland and Northern Ireland are far less eager to leave the European Union it seems. In Scotland, the Scottish Nationalist Party (SNP) surged ahead securing 45% of the votes. While Northern Ireland voted 56 per cent to 44 per cent to remain, in the Brexit vote.

Get Brexit done!

Since the initial Brexit referendum three years ago, many have blamed then British Prime minister, David Cameron, for needlessly creating a problem where there wasn’t one. But these election results suggest otherwise. Boris Johnson has lead his party to a resounding victory on the most simple of election slogans: Get Brexit done. Johnson’s self-described, ‘stonking’ mandate now means that the Tories now have free reign to go about leaving the European Union as they see fit. The problem however, is that few concrete details have thus far been provided. One of Johnson’s final pre-election stunts involved driving a Brexit backhoe through a wall of polystyrene bricks with the words ‘gridlock’ on them. This was apparently enough for the majority of Britons.

Election results show however, that for Scottish and Northern Irish voters, Boris Johnson’s devil-may-care exit plans are far less appealing. Nicola Sturgeon’s nationalist party gained thousands of votes in every seat, even unseating Lib Dem leader, Jo Swinson, in East Dunbartonshire. Ms Sturgeon said the results exceeded even her expectations. ‘Scotland has sent a very clear message – we don’t want a Boris Johnson government, we don’t want to leave the EU.’ With a 68.1% voter turnout in Scotland, the SNP’s landslide victory has been heralded by Sturgeon as ‘a clear endorsement’ for a second independence referendum.

A second independence referendum for Scotland?

Scotland held a first independence referendum in 2014 when 55% of voters chose to remain within the United Kingdom. However after the Brexit vote in 2016, opinion polls showed widespread reluctance among the Scottish public to leave the EU. Scotland’s union with Britain was created in 1707. First Minister, Sturgeon, herself admits that not all SNP voters want to leave the Union. Nevertheless, Sturgeon will now request a second referendum from the UK Government.

Results in Northern Ireland, although not as decisive, returned more nationalist than unionist MPs for the first time. The Democratic Unionist Party (DUP) suffered ‘a bruising’ election night. Signficantly, it lost both North and South Belfast, including its Westminster leader, Nigel Dodds. This is significant as Dodds was a powerbroker in May’s Brexit negotiations. The DUP propped up the minority Tory government after the 2017 general election. Adding insult to injury, Dodds lost his seat to high profile Sinn Féin MP, Mr. Finucane, Lord Mayor of Belfast. ‘North Belfast is a remain constituency and wants a future as part of the European Union.’ he said. In South Belfast, DUP MP lost to another Irish nationalists, the Social Democratic and Labour Party (SDLP).

Best Christmas present for Northern Ireland?

Although election results in Belfast showed significant change in sentiment from unionist to nationalist, the DUP is still the largest party. Nevertheless it holds fewer seats than Sinn Féin and the SDLP and this means a return to Stormont. New talks aimed at restoring the power-sharing executive are due to start on Monday. The devolved government at Stormont collapsed in January 2017 after bitter disagreements between Sinn Féin and the DUP. “As it turns out, nobody is going to stop Boris’, said Sinn Féin leader Mary Lou McDonald. But results in Northern Ireland have created renewed interest in the restoration of the Assembly that has lain dormant for nearly three years. Getting around the table and agreeing to restore the territory’s devolved government, ‘would be the best Christmas present for the people of Northern Ireland’ says DUP MP, Jeffrey Donaldson.

So the question now, is what kind of Brexit does Boris Johnson have in mind? For the nature of Britain’s now assured exit from the European Union, will clearly impact a second independence referendum for Scotland and Northern Ireland’s long-term political landscape. No real solution for the Irish backstop has yet been found. As such, it will continue to be a sticking point for the Republic of Ireland and the EU more generally.

Increasing strain on the ties that bind the United Kingdom.

The first hurdle, is time. Britain will now definitely leave the EU on the 31st of January. But the period allocated for so called transition is ridiculously short – the end of 2020. European Commission President, Von der Leyen has described it as, ‘very challenging .’ Nevertheless, the Conservatives vowed in the election manifesto not to request an extension to this deadline. A request for transition would need to be made by June, 2020. Such a deadline gives little hope of anything more than World Trade Organisation rules for Britain’s future relationship with the EU. Hardly optimal. Yet it is very difficult to tell what Johnson really has in mind when it comes to his long awaited Brexit. One thing however seems certain, whatever shape or form the ultimate exit takes, it will significantly increase the strain on the ties that have bound the United Kingdom for centuries.