Corporate Meeting

The Latest on Brexit Negotiations

Friday, September 25, 2020
Hannibal Hanschke/Reuters

Adjunct Senior Fellow, Council on Foreign Relations; Chief Executive Officer, International Capital Strategies; @heidirediker

Paul A. Volcker Senior Fellow for International Economics, Council on Foreign Relations; @scmallaby


Staff Writer, New Yorker

SORKIN: Welcome to today's Council on Foreign Relations virtual meeting on the current state of Brexit negotiations. I'm Amy Davidson Sorkin, a staff writer at the New Yorker, and I'll be presiding. Our speakers today are Heidi Crebo-Rediker, who's the adjunct senior fellow at the Council on Foreign Relations and the chief executive officer of International Capital Strategies. Sebastian Mallaby, who's the Paul A. Volcker senior fellow for international economics at the Council. I believe you have their longer biographies reflecting incredible expertise. And while they both know this subject so deeply, today we're going to try having Sebastian give more of the view from within the UK, and Heidi, more of the perspective of the EU and other international actors. I think one of the hallmarks of Brexit has been the way those perspectives have not been aligned and really diverge. So maybe today we'll be able to bring them a bit together.

Just to review, it's been almost a year since Boris Johnson and the EU struck a deal on a withdrawal agreement, which was approved by Parliament and went into effect in January. That started the clock on a transition period. The UK and the EU have until December 31 to, among other things, come up with a free trade deal. But the state of the negotiations right now seems perilous for two reasons. First, time is running out, time is short. The prospect of a no-deal is back in play. And second, Johnson is pushing a bill through Parliament, the Internal Market Bill, that explicitly gives the UK government permission to toss aside the most painstakingly negotiated part of the withdrawal agreement, the protocol on Northern Ireland.

A quick reminder of why Ireland is the Brexit conundrum. The Republic of Ireland is part of the EU. Northern Ireland is part of the UK. Brexit seeks to add controls on the border between the UK and the EU. And insofar as that, the Good Friday peace agreements really rely on keeping that border, insofar as it runs through the island of Ireland, open. The withdrawal agreement really sort of solved that problem, or gave a solution to that problem, that involved adding controls on goods crossing the Irish Sea, and really gives Northern Ireland a somewhat different status, which also has made unionists in the UK unhappy. Sebastian, is Johnson trying to wiggle out of that settlement? Some ministers have said that the Internal Market Bill violates international law. It's been condemned by former Tory prime ministers. What's he thinking here?

MALLABY: Yeah, it's a great question. I mean, it's one of those things where you could read it one of two ways. Either you have before you a stressed-out prime minister who's losing his grip. Who has a small baby with his partner in a, by all accounts, extremely disheveled and messy apartment in number 10 Downing Street, with sort of take-out food cartons all over the floor, no ability to go out and escape the baby crying. And he himself is recovering from COVID. There's speculation and gossip about whether he's fully back to where he was before he caught it. And in this incredibly stressful situation, he does something which seems absurdly rash, right, which is to undo the deal that he himself signed in January. So that's one reading. And therefore, the kind of, the chaos theory of it would be that this is a disaster. It's going to cause eruptions with the U.S., and between the UK and the U.S., as well as between the UK and Europe. But there is another theory, which is that this is actually a calculated tactic to get the EU's attention. To make it clear to the EU that if there is no deal at the end of this year, in terms of the future trade relationship, then the UK can mess up the stability of Ireland. And by taking that sort of hostage, it's getting the attention of the top people in Europe and breaking out of the kind of bureaucratic log-jam in which the negotiations have been so far.

SORKIN: It's funny, in listening to you I'm not sure the second scenario is actually more sensible than the first. It seems Johnson has always lived in a chaotic way. But more to the point, Heidi, is that going to play well with the EU? I mean, it might get their attention. But is it going to do so in a helpful way? What's the level of trust about this right now?

CREBO-REDIKER: So I think the Internal Market Bill really threw a big spammer in the works, because as you rightly mentioned, the Northern Ireland border protocol, it was a huge deal. It was, that needed to be solved before they could move on to negotiate any of the other component parts of the agreement. And this was a breach of international law, because the withdrawal agreement has legal effects on our international law, and the EU is a body that focuses on rules and laws. And I think, so my first big concern is that yes, this is a big, it's not just a breach of trust, it's a breach of a legal agreement. And the consequence of that is that I think you might see less of an ability to engender goodwill on all of the remaining issues that need to be agreed.

