Report: 'Deluded' UK cannot afford to be smug on Brexit

Britain is in a weak negotiating position and will have to win the goodwill of leaders in Europe if it is to avoid economic chaos following Brexit, according to a report by independent think tank the Centre for European Reform (CER).

With Theresa May set to trigger Article 50 in March, CER director Charles Grant has analysed the options available to the British prime minister as she hammers out a new economic relationship between the UK and the EU.

Grant sets out the views of officials in Brussels and the rest of Europe, many of whom believe that Britain is “deluded over the strength of its negotiating hand”. He says that “May and her ministers should conduct the talks in a sober, courteous and modest manner”.

“Once Britain triggers Article 50, it is in a weak position: it must leave in two years, and if it has not signed a separation agreement before doing so, it risks economic chaos.

“Grandstanding and smugness will erode goodwill towards the UK.”

Grant argues that Britain’s strongest negotiating card is its contribution to European security – via cooperation on policing, intelligence, defence and foreign policy. Threats to transform the UK into a low-tax, ultraliberal economy lack credibility, he says, and the importance Britain assigns to the City of London is misguided.

“Few EU governments regard the City as a European jewel whose sparkle should be preserved,” he says. “While some view it as a cesspit of wicked Anglo-Saxon capitalism, several others are keen to pick up the business that could leave the City post-Brexit.”

The policy brief, released on 20 February, says that one of the most striking features of the May administration is the centralisation of power in 10 Downing Street, with most key Brexit decisions taken by the prime minister and her closest advisers.

This has downsides for Brexit. “People in the inner circle may become over-stretched, so that important decisions are delayed. And centralisation may discourage the tapping of outside expertise,” says the report, adding that many people in May’s inner circle have a Home Office background, and her government lacks high-level expertise in areas such as the EU, diplomacy, economics, financial markets and business.

This increases the risk of Brexit policies emerging that are unviable, the report continues. One example given is the commitment in May’s long-awaited Lancaster House speech on 17 January for Britain to negotiate to leave the Single Market and the Customs Union and to hash out its future trading arrangement with the EU, all within two years. The report points out that free trade agreements usually take five years to negotiate and several more to ratify.

It does, however, concede that by confining decision-making to a small circle of trusted allies, May can avoid leaks of sensitive information, and incur “minimal foot-dragging from other Whitehall departments”.

EU officials now believe that the UK is on course for a ‘hard’ Brexit, says the report: they have concluded that the main domestic pressure exerted on May is coming from the Eurosceptic hardliners within her Conservative party.

Following the sudden departure of Britain’s EU ambassador in January, they also wonder if there remain enough officials willing to speak uncomfortable truths to power.

Discussions over the size of the bill to be presented to a departing UK – which could be as high as €60bn (£51bn or $63bn) – could also be a major sticking point, with European Commission president Jean-Claude Juncker warning this week that Britain could not expect a “cut-price or zero cost” exit.

Grant says that Britain’s Brexit ‘red lines’ – restricting freedom of movement and ending the jurisdiction of the European Court of Justice in Britain – are political outcomes, and will be prioritised whatever the economic cost. However, he sets out five reasons why May might end up pursuing a softer Brexit: Britain’s courts and parliament have been more involved than she would have liked; business lobbies are starting to get their act together; the economy could see a downturn, influencing public opinion; she may want to placate Scotland to prevent a second independence referendum; and senior government figures are now learning more about how the EU works, which could make them more sympathetic to its goals in the negotiations.