Forget Hard or Soft Brexit: It’s Scrambled Brexit

Forget all this talk about a hard or soft Brexit. There is only one Brexit on the menu, and it’s scrambled. The hard or soft labels have always been meaningless in describing the manner of our departure from the EU, and the election has made the descriptions more vacuous not less.

For the truth is that Brexit was always going to be scrambled: a frothy concoction of deals from quotas for skilled workers to maybe paying for market access in financial services to bartering on security.

Everything is up for grabs from “euroclearing” transactions in the City, to which agencies will stay where. And we have a pretty strong hand with which to whip the eggs – as one of the Five Eyes intelligence sharing group, the UK is the only intelligence superpower member of the EU and plays a critical role in Europol. And we have Europe’s deepest and most liquid capital market which benefits the eurozone countries as much as it does us.

So there’s much to barter with that gives benefits to both sides. That is what negotiations are about. But the fundamentals have not changed. Not even the election has managed to do that despite the latest calls for a “softer” Brexit. Just as you can’t be half pregnant, a soft Brexit is not Brexit as it would mean the UK staying in the single market without any control over our borders. Neither the Conservatives nor Labour appear to be willing to budge on that.

Nor does a softer Brexit mean a half-way house with the UK staying in the Customs Union as this that would preclude us from striking our own Free Trade Agreements with the rest of the world – one of the main reasons for Brexit in the first place and the long-term upside in terms of trade.

And a hard Brexit suggests the UK would fall off the cliff at the end of the two-year negotiations without any deal at all. No one, not even the EU, wants that as it would be economic suicide for both sides. Which is why David Davis, the secretary of state for the Department for Exiting the European Union and his team, have always intended to put a transitional deal of up to one or two years at the heart of negotiations with Michel Barnier, the EU’s chief vizier, to start once the Article 50 deadline is up – smoothing the adjustment for both sides.

For obvious reasons, a transitional period is not something the government has been shouting about as it was integral to the secret negotiations, although that may have been a whopping PR mistake.

Yet insiders say this is one of the Exit department’s top priorities, and an essential part of the forthcoming talks which start next week and are due to cover three areas – citizens rights, the divorce bill, and issues of borders in Ireland and security in Cyprus.

News of a potential transitional period after 2019 should cheer up those in the City and business who have lobbied hard for such a deal to avoid the cliff edge. Who knows, it might even stop a few of those US banks from threatening to move more staff to Frankfurt.

But neither the City nor business should expect any special protection from government beyond that. While business is as divided as the rest of the population over Brexit, there is a sense that the constant whining from the business community has not played well with the government.

Ministers are caught: they don’t want to be seen toadying to rich bankers but nor can they avoid the City’s riches: it makes up a tenth of the economy, supports an estimated two million jobs and 10 per cent of EU exports – equivalent to about 5 per cent of what we sell to the world.

More pertinently, the City sells £19bn more financial services to the EU than it buys which would suggest there could be leeway on both sides for a deal on market access and accepting equivalence.

What’s trickier to see is how the latest attempt by the EU countries to snatch from the City euro-denominated clearing and settlement (the massive business London dominates) will play out. It is worth remembering that this battle is not a direct consequence of Brexit as the European Central Bank failed in 2015 to force the big clearing houses to leave London for the eurozone after a three-year court battle.

As this was well before the UK vote, so you can see why the latest intervention on the subject is seen as being so sneaky. From the EU stance, why not go for the gullet now? May’s government is weak, so they can afford to play games although even most European bankers privately admit taking euro clearing from London will be self-defeating as it pushes up the cost of capital for everyone.

But they may be employing good tactics to get the best price out of us in the divorce bill about to be discussed. And we are about to find out all the ghastly, intimate secrets of the divorce when the first part of the negotiations begin next week. Once they start, Barnier has said the transcripts of the talks will be published in the interests of transparency.

So far Barnier has played a relatively straight game but it’s a well known secret that the aristocratic outsider has his cap on taking over the presidency from Jean-Claude Juncker who retires in two years.
Whether that means Barnier will play only hard ball with the UK remains to be seen but he may want to show charm as well as cunning to show he is up to taking over from Juncker.

What’s surprising is that if the possibility of a transitional period is indeed so central to talks, why all this new chatter about softening Brexit with a Norway arrangement of being in the European Economic Area or Switzerland which is in the European Free Trade Association? Why is Ruth Davidson talking about an “open” Brexit while Philip Hammond is lobbying for staying in the customs union? Davidson is not daft and must know there is no such thing and Hammond knows that staying in the Customs Union stops us from unilateral FTAs.

So what’s going on? My guess is that there is no change of stance only of tone. Macho Brexit language is out with with words such as consensual taking their place.

Whoever thought of sending Michael Gove, the new environment secretary, onto the BBC’s Today programme as Mrs May’s new salesman to talk about “consensual” Brexit, played a blinder. It’s a mischievous thought but you might say that a weakened May actually has what she wanted after all – all her enemies are now on side because they are so terrified of Jeremy Corbyn taking their places and room for compromise. Brexit means Scrambled Brexit.