I do sense in all my conversations, that there is a real frustration, that of all the issues that could have been put on the table for a breach at the eleventh hour, and we've been at many eleventh hours in Brexit. So here we are again at the eleventh hour. But at this particular eleventh hour the EU has a lot of other things on its plate, and it's moving forward. It's dealing with the second wave of COVID. It is trying to, there are many clocks ticking in the EU as well. They are dealing with the consequences of being in between the U.S. and China on many issues. They're looking at the eastern Med and Turkey and Russia and democratic decline within the EU, namely, especially in Hungary. They are going through their second wave right now of COVID, and trying to figure that out. Trying to figure out the recovery fund and maintain unity. And they're also trying to really focus on the future and how they're going to dig out in a different way. A future that includes their Green New Deal, and a digital transformation, and they're tackling, they're trying to rally the world around coming up with a global approach to COVID in the absence of real U.S. leadership there. So I think that there's really a lot on the European plate right now and that this is really an unnecessary and unappreciated frustration at the eleventh hour.

SORKIN: You know, Sebastian, talk about that. I mean, it seems that one aspect of the UK's miscalculation is never really realizing how much Ireland matters to the EU. Is there an idea that Europe is so busy that they'll forget that they care about this?

MALLABY: No, I think it's actually the opposite. I mean it's precisely because Europe does care about Ireland, that it's arguably an effective tactic for the UK to do something which is bad for Ireland. And equally another thing that elements in Europe care about or not is fisheries. I mean, it sounds ridiculous. Fisheries is something like 0.1 percent of UK GDP. Who cares, you could argue. But actually there are lots of fishing communities on the north European coast in France especially, but also in Denmark, the Netherlands, where politically this is a big deal. You know, the whole community depends on the fishing fleet. And if they lose access to British waters in the North Sea, that's a huge political issue. And so Boris Johnson talks about fish-a-geddon. In other words, if we refuse to let access, this is going to create a political storm just where our European negotiating adversaries don't like it. And we've got to get out their noses.

SORKIN: He's also talked about how with Brexit, the glistening seas will again be in Britain's hands. But, Heidi, a response? I mean, America also, the United States also cares about Ireland, the UK -

CREBO-REDIKER: A whole lot.

SORKIN: - also needs a free trade deal with the U.S., formerly been covered by the EU’s. How is this tactical move, how's it gonna affect the American side of this?

CREBO-REDIKER: So it's surprising all the way around because as you pointed out, the EU does care a great deal about this. But of all issues, when you have the UK and the U.S. negotiating a free trade agreement right now, with the UK reporting that it's going swimmingly. The idea that you've heard it across party lines, you've heard very, very strong statements from Speaker Pelosi. Very detailed about -

SORKIN: [Inaudible.]

CREBO-REDIKER: - about an - exactly. So you have that the Good Friday Agreement has to be respected, and that the Northern Ireland Protocol specifically, in the agreement with the EU, it needs to be respected. And she referred to, if the UK violates that in an international treaty, that it will undermine the Good Friday Accord, and then there is no chance, she literally said there is no chance, of a U.S.-UK trade agreement passing in Congress.

Now, there have always been some misperceptions, I think, outside of the U.S. about just what an important role Congress plays in trade negotiations. But if you don't have Congress on board, and you have such a strong statement from the speaker, then you really you don't get that deal, you don't get that deal done. So this, of all of the issues to throw out there this was one where, from a negotiating perspective, you think if you are the UK, and you're sitting between the U.S. and the EU, and balancing over the past few years. I will have my relationship with the U.S. if I don't have it with you, which never really made sense because the EU was such a huge trading partner for the UK. But this is the issue that really could hold. There are other issues. Maybe you don't hear GMOs, and there are the agricultural issues, those are technical issues. But this is a big political one.

MALLABY: I think it's just worth keeping in mind, this is the kind of threat that is reckless, is high stakes. I totally agree. But it's the kind of threat that could turn out to make sense if you never have to implement it. In other words, if what happens is you raise this saber, you wave it aggressively around your head, and you put it back in your sheath before any damage is done, then maybe you can get that trade deal with the U.S. later because you won't have destabilized the Good Friday Accords. And it will be fine. I mean, so I think that's the gamble. I'm not saying it's going to work. I'm just saying we should keep in mind that we're dealing with an administration, which is for a Conservative government, extremely radical, right? They're constantly throwing bombs in all directions. They're saying they want to blow up the UK civil service tradition, they want to decentralize it, send bits of it out of London. They want to not have career civil servants necessarily progressing to the top spots in government. They rail against the blob, this is very much from Dominic Cummings, the key advisor to Boris Johnson. The blob is supposed to be like the deep state. There's all this rhetoric of blowing stuff up. Now, I'm not a great fan of that myself. But I'm just saying it's consistent with that radical rhetoric that when it comes to dealing with the EU, they want to throw bombs into that process too. Now, if you actually throw the bomb and it explodes. It's very damaging.

SORKIN: Given the level of trust, how does the EU say, that's just a threat, that's just theoretical, that's never going to be used. How do they back away from a position where everything has to be really written in stone? Because, you know, all the bombs going back and forth.

