The newspapers today are full of talk about cabinet splits after Hammond and Davis appeared to publicly disagree about the kind of Brexit we want (HERE). As if we had a choice! I do not see how the EU can or would ever want to allow the UK to be inside the customs union and the single market while being free to trade around the world, acting as a sort of privileged middleman to supply goods into and out of the huge EU market and becoming rich as we do so.
This is what the Brexiteers like John Redwood would like to see and what the EU fear. In fact, one might say the EU single market was set up precisely to avoid any country having an advantage over the others. We will eventually have to make a decision, one we have been putting off for a long time. Do we want to be part of the single market (soft Brexit) or do we want to be completely free to trade with the rest of the world (hard Brexit). The Labour party are holding out for some sort of halfway house where we are part in and part out. The Conservatives are leaning towards WTO terms even if some, like the chancellor, are pressing for an extended transitional period. Business would like us to remain members of the single market and the customs union.
It is always useful to put yourself in the shoes of your negotiating opposite number. Of course they do not want to damage their own interests. But what are their interests? The Germans, the French and the Italians think in much longer terms than we do and they may well be prepared to accept a short term hit in order to make sure that in the long term we do not prosper at their expense. Why should they restrict government intervention in industry for themselves while allowing us to pump taxpayers money into our companies that might then compete with European competitors? Why should they handicap themselves with high environmental standards as we cut ours to reduce costs? Nobody is going to allow that in a country with privileged access to the single market, especially one that does not pay into the EU budget.
I think the EU will see Brexit in more binary terms. A long time ago, Wolfgang Schauble the German finance minister said out means out and I think this is what they will negotiate towards. It is also why some senior people inside the EU are still confused about what we want. The day when we have to make a decision is getting closer.
The CETA deal with Canada sets out clearly the limits of what each country can do and it does not allow standards to be reduced so even with a FTA we will not become a Hong Kong or a Singapore. Eventually we will have to accept what the EU gives us or trade on WTO terms and this would be a catastrophe.
