After Brexit: the UK and EU risk a state of ‘permanent alert’

Six weeks after Brexit became a reality, Britain’s new relationship with the EU has already run into trouble. Trade has been disrupted, border tensions have flared in Northern Ireland, City of London business has leached across the North Sea to Amsterdam and the two sides are locked in a stand-off after Britain refused to grant full diplomatic status to the EU embassy in London.

“When an aeroplane takes off, you sometimes get an increased level of turbulence,” Michael Gove, a leading Brexiter UK cabinet minister, told parliamentarians this month, with studied understatement. “Eventually the crew tell you to take your seats belts off, and enjoy a gin and tonic and peanuts. We’re not at the gin and tonic and peanuts stage yet.” One EU official wonders what Gove expected from Brexit: “The UK pilot may have had a few G&Ts before taking off.”

After the excruciating negotiations that led up to the Christmas Eve trade agreement between the UK and the EU, both sides are beginning to realise that Brexit is not an event but an ongoing process that will be shaped by the sort of relationship they now develop.

Six weeks in, they have still not decided what sort of divorce they want — whether it will be a cordial separation or a rolling series of confrontations. “Is there going to be healthy competition or will you end up in all-out confrontation and conflict? It’s not clear which way it will go,” says Maddy Thimont Jack, Brexit expert at London’s Institute for Government.

The detailed operation of the new EU/UK trading relationship has yet to be settled, along with the operation of the sensitive post-Brexit deal in Northern Ireland. Issues including financial services are still unresolved. In Brussels a pessimistic mood has descended in recent weeks, amid concerns that relations will get more difficult before they improve. “This will get messy,” says one EU diplomat. There is a feeling towards London that “you wanted this — this is your problem and you can solve it yourself”.

Maros Sefcovic, European Commission vice-president, has proposed setting up an emergency hotline to London to handle emerging Brexit tensions in Northern Ireland, but the introduction of this cold war concept hints at how far the two sides have already grown apart.

One senior EU official says: “There has to be a wish to change things. If not, we will be in a tough, ‘permanent alert’ situation. It would be unfortunate if there was a tit-for-tat relationship.” Officials in Downing Street and Brussels agree that a fractured relationship between the leading democracies of Europe will be welcomed in Moscow and Beijing. “Others will capitalise on that,” the EU official says. “There’s a lot at stake here.”

Immediate problems

Boris Johnson always predicted there would be “teething problems” after January 1, when Britain’s post-Brexit transition period ended and the UK and EU grappled with a new relationship underpinned by a new “trade and co-operation agreement”, signed on December 24. But few had predicted that things would become so fractious, so quickly. “I think the EU is still adjusting somewhat to the existence of a genuinely independent actor in their neighbourhood,” David Frost, Johnson’s Brexit negotiator, told a House of Lords EU committee this month.

The “Canada-style” free trade deal agreed by Johnson and Ursula von der Leyen, European Commission president, left many details of the new trading relationship to be settled. Some of the tensions were inevitable consequences of the Christmas Eve deal, in which the UK prime minister prioritised sovereignty over market access. Most goods would continue to move between the two sides without tariffs, but Johnson’s decision to quit the single market and customs union meant that trade would be hit by a mass of paperwork and border checks. Free movement would end. Services, notably financial services, were barely covered.

In the first few weeks of Brexit, Johnson was on the back foot and under pressure to persuade Brussels to soften the edges of the new trade rules. British performing artists claimed European tours had become unviable because of new EU work and travel restrictions; UK shellfish exporters suddenly found their main market cut off by a welter of new health rules; UK chemical makers pleaded with ministers not to inflict a £1bn bill on the sector by making them replicate EU registration of substances on a new UK register. Small businesses selling into Europe complained they were being overwhelmed by red tape.

Meanwhile London’s once-unquestioned dominance of European financial markets came under threat as Amsterdam, Paris and New York snatched market share in the trading of stocks and derivatives. Amsterdam overtook London as Europe’s main share trading hub. City of London leaders insisted the economic hit to the UK was not serious, but the issue hinted at further tensions with Brussels to come.