MALLABY: Well I mean, I think what you've got here, just to play this through, is a situation where if there is no trade deal before the end of this year, the transition period ends and the UK crashes out. And then the sort of implied message to the EU is, look without that deal on the future relationship, the withdrawal agreement that we signed is something that we may reopen. It's a pretty it's a controversial threat. It, by the government's admission, is a violation of international law. There is going to probably be an adjudication which will take place in the European Court of Justice. I'm not saying this isn't a bit reckless, it is.

But if you on the other hand, imagine a situation in which the bluster gets the top political attention in Paris and Berlin and Brussels, and then as a result, you do get a trade deal by the end of the year. That deal will encompass something that addresses these concerns over Northern Ireland. Already, there's been one concession in the last twenty-four hours or so, it's been leaking out, that de-escalates the tension in Northern Ireland, which has to do with whether the UK can send, mainland Britain, can send food into Northern Ireland. Boris Johnson had sort of invented a disaster scenario where, you know, because the EU rules would control trading arrangements in Northern Ireland, the EU could potentially shut out food from mainland Britain and starve the Northern Irish.

SORKIN: It's never gone over well, in the course of Brexit, when, there was a Tory minister at one point also raised the prospect of food shortages in Ireland, that didn't get a very good reaction from the Irish side that that specter would even be raised for pretty obvious-


SORKIN: You know, I don't want to lose track of something that Heidi was saying. So maybe we can just go back to it for a second, which is about the, and that you were saying in a way Sebastian, about that this is all happening within a pandemic. Heidi, can you talk more about the interplay of those issues? Not just, part of it is again just the sheer time. There are only so many hours in Angela Merkel's day. But also, how is it, what's been the interplay in terms of questions, the way the pandemic has led Europeans to think about questions of solidarity, about sovereignty, about borders, for that matter.

CREBO-REDIKER: So I mean, the backdrop of this in Europe is that they are heading into a number of summits where they're going to be discussing many of the parts of how to manage the future of Europe. And a lot of the language is about EU solidarity and EU autonomy. And so to the effect that you have this coming up at a moment where Europe is trying to actually find its feet and face its bigger threat of what are they going to be in the future. They have a lot of, there are a lot of things that have happened in the in the course of COVID, particularly around the recovery fund, for example, where you have a giant leap forward in looking at plans, at some fiscal integration, in the ability for the commission to issue bonds. And so there have been some big moves, as a result of needing to tackle the economic consequences of COVID. And then looking at the future and how that's going to, what the financial future is going to be of Europe without the UK. If anything, I think maybe this one move by Boris Johnson has if anything given a bit of a catalyst to what, how the EU is going to support its financial centers moving forward. If it's going to, how heavily does it want to rely on the City of London, which will always I think, always be the City of London. There's a reason why the financial center has had such a strong base there. But I think that Europe is going to look to try and really solidify what its role can be in insurance, in trading, in asset management, in banking, and how its future is going to look without the UK.

SORKIN: It sounds like what you're saying is having had to make so many big moves, it's also thought a lot more about and moved on from Britain, from Brexit, to post-UK life more quickly than it might have.

CREBO-REDIKER: I think, absolutely. And interestingly, they're discussing, and I'm going to throw this back at Sebastian because I know there's something else that is part of this Internal Market Bill that the Europeans are talking about in real time, which is how to how to look at strategic autonomy. What does that mean in terms of supply chains, in terms of state aid, and investment and supportive industries? How to support digital transformation? How to support a new green economy? And a lot of those conversations are critical right now. They're happening, you know, obviously in the U.S. as well in terms of what medical supplies and food supplies, things that were really shaken during the COVID crisis. I think it really changed the perspective of how the U.S. and Europe and the UK probably view the idea of state aid and subsidies right now. So I would throw it to Sebastian on the details of what the UK is thinking about on state aid, because it's pretty revolutionary, that a conservative government is having these conversations. But that's also part of the Internal Market Bill.

SORKIN: Sebastian, over to you.

MALLABY: So it's true as Heidi said, but first I would underscore one thing, which I really agree with, which is, it is particularly ironic, that the grip of the City of London historically on finance, is to do with English law, and a kind of international faith in the British tradition of respecting the law. So in that sense, it's particularly damaging and reckless to fool around with that, as the Johnson administration has done. So I agree with that point.

On state aid, it's a fascinating shift. Because, you know, Margaret Thatcher was the one who put into the European Single Market regime the idea that the government subsidizing business, handing out competitive subsidies, was both an unwarranted meddling in the free market which tended to waste taxpayers' money, but also created an un-level playing field. If you wanted to single market, there had to be an agreement across the single market that people wouldn't do that. And by the way, this is a bit of a contrast with the U.S. where, when Amazon wants to set up its new headquarters, it creates this bakeoff around the nation and cities compete to offer a range of subsidies to Amazon. That's exactly what the Europeans want to avoid by having rules on state aid.

