Some brief thoughts on Brexit negotiations and the Norway model

All negotiations are mechanisms to split the benefits of mutually acceptable outcomes. The point is to figure out if there actually is a mutually acceptable outcome, and then to get as much of the benefit for one’s side as possible. The threat of walking away from a deal is the most powerful tool in extracting benefits.

So when we look at Brexit, the basics of the negotiation are clear. There are two main points

1. What is each side’s set of interests and what is their relative importance?
2. What is each side’s best alternative to a negotiated agreement (BATNA)?

Right now, we are in the bluffing stage. That entails people making/leaking extreme positions to conceal their pain points — and determine pain points for the other side. The 100 billion euro leak to the FT was designed with this in mind. Britain’s negotiator David Davis seems to recognize this, as he dismissed the figure out of hand.

Now, if you listen to Yanis Varoufakis, he basically says negotiating with the EU is futile. If you read Yanis’ account of the negotiations with Greece, it seems as if no deal can be reached with the EU because their goal is power, not economic or political benefit. But incongruously, he advises the UK government disengage from a full negotiation and propose “a Norway-style, off-the-shelf arrangement for a period of, say, seven years.” That would kick the can down the road for when other politicians can deal with the thorny issues.

I don’t think this would work. A Norway-style arrangement is still an arrangement, a deal. And Norway is exactly the country the EU is keen on making sure the UK comes out behind after the negotiation. If you take the EU’s set of interests as leaning toward punishing the UK to assert power, then a Norway-style deal is out altogether. Even if the UK could do a Norway deal, if you listen to EU power brokers, what they are saying categorically is that the EU’s power as an institution would be undermined if they allow the UK any benefits of EU membership without all of the costs associated with those benefits. And Norway has benefits for which it pays.

Bottom line: Odds are that the only deal the UK can get is a bad one. Theresa May must know this. The general election in Britain won’t change the EU’s negotiating stance, no matter what her majority, because they are concerned about Brussels’ power over the remaining 27 nations. What happens in Britain is irrelevant.

The only way the British get anything is with a credible threat of walking away from all possible deals. And the only way they can make this threat credible is by putting legislation in place after UK parliamentary elections that would prepare the UK for that no-deal scenario. What the debacle in Greece taught us is that, if EU officials find out you cannot credibly commit to walk away, they will turn the screws.