Analysis: The Hotel California Brexit – What Yanis Varoufakis knows about how the EU trapped May

Ben Wray

CommonSpace editor Ben Wray explores how the EU managed to get what they wanted out of Theresa May in the Brexit negotiations through the perspective of former Greek Finance Minister Yanis Varoufakis, who has written the book on negotiating with the EU technocracy

FORMER Greek Finance Minister Yanis Varoufakis repeated what he had said in 2016 about Brexit at an event on Wednesday [16 November] evening at Oxford Student Union.

“Britain is heading for a Hotel California Brexit: you can check out but you can never leave.”

Back in those heady days for Brexiteers shortly after the Leave vote it was all talk of “independence day” and “we’ve taken back control”. Two and a bit years later it’s “vassal state stuff” and “the worst deal in history”.

Theresa May was honest enough to admit that the Northern Irish backstop does indeed trap the UK into a position whereby it can’t leave what is in effect the Customs Union (“Single Customs Territory”) without the EU’s say-so.

Tory former leader Iain Duncan Smith said to the prime minister in the House of Commons on Thursday [15 November] that the UK is “locking ourselves in to an arrangement that we have no sovereign right to withdraw…we have the sovereign right to leave the UN, we have the sovereign right to leave Nato, we even have the sovereign right to leave the EU, but we don’t have the sovereign right to leave this deal.”

Remarkably, May essentially agreed, accepting that it would require a mutual decision from the UK and the EU for the backstop to be dropped, but that it wouldn’t matter anyway because a trade deal would be agreed that would over-ride the backstop. If you believe that you’ll believe anything.

READ MORE: Five explosive claims made by former Greek Finance Minister Yanis Varoufakis in his first post-resignation interview

Varoufakis is a useful guide to what is going on here, as he has literally written the book on negotiating with the EU machine, having done so himself in the first half of 2015, eventually defeated when he was removed by the Greek Prime Minister, Alexis Tsipras, who accepted all of the EU’s demands, with the options presented to him being total capitulation or total bankruptcy.

Last year Varoufakis wrote in The Guardian that the Prime Minister “is about to fall prey to an EU that will frustrate and defeat her, pushing her into either a humiliating climb-down or a universally disadvantageous outcome.”

One of the key aspects of the EU which Varoufakis insists needs to be considered in any analysis of the negotiations, is that the EU is not a national government and doesn’t have the same thought process as one. It thinks like a technocracy, and as such in every negotiation it is “insecure”, because it has to justify its own existence.

Brexit, more than most issues, is a legitimacy test for the EU. It has to prove it is needed. While some have argued that this means Brussels wants a No Deal Brexit, to punish the UK and show other EU countries that walking away is not a good idea, this misses something very important.

No Deal would leave the UK outside of the EU’s orbit. This is dangerous for Tusk and Juncker and could backfire on them if EU countries take an economic hit. A much better hand to play from the perspective of maintaining EU hegemony is humiliation – show that when you leave the EU, you stay stuck within its rules and regulations, just without any say. A lose-lose. The Hotel California Brexit.

May mistake 1: Triggering Article 50

The first mistake, according to Varoufakis, was to trigger Article 50. Once the two year deadline was in play and the UK was officially on the outside of the EU political system, May lost a great deal of leverage, because the need to secure a deal in time is much more important for Britain than for the EU countries.

“The last thing you do is go in there and say: ‘I’m triggering Article 50 and I am going to get my way’,” Varoufakis said.

With no Article 50 triggered, Brexit would have been a negotiation without time limit, conducted between EU member states, a much more challenging set of circumstances for Juncker and Tusk to control, as no time limit means no running down the clock and forcing May’s hand, which of course they have done.

“She should beware the 11th hour ultimatum,” Varoufakis said in a Guardian podcast last week.

He explained: “If you are prepared to fudge it with them, they will participate in the fudge. Which means they’ll be able to couch it in language which you can sell to your own people.