So these rules make sense. They were supported by Mrs. Thatcher initially. They continued to be supported by particularly conservative British leaders, right up until Theresa May. So I mean, this time last year, we had a prime minister in Britain, who was negotiating actively to do Brexit, but wanted to uphold that cap on state subsidies to business. And just this month, Boris Johnson threw out, this out of the window. So another example of the kind of radical bomb throwing instinct.

And the reasons are mostly to do with, again, his advisor Dominic Cummings, who has this ambition that Britain will become a sort of technology hub. And he has, to me, the completely misguided idea that the way to do this is to put government money into tech companies. Now, I happen to be writing a book about venture capital. I could assure Mr. Cummings, that when the government does the venture capital it tends not to work out so well. But anyway, he's got this idea that the government should be the agent that kick-starts a bright technology future. We've gone from sort of Singapore-on-Thames, in other words this sort of free market, free trading Britain as the post Brexit vision, which for other reasons I regarded as a bit hopeful, to the new one which is kind of almost China-on-Thames it's sort of the government-led technology development vision.

SORKIN: Let me ask you about that, because I think that one thing we saw this week, particularly with Michel Gove's presentation to Parliament was in a way, the Johnson government blaming business. Gove had told the story of what the port of Dover would look like after the transition period ended that was pretty bleak. The whole place turned into a parking lot, trucks backed up, uncertainty about what papers were even required, and his conclusion was business, you need to do better. Not so much that the Johnson government needed to be doing better. So how does that you know, is it really just a blame game? Or is there an actual theory there?

MALLABY: I don't think there's much theory. I mean, I think there's a lot in Britain, in particular with this government, of both sides blaming the other. Business is always whining that government isn't doing things and the government's always whining that business isn't doing anything. You see this very much in the messed up COVID response, which, whose fault was it that there was no protective equipment or testing equipment, or the app that was supposed to be doing tests and trace took forever to launch? You know, constant bureaucratic inefficiencies. I suppose it's fair to say that business does need to hire people to deal with the 275 million customs forms that will have to be filled out starting January -

SORKIN: And only 22 percent of businesses or 25 percent of businesses by their reckoning were ready in some way.

MALLABY: Yeah. And you can see why in COVID nobody wants to add to the payroll, right? You don't know if your business would exist in January, so you're not going to hire more people. So I think that that is a place where COVID interacts with the Brexit mess.

SORKIN: And Heidi, how about from the European perspective? Is the business community ready? What's the level of cooperation between Brussels and corporations? How's that looking?

CREBO-REDIKER: So I mean, I think the business community, and I would split it, the financial services community in particular in the UK has been planning this for years now. This has been an ongoing drama since June 2016. So you've had a lot of money spent on setting up offices across various, in various EU jurisdictions, whether, you know, Frankfurt and Paris have been, have largely attracted the banking industries. Dublin and Luxembourg for funds, and Amsterdam has become, it's one of the homes to the largest market maker. So you've had a lot, you've had transferring of capital and risk weighted assets, substantial meaning you've had it.

You have, for example, JPMorgan announcing yesterday that it's moving two hundred billion euros from the UK to Frankfurt. Whether that was in the works already, I think a lot of financial industry, large financial industry firms have been looking at about 10 percent of their assets moving out of the UK over the past couple of years. But they've been planning and spending huge amounts of money on contingency plans and planning for the no-deal prospect for a long time.

In terms of companies, I think a lot more has depended on what the outcome was going to look like. And I don't have as good a sense, but I think that there has been quite a bit of planning for those industries in particular that have strong UK presence, or strong UK with export to the EU, thinking through supply chains. Thinking through how they're going to get through the various new hurdles to deal with whatever the outcome is in Brexit. It's just, I think, for the business community, I would imagine there's a lot of frustration, because they have spent a huge amount of money in all of these contingency plans now for several years.

SORKIN: Let me get a quick estimate from each of you, what are, if you had to place them, what are the odds right now of a no deal? On January 1? Sebastian?

MALLABY: I'll say 40 percent no deal, 60 percent deal.

SORKIN: Heidi?

CREBO-REDIKER: So it's - I hate putting numbers on it. Percentages! But I do think that up until, I think that the assumption was that deal was better than no deal. And that was the assumption in Europe and in the UK, and in the U.S., that deal was better than no deal. And so that that was a good assumption to make that, again, at the very last minute that all, that rational minds would prevail, and that a deal would come together. And so I think that there's less of a chance of that being the predominant right now. But I would say, I would probably agree with Sebastian on the 60-40. But I think those odds are changing with any bluster coming from the UK about not wanting to abide by the Northern Ireland protocol. I think that it gets really, I think it could go the other way pretty fast.