After weeks of negative headlines about the economic problems caused by Brexit, the dynamic of the debate turned for Johnson on January 29 when the European Commission moved to impose restrictions on exports of coronavirus vaccines to third countries, including the UK. The shock inclusion of Northern Ireland in the regulation was swiftly overturned but the incident was highly damaging for von der Leyen and her team.

Neither London nor Dublin had been consulted over the move by Brussels to activate the so-called Article 16 override clause in the Northern Ireland protocol — part of the 2019 Brexit agreement. The protocol was intended to avoid a hard border in Ireland but could be overridden in the event of severe “societal” consequences — in this case the alleged danger of public unrest if the EU did not have enough vaccines.

Johnson’s initial response was statesmanlike and conciliatory. Resisting the temptation to crow over the UK’s far superior record in rolling out Covid-19 vaccines — this week the UK reached its target of offering jabs to the country’s 15m most vulnerable people — Johnson ordered ministers and aides not to inflame the row. “Show, don’t tell,” says one Number 10 adviser.

The restraint was partly explained by Johnson’s fear of a “vaccine war” — threatening supplies of the BioNTech/Pfizer vaccine to the UK from a plant in Belgium — but it was also seen by senior British officials as a sign that a new team of “grown ups” in Number 10 were exerting a moderating influence over the prime minister. Dominic Cummings, architect of the Vote Leave victory in 2016, was ousted as Johnson’s chief adviser in November.

But the British response hardened. Gove wrote to Brussels demanding that a “grace period” for some new checks on the GB/NI trade border be extended to 2023 and his criticism of the bloc’s “integrationist theology” were seen as provocative by the EU. In Brussels, Gove was seen as trying to “milk” the commission’s error as a means of reneging on parts of the NI protocol.

EU diplomats say countries including France and Germany took a hard line and opposed concessions to the UK, arguing that Johnson should focus on implementing the protocol in full. They add that the EU had “not forgotten” Johnson’s threat last year — ultimately withdrawn — to break international law and override parts of the protocol. “Britain is still approaching everything very politically,” says a senior EU diplomat close to the discussions. “The EU is willing to be pragmatic but we’ve not seen that on the London side.”

Making Brexit work

For Johnson, Gove and fellow Brexiters, there is a crunching of gears as they move from campaigning mode — and the easy popular appeal of a row with Brussels — to the imperative of making their Brexit deal work through more measured diplomacy. A clear strategy has yet to emerge.

Shortly after his critique of the EU’s “integrationist theology”, Gove and Sefcovic held “frank but constructive” talks in London over a Deliveroo dinner of steak and potatoes to try to calm the tensions over Northern Ireland. Both sides reiterated their “full commitment” to the NI protocol. A few days later, in another zigzag, Johnson declined to fully commit to the protocol in a CBS News interview.

The same contradictory dynamic applies to Johnson’s refusal — so far at least — to grant full diplomatic status to the EU embassy. Johnson, a former Daily Telegraph correspondent in Brussels, has long railed against the EU’s supposed pretensions to be a state. The stand-off wins positive headlines in parts of the Tory press, but is causing real diplomatic damage.

British officials say they are looking to resolve the issue “when the rhetoric has cooled down” and that a solution will be found that recognises the EU’s “unique” status. Meanwhile Britain’s new ambassador to the EU Lindsay Croisdale-Appleby continues to be shut out of meetings in Brussels, where the row is seen as an unnecessary and damaging early sign about the relationship.

‘Deep freeze’?

In the coming months, the unfinished business of the hurried Christmas Eve trade deal will rise up the political agenda, including the detailed management of the deal, and the full implementation of the new trade border. Other issues still up for grabs include airline ownership rules, data protection and financial services.

Frost will now play a key role in managing the aftermath of the deal he negotiated. On Wednesday, Johnson elevated him to the cabinet with a remit to “co-ordinate relations with the EU institutions and the 27 member states”. The architect of Johnson’s “hard Brexit” strategy, that prioritised sovereignty over market access, will take over Gove’s role in overseeing Brussels relations.

Thimont Jack says Frost may take a tough stance with the EU but at least he knows the details of the treaty he negotiated: “I think some level of continuity is a good thing,” she says. But some in Whitehall see Frost’s appointment as a negative indicator for the future EU-UK partnership. “Frost wants the relationship in the deep freeze for a few years,” says one senior British official.