“The European Union is very good at fudging, it is the world capital of the fudge. Somewhere in there, there will be a hidden or not so hidden ultimatum.”

This fudge on the EU’s terms appears to be what has happened. May has language which allows her to ostensibly say the UK is taking back control of its money, laws and borders and is outside of the single market and the customs union, but the Irish backstop means it is in effect tied in to the Customs Union, with Northern Ireland to some degree in the Single Market.

May mistake 2: Accepting the EU negotiation structure

The EU negotiator Michel Barnier wanted to conduct the negotiations in two parts: Phase 1, dealing with the financial settlement and the withdrawal process, and Phase 2, on the future relationship between the two countries, including a trade deal.

The Phase 1 part was the most important for the EU to agree, because it included a big financial sum, 39 billion as it turns out, from the UK to the EU, known as the divorce bill. But by agreeing this before talking about the trade deal, the UK has lost leverage.

“At that point, she should have realised this was a declaration of war,” Varoufakis said. “This is not how you conduct negotiations. If I come into your house and say give me your house, and then I’ll discuss with you whatever you want to discuss, your answer should be: ‘Well, no’. There was no way you are ever going to get anything decent out of those negotiations.”

The UK initially resisted the negotiation structure but hapless former Brexit Secretary David Davis and May soon caved in.

May mistake 3: The Irish backstop

Varoufakis has written less about the Irish backstop, perhaps because of his awareness of the sensitivity around the issue of the Irish peace process, but there seems to be little doubt that as soon as May agreed to an Irish backstop earlier this year, the EU had her trapped.

The backstop is essentially an insurance policy that if no trade deal is agreed the border between the Republic of Ireland and Northern Ireland will remain open, and that Northern Ireland and the UK would continue to follow all the rules of the single market and customs union to facilitate that open border.

In many ways this is entirely sensible due to the danger of a closed border between the Republic of Ireland and Northern Ireland for honouring the Good Friday Agreement and maintaining harmonious community relations. The Republic of Ireland insisted upon it, and as an EU member state it has a veto over any deal the EU agrees.

But of course the EU has reasons beyond keeping Leo Varadkar happy for backing the backstop. The draft Withdrawal Agreement now locks the UK in to the EU’s rules. It’s actually quite difficult to see what incentive Brussels will have to agree a trade deal, certainly not one that is going to be more favourable to the UK, since they now hold the trump card – the EU-favourable backstop. Checkmate.

May mistake 4: Untrustworthy Ministers

The final area Varoufakis warned of has nothing to do with the EU – it’s the people on your own side. The Greek Finance Minister was infamously stabbed in the back by Greek Prime Minister Alexis Tsipras, and while May is in a different position – being prime minister and the main interlocutor with Brussels – nonetheless her greatest vulnerability is also her own colleagues.

It’s difficult to describe picking Brexiteers as a mistake since politically it was difficult to do anything else, but since she clearly wants to negotiate a Brexit that protects UK capital’s economic interests on the Continent primarily – as opposed to maximum sovereignty – it was always going to be the case that she ended up in conflict with those who have a different idea and have an eye on her job.

Of course May will have known this, but in the end, it may not be a Brexiteer that brings down May, but someone with a more similar profile to her in the Cabinet, who has the sniff of a possibility of reaching out beyond the Tories and finding votes in the House of Commons on the otherside of the chamber.

Whoever it is, the trap May has fell into would still be the context in which he or she picks up the baton, convinced Brexiteer or not. 

Varoufakis advise is to not negotiate with the EU, as you will always lose. Pick an off-the-shelf agreement, like the Norway EEA model, for a period of time that would mean it was the job of their successors to deal with a final deal, like six or seven years. Pitch it to Angela Merkel and cut out the EU middle-man altogether.  It’s unlikely any Tory will take up the idea (although don’t rule anything out), but perhaps Labour will.

Picture courtesy of Mark Lozano