MALLABY: We should also just say that actually, you know, the big shock to the economy is going to come either way, deal or no deal. The point is that for now, the UK is in the single market. But on January 1st it won't be. And that's going to be a huge shock in terms of the lines of tracks trying to get across the Chunnel, the paperwork that needs to be done to actually trade, the supply chains for automobiles and so forth. It can be ameliorated with a deal, particularly for autos and agriculture, which are the two sectors where significant tariffs would resume if you went to WTO tariffs. But even with a deal, January 1st is going to be a shock.

SORKIN: Brexit is still Brexit. You know, I have a dozen more questions for you both. But I think that that would be selfish of me because we've reached the time when we're gonna open up the questioning to our members. So I'd like to invite all members participating to join the conversation with their questions. I have a reminder for you all that this roundtable is on the record. And may we have the first question, please.

STAFF: Our first question will be from Jove Oliver.

SORKIN: Jove, are you there?

STAFF: Jove if you want to unmute yourself. Looks like we're having some technical difficulties. Our next question will be from Lee Cullum.

SORKIN: Lee go ahead.

Q: Yes, here I am. Thank you so much. My name is Lee Cullum. I'm a journalist in Dallas and do a television program interviewing CEOs. And actually, maybe it will be actually what you're talking about today. My question is political. How much longer can the prime minister last? Who might replace him within the Tory party? Is Labor ready to take on the Tories when the moment comes?

MALLABY: Sure, maybe I can take a crack at that. So there has been quite a lot of talk in the last three months or so when, as Boris Johnson's premiership is going through a bad patch, mostly because of the mishandling of COVID, that he's lost his mojo. This is a politician who rose to the top position not because he had strong ties to his party colleagues, not because he was a master of policy detail, only because he has razzle dazzle, the shine, the excitement, the buzz. And if you lose the shine–right, because you're presiding over a miserable country that has to lock down again this fall and it's all depressing–without the shine you're nowhere if you got into power by the shine.

So there is that view about Boris but I mean, the way that UK parliamentary politics works, as you know, is that you get elected, and there isn't another election for five years roughly unless something extraordinary happens. And so he's got, you know, four more years to run. He's got a huge majority in the key House of Commons; the House of Lords doesn't really matter. And so in U.S. terms the man who controls the equivalent of the executive branch, the legislature, and kind of most of the state and local stuff, because it's so centralized in Britain, is in a very, very powerful position. And so my bet is, he sticks it out till the next election and four years from now, who knows where the economy will be, where his brand will be. Kier Starmer, the new Labor leader is a serious and formidable person. But the electoral math for Labor is very tough because the way that Scotland, which used to vote for Labor, now votes for the Scottish National Party. So I still think Boris will stick where he is. And I wouldn't be surprised to see him win the next election.

SORKIN: Very interesting answer and let's go to the next question.

STAFF: Our next question will be from Jeff Cimbalo.

SORKIN: Jeff, go ahead.

Q: Can you hear me, Amy?

SORKIN: Yes, very well.

Q: Hi this is Jeff Cimbalo. I work at FTI Consulting. I live in Atlanta. Thanks for doing this. It's something that doesn't get talked about too much here. But I guess my question is, and I have a bunch just like Amy, but I'll stick to one. How much of this is going to be decided by institutions? In particular, that the way the EU is organized requires a unanimous vote to make this trade deal happen. And that's one of the reasons why the EU has tried in a lot of other areas to go to qualified majorities and things like that but this is going to be decided unanimously. And the European Union seems to operate under a lowest common denominator type thing as a result, as a natural consequence of requiring unanimity, right? So, can't Britain come to an accommodation with Ireland that respects Britain's new status and their old deal and have that be the template for the way Britain interacts with the rest of the European Union? And isn't that how the institutional dynamic ought to go if unanimity is required?

SORKIN: So Heidi, I think that's to you. And I think part of the question there is who's the decider and does it have to always, the UK has always had this vision of maybe it could do side deals with this country or that country.

CREBO-REDIKER: So there is a European Council meeting that's coming up. And it's the 15th and 16th of October. So there will be an opportunity for leaders to come and actually discuss this. But I think there are ways to structure a trade agreement that only requires a qualified majority, if I'm correct. If it's really narrowly drafted. I'm not entirely sure if you always require a majority or unanimity in the context of this. You will need to have major leaders involved. And the support of Angela Merkel and Macron. And a number of key European leaders will want to make sure that this is a true European agreed, and unanimous way to move forward. I think politically a majority is desirable. But I don't think it's a, I'm not sure if it's a procedural imperative.

SORKIN: Sebastian, do you want to add anything on that?

