Brexit: how not to negotiate - Editor's Blog -

Negotiations break down when the parties get stuck into hardline positions they cannot retreat from. Bank CEOs can learn from the Brexit mess, writes Brian Caplen.

The demerger of the UK from the EU is not going well. The deal looks like falling apart not because of arguments about money or about who will run the demerged entities (classic causes of M&A failure) but due to a disagreement about what, to a visitor from Mars, would appear to be a non-issue: the land border that separates Northern Ireland (which is part of the UK) from southern Ireland (which will remain in the EU).

Everyone wants to keep the border open and both parties to the negotiation prefer a deal from the likely chaos of a 'no-deal'. But no-deal is looking likely because both sides are stuck into hardline positions they apparently cannot retreat from.

The demerging bank equivalent would be the scuppering of an entire deal because of a failure to agree on a common IT platform in a small part of the bank where separating IT systems would be too complicated to achieve. (Mind you, we have seen the challenges of demerging IT systems with the Lloyds spin off of TSB and the resulting IT failures.)

But back to Brexit and the absurdity of both negotiating positions becomes apparent. The current pro-Brexit UK government led by Boris Johnson is confident that a technological fix can maintain an open border even if tariff regimes vary and that the nature of a new trade deal to be negotiated between the EU and the UK will be so all-embracing that border checks will not be needed. But it rejects the 'insurance policy' of keeping Northern Ireland in the European single market – the so-called backstop – if neither of these propositions materialise. Conclusion: the UK government is not confident about either of its propositions but has yet to admit this.  

Meanwhile the EU is resisting making changes to an agreement that does not have the support of the UK parliament. It does this by declaring support for the wishes of a fellow EU member – Ireland – and the peace process that an open border contributes to. But it maintains this stance regardless of the fact that in the case of a no-deal the result will be a hard border anyway. Conclusion: ideology has clouded out pragmatic thinking.

Both sides have cemented their case so solidly that retreating has now become almost impossible even though the final outcome will deliver exactly what neither party desires. This makes Brexit a case study in how not to negotiate. Any negotiation starts out with the two parties adopting tough stances and then gradually rowing back to find common ground. The traps not to fall into are to be so resolute that a compromise looks like a failure and to allow ego and pride to override common sense. 

This is exactly where political leaders on both sides – the EU and the UK – have ended up in the Brexit negotiations with no-deal now looking to be the most likely outcome. Bank CEOs should learn from this failure.

Brian Caplen is the editor of The Banker. Follow him on Twitter @BrianCaplen

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