Monday 21 October 2019

Leo can't afford to look like a soft touch after playing Brexit hardball

The Taoiseach has little room to manoeuvre, writes Dan O'Brien as he delves into the perilous politics behind the talks

ACROSS THE TABLE: Taoiseach Leo Varadkar meets with British Prime Minister Theresa May on the sidelines of the European
Union and Western Balkan heads of state summit at the National Palace of Culture in Sofia, Bulgaria, last Thursday (AP Photo/ Virginia Mayo)
ACROSS THE TABLE: Taoiseach Leo Varadkar meets with British Prime Minister Theresa May on the sidelines of the European Union and Western Balkan heads of state summit at the National Palace of Culture in Sofia, Bulgaria, last Thursday (AP Photo/ Virginia Mayo)

Dan O’Brien

Import taxes on Brazilian beef and New Zealand butter will be the same in Ireland and Britain on January 1, 2021 as they were the day before. They will not diverge, if they ever diverge, for some time after that date. This may not seem to be significant at first glance, but in the context of a hard border appearing on this island in the years ahead, it is potentially very important.

Last week the British prime minister, Theresa May, made this new offer in Brexit talks. It is yet another move that would delay the effects of Britain leaving the EU next March for people and businesses.

The essence of the much talked about European "customs union" is that every country levies the same taxes (called "tariffs" in the jargon of international trade) on stuff being imported from the rest of the world, from food to pharmaceuticals, and cars to computers.

Many on the pro-Brexit side in Britain correctly point out that these tariffs stymie imports - import tariffs discriminate against non-EU producers because European producers don't pay them. One result of this is that European consumers pay higher prices than they should. Consumers, including the poorest, subsidise producers, who are often very rich.

This state of affairs has gone on for so long that is hardly acknowledged. Not even the most ardent consumer activists point out how we pay much more, particularly for food, than we would if Europe's protectionist measures were dismantled. Instead, the renewed focus on tariffs in the Brexit era is all about the implications for the border of having a lower tariff in Northern Ireland and higher (EU) one in the Republic.

Whether to keep the EU's common tariff or to abandon it has been one of the central issues - if not the central issue - in the battle within Britain's ruling Conservative party. If Britain maintains EU tariffs on imports from non-EU countries, it will not be able to do new trade deals with those same countries because bilateral trade deals involve both sides reducing tariffs to provide greater two-way market access. If Britain can't cut its tariffs, it can't cut trade deals. It's as simple as that.

The British cabinet is divided, with a small majority appearing to favour abandoning the EU's tariff. Among the wider Conservative party in Westminster, divisions are starker. Around a dozen strongly pro-EU backbenchers want Britain to remain as closely aligned to Europe as possible, including remaining as a de facto member of the customs union. There are approximately five times more MPs who are hard-line Eurosceptics and who take the opposing view.

Given the balance of forces within the Conservatives, it is all too easy to see a revolt taking place if Theresa May comes down on the side of those who want Britain to remain close to the EU. If hard Brexiteers win out, there will be a hard Brexit. That would be the worst possible outcome for Ireland.

In any negotiation, an understanding of how far your interlocutor can and will go must inform the position you take. Pushing too hard can result in the other party walking away. The Irish and EU position since last November has been to push London very hard. This is a very risky approach and could backfire disastrously when the British eventually take a decision.

If the British government can't make up its mind on Brexit, minds in the two most important European capitals have long been made up. The line taken vis a vis the British by both France and Germany has been more unyielding than expected at the start of the process. From many conversations I have had with people from both countries, their respective positions are best explained by a German allergy to rule-breaking and France's view of Brexit as a historic opportunity to advance its strategic interests.

For Germans, rules-based order is their cardinal organising principle, be it in the Federal Republic itself or in the eurozone. The essence of effective rules is that everyone sticks to all of them. When actors can pick and choose which part of a legal order they accept and ignore, chaos and disorder ensue. For this reason, the mantra from officials and others in Berlin is that there can be no cherry-picking (or "raisin picking" in German). The frequency with which this term is used by Germans is very striking. They continue to see British proposals as cherry-picking.

It is also important to note that German economic interests play a role too. While Germany sells lots of cars to the UK, as Brexiteers used to point out frequently, the value of all of Germany's goods and services exports to the British market is equivalent to around 3.5pc of that country's economy. While this is not an insignificant figure, losing even a large chunk of the British market would not be detrimental for the German economy. It is for this reason that Germany can afford to prioritise the integrity of the EU's legal order over economic interests.

France's exports to the UK relative to French GDP are even smaller than Germany's, at just 2.5pc. As with Germany, this is one reason why France has played hardball in the Brexit talks. But a more fundamental explanation of the French position is the opportunity that Brexit creates.

The French elite's world view is centred on the dynamics of the great powers, of which France is one. They view Brexit as an extraordinary act of self-harm by Britain that will reduce its influence in European and world affairs. This influence is now up for grabs. The harder the Brexit, the more influence Britain will lose and the more influence France can potentially gain.

This French calculus is to be seen in Paris' position on high finance. The French have always resented London's position as Europe's financial capital. This resentment grew after the euro was created, when some important functions of the euro area were located in London which was not even in the eurozone. The French see an opportunity to on-shore the eurozone's high finance capabilities to their natural home in Paris.

The hard-line position taken by the Irish Government in Brexit talks - in particular that Brexit should have absolutely no implications for the Irish border - would not have been pursued without a high level of confidence that the two most powerful countries in the EU had solid, self-interested reasons to back a hard line with the British. As it is now unlikely that either France or Germany will do a U-turn, the Irish Government has been able to pursue its hard line without fear of suddenly losing support.

That brings us to the politics of Brexit in Ireland. Last November, Leo Varadkar, ramped up the pressure on London and demanded that Britain sign up to a "backstop" that could result in Northern Ireland leaving Britain's customs union and single market to stay in the EU's versions of those free market mechanisms. Opinion polls at the time suggested that Fine Gael and the Taoiseach benefited substantially from telling the British what's what.

Sinn Fein, naturally, was strongly supportive of this stance and Fianna Fail, as 'the Republican Party', could not be seen to be anything less than supportive. Since then, the only criticism of the Government from the Opposition has been that its position is not hard-line enough. Fianna Fail's Brexit spokesperson, Lisa Chambers, made this statement last week: "I think we've been far too facilitative of the Tory infighting that's going on and we're allowing it to drag on to the detriment of our own country."

Having taken a hard-line position and having put the Northern Ireland backstop on the negotiating table, Varadkar has greatly reduced his room for manoeuvre as the Brexit talks move toward endgame. Among other things, this means that Varadkar's personal political interests may now have moved out of kilter with the national interest.

If, when the Brexit talks come to down to the wire, the best available deal includes compromises, including some limited border infrastructure,Varadkar will be in trouble. Having taken an absolutist position on the border, he would be excoriated by the Opposition parties for caving in to British Eurosceptics if he were to concede anything. His personal authority could be permanently damaged.

As such, he may have a greater personal political interest in maintaining the hard line and allowing the talks to collapse, rather than giving ground and taking the best available deal. This is not a good position for a Taoiseach to be in.

Sunday Independent

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