Look to Greece for lessons on how to negotiate Brexit – Financial Times

Look to Greece for lessons on how to negotiate Brexit – Financial Times

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When deciding on a Brexit negotiation strategy, you may be better off listening to former Greek finance ministers than relying on conventional wisdom from experienced diplomats in Brussels.

The job of ambassadors in Brussels is to prepare meetings of the Council of the European Union, one of the main decision-making bodies in the EU. They are experienced negotiators. They understand the political and economic constraints of other European countries and the legal procedures of the EU. They are right in saying that trust matters. In their jobs, they are constantly trading off one position against another. They never crush their opponents because next month they will meet again.

The Brexit negotiations are of a different nature. This is a contest of 27 versus one, very similar to bailout negotiations in the eurozone. Michel Barnier, the EU’s chief negotiator, has his marching orders set by the European Council, the heads of state and government. Any compromise he agrees to would have to be accepted, effectively unanimously, by 27 heads of government and state. His team of negotiators deals with the small print. The big-ticket items have been decided for him already.

The talks between the eurozone and Greece in 2012, 2015, and this year are a better example of the kind of negotiating process to expect. Before the election, Theresa May used to say that no deal was better than a bad deal. The UK prime minister has been ridiculed for that statement. The truth is that you can only tell whether no deal is better once you know the nature of a bad deal.

In the case of Greece, no deal would indeed have been better than a bad
deal. The country has been in a quasi-continuous recession since 2008. Under the latest agreement Greece agreed to maintain a primary surplus — before the payment of interest — of 3.5 per cent of gross domestic product until 2022, a number the International Monetary Fund believes is unsustainable.

The country has been trapped in a vicious cycle of low growth and austerity. In 2015 Greece had the choice between turning itself into a eurozone colony or leaving the eurozone. It chose serfdom and is paying the price in the form of a perma-depression.

The second lesson from that episode is that you need a plan B. The former Greek finance minister, Yanis Varoufakis, had plans to introduce a parallel payments system that would have allowed Greece to default on its debts while formally remaining a member of the eurozone. It was a daring plan, and in my view would have produced a better outcome than capitulation.

The UK, too, needs a credible plan B, a fully costed procedure of the steps to take if negotiations were to break down. I still think that the chances of an agreement under the EU’s Article 50 process for exiting the bloc are not bad because most of the substantive points can be solved with some imagination. The third lesson is that unilateral offers always get rejected. I am not surprised to hear EU leaders denounce Mrs May’s unilateral offer to guarantee the rights of EU citizens — like myself — as insufficient. This is also what happened each time Greek politicians suggest a compromise solution back in 2015.

But if I am wrong, and there is no Article 50 deal, the UK and the EU will at the very least need a bilateral commercial agreement simply to manage the flow of goods. Having a plan B would also signal to the other side that there is a risk of overplaying their hand in negotiations.

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Starting from where we are now, there can be only be one single sensible Brexit outcome, the version put forward by Philip Hammond, the UK chancellor: continue the Article 50 negotiations on the basis of Mrs May’s mandate — with a departure from the single market and the customs union eventually — but seek a transitional period to cushion the economic impact. I think this could be five years long, and possibly renewable beyond that. It should give enough time for both sides to negotiate a deep association and trade agreement.

It is a shame that so many Remain supporters have been banging on about undoing Brexit, rather than rallying behind the pragmatic idea of a long transitional period inside the single market. In doing so, they have weakened their influence in the debate. I also believe that Donald Tusk, president of the European Council, is ill-advised to keep talking about this possibility.

The important task for both sides should be to anchor expectations by prioritising the principle of a transitional period. This, more than anything else, would provide certainty for businesses and individuals. The UK government should seek a broad-based parliamentary consensus in favour of a transition. The message the UK needs to send to the EU is that its commitment to Brexit is hard, but that the process of Brexit will be smooth. And EU leaders should stop dreaming about a Brexit reversal.

munchau@eurointelligence.com

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