Leading article

Now May’s talking tough over Brexit, we might actually get somewhere

4 August 2018

9:00 AM

4 August 2018

9:00 AM

Ever since Theresa May declared that ‘no deal is better than a bad deal’ she has seemed to be drifting towards the ‘bad deal’ option. The government has put forward numerous constructive proposals, only for them to be shot down by Michel Barnier — who goes on to warn of ticking clocks and the need for Britain to cede ever more ground. His strategy is logical and amply rewarded: every time he rejects a British plan, more concessions are offered. All along, Barnier’s approach has been to portray a post-Brexit trade deal as if it were a favour to Britain rather than an agreement of mutual interest. Britain, he has asserted, has everything to lose — while the EU could carry on after a ‘no deal’ Brexit as if nothing had happened.

This week, the tone finally changed. For once, the UK government has talked tough, warning the EU that if British financial services are denied access to European markets, a reciprocal ban will be put in place, too. European investment funds would be denied the opportunity to do business with British investors, who constitute Europe’s largest market for its products.

The effect has been instant. Already, the EU position has begun to soften. Barnier’s conceit that the EU can simply take over Britain’s financial services industry has been shown for the wishful thinking that it is. He has been overruled by EU member states, who realise what is at stake. They do not wish to sacrifice the interests of their own financial industries for the political objective of being seen to punish Britain for daring to leave the EU. The result, it seems, is that financial services will, after all, be included in a trade deal — something which we have been told over and over again would be impossible.


One of the areas which has been predicted to suffer as a result of Brexit has been euro clearing — trading in derivatives denominated in euros. Even before the Brexit vote, France and Germany had tried to push for a law requiring all euro clearing to be conducted within the eurozone, a battle they lost at the time but which they have waged with a vengeance following the Brexit vote. This week Deutsche Bank announced that it is to relocate some euro clearing to Frankfurt, exciting much comment. Yet rather less noticed was that the bank said it does not intend to move a single job out of the City on that account.

The success in opening EU minds to the prospect of a proper, balanced trade deal on financial services raises the question of how much better negotiations could have gone had this approach been taken from the start. The irony is that in trying to reassure a domestic audience that a ‘no deal’ Brexit will not happen the government has increased the chances of that very outcome. Its weak negotiating hand means Theresa May is far more likely to come back from Brussels with a weak deal that will be rejected by parliament. The EU miscalculated once before when it sent David Cameron back empty-handed. It may misjudge the political situation again.

The Prime Minister has now been forced to talk no-deal preparations precisely because this is not a drill. Her botched negotiation, and the outrage over her Chequers proposal, has led us to this point. But this may yet take us back to where she should have started: behaving as an equal in the Brexit negotiations, prepared to walk away and threaten retaliation whenever the EU attempts to freeze UK businesses out of its markets.

As an equal, she is better placed to reassure those who voted against Brexit. She should explain that there are opportunities for Britain to deepen ties with the wider world. The tone of the talks with Barnier do not set the tone for our relations with the rest of the continent. Collaboration is more important than ever — for the rest of Europe as well as the UK. Britain has nine universities in the world’s top 50; France has only one, Germany’s best university is in 64th place, Italy’s 170th. Like finance, our academic prowess is a resource. We have much to offer.

Boris Johnson’s idea of building a bridge to France was laughed at but it conveyed the right sentiment: of an outstretched hand. Brexit is about creating something, not destroying something — a message that May and her cabinet need to do a lot more to get across to the great many people who find it hard to believe. Not because they are ‘Remoaners’ or ‘saboteurs’ but because they have justified concerns that an often-shambolic government might make an awful mess of this.

As Prof David Collins explains in this week’s issue, a ‘no deal’ Brexit would bring turbulence but would be perfectly manageable. This option is back: not just as a genuine fall-back plan but a bargaining chip. With any luck, it should help negotiate our way to what we have always wanted: a trade deal that will maintain commercial and general relations with our European partners but on the basis of mutual respect. The stakes are high, but the reward is great.

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