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12th September 2017

On the 12th September VCL published its monthly notes. This included the publication of VCL's CEO, Martin Wood's monthly comment, this month's four resource stocks of interest, plus a topical cartoon which can be seen on the Short Note page.

“So I am enjoying the Brexit negotiations – in as much as I am enjoying watching not much happen.

Both sides have learned the wrong lessons from the past and now this is playing out.

The EU experience of negotiating with individual members is from strength, dictating terms to grumpy Greek and Italian and Irish diplomats who ultimately have no leverage and will do as they are told or not get any EU money. What the EU has taken from this is to lay out exactly what it requires and then stick rigidly to that and wait for the other side to cave and complain loudly in the manner of a grumpy school headmaster when the other side seem to think that any other way is viable. This has worked in the past so why change the plan right?

The UK experience of negotiating with the EU is that it is really a disparate group of warring parties held together by a German cheque book. Britain knows that it has nothing to lose from delaying and everything to gain. That is why it has ignored the EU demands on the order of negotiations and set out its own, which the EU has rejected. Wait a while and you will see the new UK stance – it will be almost the same as the old one – the EU will fume and the clock will tick down.

Britain knows that the EU is terrified of the UK making a success of Brexit and feeding the exit parties across the continent, so will demand unreasonable terms and in its old ways, just sit and demand compliance and as has always worked in the past, wait for the other side to give in and come cap in hand. But this time it wont work, and this will be bad for everyone.

I don’t know if Brexit will be good or bad for the UK, I am really on the fence. I know the remoaners can’t see anything but doom and gloom and they are wrong, I know the Brexiteers see only the sunny uplands and return to empire and warm beer and they are wrong. The truth is that no one knows.  But what I do know is that the EU is, perhaps for the first time, in a negotiation where it is not the stronger party, not the dominant one with the purse strings dictating bail out terms. For the first time the EU finds itself facing off with a counterparty that does not need them and has actually voted to leave, a counterparty that will be taking its cheque book away from the party when it leaves, not losing its subsidies if it isn’t allowed to stay.

The EU negotiators secretly think the UK needs the EU and will crumble, the UK negotiator secretly thinks the EU will face an existential crisis unless it somehow keeps a good relationship with Britain.

The problem is both are right, the EU will face an existential crisis when the UK leaves and the German people refuse to pay more to keep the gravy train going, the UK does need the EU and the myriad benefits that come with being closely intertwined with the world’s largest trading block. But the trenches are dug and both sides will bleed because the wrong lessons have been drawn from past negotiations.

I blame the French."