MALLABY: Like Heidi, I'm not actually sure that you need everybody. But I would also say that, you know, politically, the way this is going to work is that some countries will feel very strongly about it. And the others who don't feel so strongly will trade off their assent for something else that they want in the European context. I think Ireland obviously has an enormous interest. We've debated this. Let's say my sense is that Ireland is better off with a deal than without a deal, because the only way to discipline the crazy Boris is to have a deal. He's more likely to go off the reservation without one.

What's actually very tricky, I think, is the French calculus because Macron faces an election in 2022. Apparently, these loud fishermen actually matter quite a bit in the French political calculus. And there is a sense in which any compromise over fisheries would give the French fishermen much less than they have right now. Because right now they can move their boats to within six miles of the UK coastline. I mean, that's so much that a compromise would, by necessity, leave them with less. So Macron might be tempted, and this is one scenario where he deliberately scuppers the deal. And then the French lose their fishing rights. But then he goes back and negotiates later. And you can say to the French fishermen, look, you had nothing, now at least I got you something. Will you vote for me? And so that's a path, which suggests some turbulence.

SORKIN: Interesting. And I think we're ready for the next question.

STAFF: Our next question will be from Rebecca Brubaker.

SORKIN: Rebecca, go ahead.

Q: Hi, thank you, Amy. I'm Rebecca Brubaker. I work with the United Nations and I'm currently in the UK. I just was wondering if I've understood correctly, the government's recent bill does not undo the entire Northern Ireland protocol, but it empowers them to undo the chapters on state aid and export procedures for goods from, I believe Northern Ireland to Great Britain. Can you shed any light on why they picked those two particular chapters? Thank you.

SORKIN: Sebastian?

Q: Yeah, I think it's actually three provisions. As you say there is two. But then in addition, there's a third one relating to trade in the opposite direction. So in other words, it's both exports from Britain into Ireland, and then trade in the other direction from Northern Ireland into Britain, both of those things. There's a sort of threat in the Internal Market Bill, not to abide by the withdrawal agreement. Why did they pick these things? You know, I think it's, there are two theories, as I said at the beginning. One is that they're kind of crazy and they don't want to respect their commitments, and they're taking sovereignty to an absurd degree. The other one is they're picking the pain points. And from the perspective of the EU single market, they're saying, look, we're gonna suspend this, then you won't be able to control your single market orders because we will send goods from mainland Britain into Northern Ireland where they will then cross the border, which you won't be able to stop, because you want that open border. So we in Britain will be able to sneak our goods into your country.

SORKIN: The whole smuggler's paradise idea.

Q: That's the implied threat. And the way to rationalize this crazy threat is that it's only when you're the crazy uncle that you get what you want in the negotiation.

SORKIN: Heidi?

CREBO-REDIKER: So I'll leave it with, I mean, there are multiple parts of this. And it's important to realize that the Internal Market Bill is part of a larger effort to define internally what the market would look like, post-Brexit, but this in particular on Northern Ireland, was very specific on state aid and on trade going in and trade going out.

SORKIN: Alright. And then let's go on to the next question.

STAFF: Our next question will be from Terry McCarthy.

SORKIN: Terry, do you want to go ahead?

Q: Hi, Amy, thank you so much. And good to see you again, Sebastian. So I am calling from Los Angeles where I currently run the American Society of Cinematographers. But I preface my question just to point out, and Sebastian knows this, I was born in London grew up in Ireland, my mom is English, my dad was Irish. So I truly have a foot in both camps and therefore wish for the ultimate outcome for both these countries in the bigger context of Europe. But I'm very struck by the cognitive dissonance that seems to apply here in the Irish question, as it has for so many years, between Ireland and the UK. It seems to me that Northern Ireland, from the British perspective is sort of an irritating sideshow that they somehow have to square that circle on. In Ireland, of course, in Dublin, it's seen as an existential issue. And I think the Irish diplomats have done a good job in presenting that in that way to Europe as a whole. But somehow this has to, this circle has to be squared. And I'm wondering, is there enough work being done between Dublin and London? I know that a lot of this goes through Angela Merkel. But I'm just wondering, how do you see this diplomacy playing out? Because it cannot be an immovable object being hit by an unstoppable force if you know what I mean.

SORKIN: Sebastian do you want to start with it?

MALLABY: So, Terry, thank you, you put that very well. There is this rather horrifying dissonance between playing games and tactics and all that with something that after all, does mean peace or the absence of peace, which is existential. And I think that's true, by the way, about some of the other things that the Johnson administration does. I think cavalierly proroguing Parliament, and then being struck down by the courts, who said that was illegal. You know, this is not good for the rule of law, the constitutional functioning of the UK either. So there's this constant pattern of bomb throwing, as I was saying earlier, and I share your sense that it's alarming. All I can say is that, in a way, precisely because it's horrifying to put at risk the stability in Ireland, it slightly increases the likelihood that both sides will do a deal, including the British side. Because you really don't want to raise this specter of disrupting international law, disrupting Ireland, disrupting your relationship with Nancy Pelosi, and so on. And then just leave it out there, leave all your mess on the floor and not clear it up. You kind of now need to go and clear it up now. Are they smart enough to understand that? I hope so. I can't promise.

