The new shape of Brexit: let’s be serious now

06/22/2017 10:14 am ET Updated Jun 22, 2017

The real negotiation is starting with a weak United Kingdom.

Unfortunately, the field for negotiation is mined with bombs that can detonate at any moment. First, Theresa May, in a perfectly conservative entitled move, has managed to weaken the UK position in the negotiation by launching a new consultation of the British people that boomeranged. Believing she is so much better than her predecessor, David Cameron, she fell into the same trap. Manipulating democracy is not rewarding at times of unpredictable populism.

The acceptance of a two-stage process, where the conditions for the exit and the separation bill are to be discussed first, has eventually been accepted. It was initially rejected by Britain for good reasons. It makes no sense to discuss divorce without at the same time dealing with the future of the children of the couple. Without knowing what the trade relations between Britain and the European Union will be, the risks of an unnecessarily “hard” and acrimonious divorce are high.

The choice of the Unionists rather than the pro-European Liberal-Democratic party to supplement the missing votes for the Conservative majority is a perfect illustration of a political leader who ignores the results of an election. There is a reason why The Economist was favoring the Lib Dems rather than the Conservative Party. Her stubbornness and serious political failures at times of terrorist challenge combine to weaken the UK’s hand. Will her Chancellor of the Exchequer manage to smooth this process?

A new wind in Europe’s sails?

The election of Emmanuel Macron gives a totally different scope to the French-German European partnership. France now has a leader who was the only true pro-European candidate and obtained a landslide Presidential and parliamentarian majority that reinforces that policy. It is refreshing coming from France who has too often been “ambivalent” about Europe.

The next political challenge will be the German election in September: although the polls predict a victory for Angela Merkel, we have learned not to trust polls. The combination of two very different leaders strongly attached to Europe is essential to relaunch a positive spirit into economic recovery and political cooperation.

Unfortunately, Italy could disturb this plan: the political immaturity of the country that combines a disastrous referendum with an unpredictable anticipated general election and a total of four Prime Ministers in five years, is not encouraging. Especially in the midst of a banking crisis and at the highest level of indebtedness after Greece, Italy has become the sick man of Europe. Its government is in denial while the European authorities are covering up the country’s various infractions against European rules, starting from the level of budget deficit to the non-implementation of the European Banking Union supervisory mechanisms.

A piece of good news for the City of London

One of the thorniest issues facing the City of London is its position as the center of clearing of the Euro-denominated transactions. Moving it from London would represent a cost of tens of billions of dollars, and the financial lobby seems to have been heard. The price is, of course, the application of stricter EU rules upon such clearing operations. It might require higher capitalization for clearing houses, but it certainly is a relief for them.

Could the proposal by the European Commission to keep clearing in London under EU rules be the prelude of a pragmatic approach to financial services regulation? It is much too early to know. After all, Michel Barnier was in charge of those issues when he was a European Commissioner. He will try to avoid destroying the European Capital Markets Union and the European Banking Union, but any transfer of activities from London to the continent will be a trophy that he will want to bring back.

Time for reason in Brexit

As this post was being published, the statement by Theresa may that no EU citizen living lawfully in the UK by 2019 would be forced to leave, neither that families would be split.

We have seen in the last twelve months a flurry of posturing through political rhetoric, most of which came from leaders without any knowledge of what Brexit is. Political gerrymandering comes with collateral damage. The antagonistic positions undermine the need for rational, reasonable and peaceful negotiation.

The road to an intelligent Brexit is paved with good intentions. The devil will be in the details of the deal. After the German and Italian elections, political stability might emerge and make this a reality.

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