Johnson’s dogged unwillingness to submit Britain to any EU rules — such as the health requirements for live shellfish exports — will continue to hit UK companies, some of which are moving operations to mainland Europe to avoid new border controls.

And for Britain’s financial services, there is little prospect of any early move by Brussels to clear the way for the City of London to sell its products directly to the EU. The European Commission, which has to adjudicate on whether UK rules are “equivalent” to those in the EU, claims it still wants more details on the future direction of British financial regulation.

Rishi Sunak, Britain’s chancellor, is not expecting an equivalence ruling any time soon; his allies admit that Brussels will drag out the process, hoping more business will seep out of London in the meantime. But Sunak argues the City is an example of how Britain can use its new regulatory freedom to develop “nimble” new rules to flourish on a global scale, such as creating a new regime to attract innovative companies to list in Britain.

Sunak, a Brexiter, will deliver a Budget on March 3 which will set out a post-Brexit economic vision; he is convinced that Britain’s vaccine rollout — which featured state support for the vaccine production and trial process and rapid approval for use — is a template for the kind of economy he wants to build.

“Our regulatory system has proved to be more agile and nimble and much better joined-up than others perhaps around the world,” Sunak said this month, referring to the development of the Oxford/AstraZeneca vaccine.

But excessive state support of British industry or serious divergence from current EU regulatory standards could trigger sanctions — in the form of tariffs — under the terms of the EU/UK trade deal, opening up the prospect of further tension.

Friends or foes

The risk is that the two sides start to engage in tit-for-tat “rebalancing measures” as a response to regulatory divergence in the areas of labour and social rules, environmental protection or subsidy control. Deciding how and when these tools should be used will not be easy. “It’s a very, very complex agreement,” says one EU diplomat.

A web of committees — including a ministerial-level Partnership Council — have been set up to try to manage the new relationship. Sefcovic will co-chair the council along with Frost.

Number 10, via Frost, is determined to keep a close hold on future EU relations, fending off an effort by the more Europhile Foreign Office to take a more dominant role. Anton Spisak, a former UK civil servant working on Brexit and now a policy lead at the Tony Blair Institute, says the new committees could defuse rows, but only if the politicians allow it. “The level of co-operation really depends on the licence officials are given by their political masters,” he says.

Sefcovic tells the FT he wanted to “de-escalate” tensions between the two sides and rejects the idea the UK and EU were heading for constant conflict. “Until the dust settles and the new system is introduced, I would say that this relationship will need day-to-day care, that’s absolutely clear,” he says. “Nobody could have expected that within six weeks everything will be sorted, because this is a massive, massive change.”

There is frustration in Brussels that the UK has so far been reluctant to engage more deeply on broader issues such as security and defence policy, but Charles Grant, director of the pro-EU think-tank Centre for European Reform, argues that mutual interests on issues such as the Middle East and climate change will ultimately bring the two sides together.

“The big picture is that if ‘global Britain’ is to succeed in forums like the G20, G7 and COP26 [climate conference], then we can’t do it if we have bad relations with the EU,” he says. “We’ll learn there’s a price to be paid for being in a grumpy relationship with our European partners.”

Other experienced EU watchers, such as Lord Hill, the UK’s European commissioner during the Cameron era, are far less confident that the new systems will foster a constructive relationship. He says the rows over Northern Ireland and vaccine procurement have demonstrated the willingness on both sides to engage in political finger-pointing.

“The logic is that there should be a calm and comprehensive agreement for both sides’ mutual benefit,” he says. “But the EU doesn’t think that way — they think of any concessions in terms of linkages you can make in different places to extract maximum benefit for the EU.” If the EU will always seek a hard bargain, Britain’s political discourse — defined by decades of Euroscepticism — does not lend itself to measured compromise.

Whether the new relationship is marked by healthy competition or destructive regional rivalry is up for grabs, although the early signs are not good. João Vale de Almeida, the EU’s ambassador to London, insists both sides must rise to the challenge: “We need to move on. There’s life after Brexit.”