SORKIN: Heidi do you want to add on to that?

CREBO-REDIKER: I'll pass on that one.

SORKIN: But something Terry also mentioned, the real, what is viewed I think correctly, is the real triumph of Irish diplomacy. Sebastian, maybe talk about, has this all shown that diplomacy really matters as a profession?

MALLABY: Yeah, it's a good question and I'll admit to viewers that we chatted about it yesterday. I think it does showcase the expertise of Irish diplomacy, which I was sort of on the receiving end of when I used to write editorials in the Washington Post about Ireland. And I can tell you that the Irish Embassy in Washington was always impressive with the speed with which it would put its arguments to me. So I think this has illustrated the continuing skill of Irish diplomats.

I also think, though, that there's another point about diplomacy, and I say this as the son of a British diplomat, which is that diplomacy presupposes compromise, right? It's all about talking to other nations, who by definition, you can't compel them always to do what you want. And so you have to compromise. And this populist moment that we have in politics around the world is essentially wishful thinking. It's not about compromise. It's about an alternative universe in which you get precisely what you want. And so rather, like scientific evidence that people find inconvenient and therefore just simply discount, disbelieve, and disparage, so too, with diplomacy, it's sort of seriously out of style. And you see that in Washington, and you see that in London, and it's regrettable, and I hope that the pendulum swings back at some point.

SORKIN: It's a good thought, and with that, I think we're ready for our next question.

STAFF: Our next question will be from Mahesh Kotecha.

SORKIN: Mahesh, go right ahead.

Q: Thank you very much. Very interesting discussion and it’s sort of an ongoing saga of Brexit now for how many years, four years or something. I wonder on two issues, both of which have been mentioned tangentially. One, to what extent has the departure or the migration of financial sector and other businesses to Europe to prepare for this more or less sort of ended? Because it's been going on for a while. How much more damage will this really do, no matter what now happens? Because it seems like this is a continuing saga. Second, and related, is how much does COVID change it? Has the COVID situation changed the equation, changed negotiating powers, changed the urgency, or just overtaken this? Thank you.

SORKIN: Heidi, do you want to start with that?

CREBO-REDIKER: So on financial services in particular, I go back to what I said earlier about the fact that this has been planning for the execution in the event of a number of different scenarios for many years now, because we've had that cliff edge moment several times already. So there have been long procedural openings of offices, registering, getting of licenses, moving of people, moving of assets. I think something that Sebastian mentioned earlier on is important to bear in mind, which is this one Internal Market Bill. The breach of law part of this is actually interesting in that one of the fundamentals of having a financial capital, like London, is where you do have the absolute certainty of contract and rule of law. So this is sort of a, it was a strange move to do in that part.

As Europe decides how it wants to charter its path forward and individual countries decide they want to develop their financial centers, it's going to be a decision that banks and asset managers and insurance companies and exchanges will make along the way. I don't think it's possible to forecast right now what's going to happen. COVID has surely put a new light on everything that we do and how we look at all types of businesses. And from a banking, regulatory, from a support from the ECB versus the Bank of England, all of these different things are going to be a matrix of decision making that the financial sector needs to consider as it moves forward. But I thought it was interesting that JPMorgan did make its announcement about this move and that it was reported so widely yesterday, about the two hundred billion move and the two hundred people move because of the uncertainty of Brexit, which there's been uncertainty for a very long time. Why make the announcement now?

MALLABY: If I could, the question about the interaction between COVID on the one hand, and what happens because of Brexit to the City of London, I think is really super interesting for the following reason. You know, there's this long story about agglomeration economics. And the argument traditionally has been that there is some industries where innovation has a spurt, and in the spurt of innovation you need a cluster, because ideas have to move around the cluster and that's how you get for example fantastic textile technology developed in New England. And then at a certain point, the technology has matured. And then production spreads away from the cluster to where the inputs are cheaper. And you don't need the agglomeration because basically the innovation has stopped. So then you see the textile industry move to the south from the U.S. So that's the traditional story.

And the exception to the traditional story is that where you have an industry that is perpetually innovative, then the cluster will be perpetual, because you need that to remain. So Silicon Valley has been the global leader in innovation, since the ‘60s and ‘70s. Why? Because it's gone through multiple cycles of new technologies, from the microchip, to networking, to the internet, to the cloud, and so forth. And in each of those iterations, it's retained its edge. And you've got finance as another example of something that is perpetually innovative. And that's why, if you look over the last hundred plus years, there have been two global financial centers and only two. New York and London and that's it. And that's the argument for thinking that whatever happens with Brexit, you know, London will have this sticking power, because it's very hard to challenge an innovative cluster.

