3 July 2017

Tone will be as important as content for the success of Brexit negotiations, but disunity is not a good look

Speaking last week at the Annual Conference of the Christian Democratic Union’s Economic Council in Berlin, the UK Chancellor Philip Hammond opened his address by invoking Ludwig Erhard, the CDU chancellor and finance minister closely associated with the post-war Wirtschaftswunder of economic recovery in West Germany. Hammond quoted Erhard as saying:

Ein Kompromiß, ist die Kunst, einen Kuchen so zu teilen, daß jeder meint, er habe das größte Stück bekommen. [Translated roughly as “a compromise is the art of dividing a cake in such a way that everyone believes he has the biggest piece.”]

Hammond followed up with a none-too-subtle dig at Foreign Secretary Boris Johnson for his having-cake-and-eating-it approach to trade negotiations, saying Erhard’s were:

Wise words with some applicability to the Brexit negotiations although I try to discourage talk of “cake” amongst my colleagues.

Combined with a self-deprecating reference to the election result, this opening seemed to go down well with the audience:

But it was not so well received back home. The Spectator’s James Forsyth correctly warned that undermining a cabinet colleague in front of negotiating partners does not reinforce the impression of government unity.

It also built into the damaging narrative of Theresa May seemingly struggling to contain splits in her cabinet.

That same day, the Brexit Secretary David Davis told The Times’ CEO Summit that a transition period for the UK’s exit should take one or two years, before going on to highlight what he saw as Hammond’s inconsistency on the matter. Davis said:

The chancellor said a number of things that are not quite consistent with each other. One of the most important things he’s said is that it’s got to be done before the next election. So that’s a maximum of three years.

Episodes like this do not show the UK in a good light, and currying favour with negotiators on the other side of the table should not be achieved at the expense of unity at home. Yet despite the ill-judged humour, Hammond’s overall intention was to re-frame the UK government’s position in a way that will make it more likely to be well-received on the continent. By clearly siding with a respected German figure representing sober management in the face of existentially challenging circumstances, Hammond was attempting to counter widespread European fears that Brexit is an act of irresponsible economic vandalism that can only harm European prosperity. This more sensitive approach is one that ministers should pursue if they are to convince the EU that the UK is serious in its desire for a ‘deep and special partnership’ after Brexit.

Being honest about Brexit risks could help the UK find a workable solution with EU partners

The centrepiece of Hammond’s speech continued in this vein with rhetoric of methodical problem-solving and bureaucratic management. Speaking to Germany’s prudential public management soul, he was precise in identifying two distinct forms of risk for Brexit:

The first is an outcome risk: that somehow we allow petty politics to interfere with economic logic, and we end up with a suboptimal solution that fails to maximise our mutual benefit.

The second is a process risk: that we cannot agree, at an appropriate stage, transitional arrangements to get to the new relationship without damaging business confidence and disrupting cross-border trade and investment along the way.

In describing the issue thus, he evinced in a clear, non-confrontational manner a point Open Europe has long argued: that a common vision of a mutually-beneficial end-state for Brexit must be agreed quickly if there is to be a smooth transition towards it. This builds on David Davis and Michel Barnier’s recent agreement of the negotiating terms of reference, with Hammond here maintaining the case for parallel negotiations on exit matters and future trade and cooperation, presenting the arguments as an inescapable logical necessity for ensuring a good result for both sides rather than a partisan UK move.

The Chancellor’s continuing prescription was similarly exact. He called for a relentless focus on four key deliverables, including a reiteration of the need for transition period, the protection of citizens’ rights, and unimpeded trade in goods and services. But the most significant moment was an explicit recognition of what he called “genuine and reasonable concerns among our EU colleagues, about things like the oversight and supervision of cross-border financial markets.” Hammond pledged:

We will engage, in a spirit of sincere cooperation, with all genuine concerns expressed by our EU neighbours to agree a cooperative supervisory structure based on international best practice.

These words were carefully chosen. Germany has long positioned itself as the political standard-bearer for judicious management of systemic Eurozone risk, a role which makes its politicians particularly sensitive to the potential problems that the combination of Brexit and the UK’s significant share of euro-denominated clearing could create for the bloc’s economic stability. Hammond’s content and tone attempted to speak directly to Germany’s concerns, while also mirroring the broad thrust of Theresa May’s recent suggestions following the EU Council meeting last week on the need for independent or equally-weighted institutional arrangements for supervising the deal negotiated between the UK and the EU, whether on citizens’ rights or financial regulation. As Open Europe’s Chairman Lord Wolfson argued in a Sunday newspaper piece last weekend, there has been no change in the UK’s desire for deep cooperation. However, successfully managing the process towards that goal requires the communication, patience and resolve to create the right policy solution rather than simply a quick solution, a philosophy that Hammond seemed to embody in his speech.

Hard facts accompany a soft sell

Hammond was not afraid to raise the spectre of strategic risks and economic slowdown should barriers to cooperation and trade be erected between the UK and the EU. He drew attention to threats posed by “an emboldened Russia,” terrorism, climate change and migration, and highlighted the need for policy-makers to respond to the:

growing sentiment in the developed economies that questions the conventional wisdom of free trade and globalisation and perhaps of market economics and sound money.

Focussing further on economic risk, Hammond pressed the case that the EU would be hurt by a bad Brexit deal:

the risk of a bad outcome that does not promote jobs, growth, and prosperity is a real one. Not just for the UK economy…but for the EU economy. The UK represents almost 13 percent of the population of the EU and 16 percent of its GDP. That’s a significant part of the European marketplace. And it is clear to me that ensuring that businesses can continue to operate across that whole marketplace after Brexit is essential to securing prosperity and growth on both sides of the channel and indeed both sides of the Irish border.

This argument was again pitched at German preoccupations about the key challenges facing the EU now, aiming to cast the UK as a willing yet independent ally who can assist in dealing with these issues. Contrast this with the more direct language employed in Theresa May’s Lancaster House speech six months ago, where she argued for the reciprocal benefits of maintaining unimpeded market access in very close proximity to a statement of the UK’s unique military and intelligence value to the EU, and we see that while the logic then was sound, the approach was confrontational.

Now that Brexit is moving beyond pre-negotiation posturing and into the practical reality of prioritised trade-offs, a more consensual style in Hammond’s mould could pay dividends in delivering a decent deal. As Open Europe’s director Henry Newman argued for Conservative Home two weeks ago, Hammond is a figure who seems to be able to do nuance, both in policy and language terms. This speech demonstrated how such capabilities will be essential for ensuring the UK’s case is not lost in translation as Brexit negotiations develop.