Theresa May's Early Election Gambit Reduces Brexit Risks

By Simon Nixon Features Dow Jones Newswires

Brussels officials always believed that Theresa May would eventually come around to their way of thinking.

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For months, they have been privately warning that the U.K. Prime Minister's approach to Brexit was wholly unrealistic: that two years wasn't long enough to negotiate a divorce settlement and a trade deal; that the UK's best chance of securing a constructive post-Brexit trade deal was to build goodwill by reaching constructive early agreements on contentious areas such as the UK's outstanding financial obligations and the rights of EU citizens in the country; and that Mrs. May would need a stronger mandate if she was to deliver the compromises necessary to reach an agreement, meaning she would have to hold an election before any final deal was made.

Contrary to the popular narrative, the European Commission isn't out to harm the U.K. Although it will be representing the interests of the EU in the negotiations, the overriding interest of the remaining 27 member states lies in reaching a deal that ensures the U.K. will remain as close a partner of the EU in trade and security as possible.

Certainly Mrs. May's decision reduces the risk of the most disruptive Brexit outcomes. Assuming her election gambit is successful and she is returned with a substantially increased majority, Mrs. May will have secured for herself an extra two years to 2022 to reach a final Brexit deal before she has to face the voters again.

She also will have the political latitude to accept the EU's proposed sequencing for the negotiations -- divorce first, then trade talks -- and its conditions for a post-Brexit transition, which would require the U.K. to continue to abide by EU rules.

Above all, she will have strengthened her hand domestically against hard-line Brexiters in her own party who are opposed to any compromises. That will give the EU greater confidence that she can in fact reach a deal.

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But Mrs. May is likely to be disappointed if she really believes, as she has claimed, that securing a larger majority will give her a stronger negotiating hand with the EU. The EU may want a friendly relationship with the U.K., but its overriding priority is to protect the integrity of its single market and the edifice of EU law that supports it.

No British election is going to persuade it to drop its own red lines. If Mrs. May doubts this, she need only look at what happened in Greece in 2015, where Prime Minister Alexis Tsipras won a resounding victory in a snap referendum designed to boost his negotiating position during his seven-month standoff with the rest of the eurozone. But the EU didn't blink and within 48 hours, his government had capitulated completely.

The signs are that Mrs. May understands this. The past nine months have provided ministers with a brutal education in European legal, political and economic realities. In January, Mrs. May finally accepted that the EU wasn't bluffing when it insisted that the right of free movement of EU citizens was a nonnegotiable condition of membership of the EU's single market. More recently, ministers have accepted that the vital role that EU agencies play in the U.K. economy and security arrangements -- and the near-impossibility of replicating them within two years -- makes Mrs. May's threat to walk away from the negotiations with no deal implausible.

Some senior ministers now acknowledge that the toughest compromises facing the U.K. won't be over the terms of the divorce deal, difficult as those may be, but over the mechanisms required to underpin Mrs. May's goal of a deep and special partnership with the EU.

In the eyes of Brussels, Mrs. May made two mistakes since July. The first was to reject so emphatically the jurisdiction of the European Court of Justice. The second was her threat to turn the U.K. into a low-tax, light-regulation competitor if talks failed.

Much of the negotiation inevitably will be focused on finding ways to work around these positions, devising mechanisms to ensure the UK's continued effective compliance with EU rules and ECJ judgments, and securing safeguards to reassure the EU that the U.K. won't engage in social dumping by weakening its fiscal, social and environmental rules.

Brussels will be hoping that Mrs. May's election gamble will provide her with the political capital to make the compromises necessary to pave the way for a wide-ranging association agreement that will keep the inevitable new barriers to trade to a minimum. The risk is that the gamble backfires, either because Mrs. May is forced to harden her own negotiating position in the heat of the election battle, or because a large majority of newly elected Conservative parliamentarians proves even more hostile to compromise, forcing her to seek a more complete break with the EU.

Of course, there is also the possibility that opponents of Brexit somehow manage to combine forces to deprive Mrs. May of her increased majority. But even in Brussels, most have long since accepted that is a hope too far.

(END) Dow Jones Newswires

April 19, 2017 18:17 ET (22:17 GMT)