But I wonder with Brexit, when it coincides with the whole issue of COVID, and remote working, and we've all learned how to work not in a cluster but remotely, but sort of be, in terms of idea sharing, part of the same cluster. I wonder if that's still true. People could go and live wherever they want to live, and trade currencies in London, or they could be trading derivatives in London. And I think those examples, because when you look at the different types of financial activity, it's not fund management, which is overwhelmingly concentrated in London, or other kinds of banking. It is specifically currency trading and derivatives. So why can't you sit in the south of France and do your derivative trading? I mean, I'm talking to you right now from London. What's the problem? So I think there is a very interesting kind of experiment that we're all living through as to whether cities are going to lose their value because people move out, as to whether remote working takes hold, is the office going to be rethought? And I think the City of London will be a sort of double experiment, it will have Brexit, and it will have that whole dynamic going on at once.

SORKIN: That's fascinating. And I think that will bring us to our next question.

STAFF: Our next question is from Doug Rediker.

SORKIN: Hey, guys. So Sebastian, primarily for you. But Heidi, a second part for you, I guess. You mentioned Dominic Cummings' agenda, which is not unfamiliar to those of us who live in Washington, DC, on a different level. But you also mentioned you thought that Boris was likely to be reelected in four or five years. So I'm curious whether you see the Dominic Cummings agenda, which is to upend the status quo across all aspects of British life and government, why that is consistent with an economic outcome, which would lead to a political outcome where Boris gets reelected. And then the second part is the strategic component of that, if you upend the British bureaucracy and policymaking apparatus and the government tools, and you are now isolated, you're no longer a member of any particular strategic alliance, with the rising China playing an initial role. Sebastian and Heidi, where do you see the strategic and security focus of a now middling power on the decline economically, politically, and strategically? How does that play out through the 21st century for the UK in a way that gets Boris Johnson elected?

MALLABY: Well, I think there's two things going on here. One thing I left out of my prediction about Boris being reelected is I think, if he is not the guy who gets elected in four years’ time, the second most likely person is Rishi Sunak, the current chancellor of the Exchequer, the finance minister. In other words, another conservative from within his own party. And I say that because Kier Starmer, the Labor leader, although I have a lot of respect for him and he's a smart lawyer. I, you know, in my view, he was on the right side of Brexit. In other words, he was a remainer. That gets him a lot of points relative to Boris Johnson in my book. I like the guy. But you know, the electoral math because of Scotland is very tough for him, as I was saying. So I think the most likely way in which Boris doesn't survive politically is that he messes things up to the point where his own party, which has a forum on this, of evicting leaders it gets fed up with, gives him the boot. And then you get a different Conservative Party leader, who becomes the prime minister, and the most likely person is this rather young, rather smart, finance minister Rishi Sunak. And so that's one thing.

On your point about declining Britain, look, I mean I share that fear, of course. In my mind, Brexit is a terrible idea. In my mind screwing with the British civil service tradition and going for the kind of U.S. system where there are more political appointees, I'm not sure that's so great. I think there's a lot of virtue in the establishment against which Dominic Cummings is raging. I'd rather have the establishment than have Dominic Cummings, for sure. So I am worried about the future of Britain. But I think there's a time inconsistency in your question. In other words, it'll take a long time for this decline that Boris is engendering to really be so pronounced that it affects voters, I think. And therefore, the economy may have a cyclical problem. But that would be blamed on COVID, not on Brexit.

SORKIN: So someone else will have to clean it up. Heidi, what's your view of that?

CREBO-REDIKER: Oh, I mean, it's a good question. And I think a lot of people in Washington in particular, were worried that in the instance where you had a more isolated Britain our close, close ally, would there be a turn towards China? That was part of the Singapore-on-Thames. Are we going to go for least common denominator, our own regulatory? It's going to be low tax, low regulation, and very supportive of a new relationship with China. And it looked like it was going that way for a while. And we saw, looking at China's investment in critical infrastructure. And I think Hong Kong really put a lid on that. So you saw the Johnson government actually decide that they were not going to allow for the UK’s 5G infrastructure to include Huawei. And I think you've seen a lot of pickup actually, to leave this on a positive note, I think the UK has been stepping up in the midst of COVID to look at like-minded democracies, looking at human rights issues, they are going to be leading, they're actually leading the G7 next year. So it will be interesting on the world stage to see how they want to guide the G7. And so I will leave on a hopeful note that there is the potential for diplomacy to actually be a net positive for how the Johnson government moves forward, and next year is a great opportunity for that through the G7.

SORKIN: Now it's good to have that last hopeful note because remarkably, we've arrived at the end of our time. So I just want to thank everybody, all our members for taking part in today's meeting and especially to thank our two speakers Heidi and Sebastian. Thank you so much, and goodbye to you all.


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