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How Europe can make Brexit manageable

We have moved beyond "Brexit means Brexit". We know the new British government is seeking a relationship with the European Union (EU), governed by a trade agreement. It does not want to join the European Economic Area - an extended sphere of the EU's internal market.

Mr Philip Hammond, Chancellor of the Exchequer, has talked about access to the single market but not membership. After meeting with United States Treasury Secretary Jack Lew in Berlin last week, German Finance Minister Wolfgang Schauble called this proposition reasonable. There is no agreement on anything yet, but Britain and the EU may at least agree what to talk about. Coming from where we did, this is progress.

Beyond the broad direction, we can make three further points. The master plan drafted by Mr David Davis,Secretary of State for Exiting the EU, was as clear on the general direction as it was naive about the technical details. The campaign is over - Mr Davis will have to get excited about really boring things.

What is also becoming clear is that Mrs Theresa May, the British Prime Minister, might have to trigger the exit procedure under Article 50 (of the EU Treaty) before the end of the year. It will take time to get an agreed negotiating position that both Scotland and England's Brexiters are happy with. Compromises will have to be made. But the process cannot be delayed for too long. The economy might leave her no choice. Brexiters should not be fooled by the relatively benign market reaction after the referendum and the limited fall in the pound's value.

The third point that has become clear is that Brexit will happen before Britain's general election in 2020. It is the only scenario under which the Conservative Party will hold together.

Following the vote for Britain's exit from the European Union last month and Mr Cameron's exit from 10 Downing Street last Wednesday, the new Prime Minister, Mrs May, may have to trigger the exit procedure under Article 50 before the end of the year.
Following the vote for Britain's exit from the European Union last month and Mr Cameron's exit from 10 Downing Street last Wednesday, the new Prime Minister, Mrs May, may have to trigger the exit procedure under Article 50 before the end of the year. PHOTO: AGENCE FRANCE-PRESSE

In the months ahead the main job of the Brexit team will be to understand in detail the negotiating positions of the other 27 member states. What does each of them think about Britain's access to the EU's financial market?

The failed coup in Turkey and the latest terror attack in France could destabilise the EU further. But starting from where we are today, there is a chance Brexit can be managed in a way that is at least economically neutral.

We know France favours curbs but is this universal? Such an exercise would also reveal that the principle of free movement of people cannot be easily negotiated away. Free movement is not a policy, nor mindset, but a principle deeply enshrined in European law.

They should also think about the transition. There is no chance a trade deal can be agreed and implemented within two years. The deals are technically complicated because they have to be negotiated chapter by chapter, industry by industry. Complex trade-offs will be needed. Ratification may be delayed. Fortunately, Britain runs a large trade deficit with the rest of the EU, so several countries will want to complete a deal quickly, Germany among them. This also means the process might come unstuck if others cannot agree.

Meanwhile, an important development is about to unfold that could prove a great opportunity for Britain: Germany's Social Democrats, partners in Chancellor Angela Merkel's coalition government, are about to ditch support for the Transatlantic Trade and Investment Partnership (TTIP) - an agreement between the EU and the US. My understanding is that it is now in effect dead.

A German veto of TTIP would give the UK and the US a chance to negotiate their own bilateral version.

In this case, Britain could theoretically end up with a better position than before: with access to the EU single market and deeper economic integration with the US.

The EU is in grave danger. For geopolitical reasons, I would have preferred it if Britain had voted to stay. The failed coup in Turkey and the latest terror attack in France could destabilise the EU further. But starting from where we are today, there is a chance Brexit can be managed in a way that is at least economically neutral.

Such an outcome is not guaranteed. For that to happen, Mrs May will need to proceed with the same ruthlessness and sense of purpose as she did last week when she ended the austerian economic strategy of Mr David Cameron, her predecessor, and wielded the knife against long-serving ministers.

THE FINANCIAL TIMES

A version of this article appeared in the print edition of The Straits Times on July 20, 2016, with the headline 'How Europe can make Brexit manageable'. Print Edition | Subscribe