Deal or no deal?
The reality instead will be a hard Brexit: Britain’s bargaining position is weak. Europe’s incentive is to give the UK a bad deal to set an example for other countries, yet not too bad to backfire. Britain’s incentive is to take it. 

backfire：逆効果になる
incentive：人の行動を駆り立てるもの

Brexit Secretary David Davis recently admitted to not knowing the cost of a no-deal. His thinly-veiled threats to walk away from negotiations bear little credibility: Britain depends on the EU for half of its exports, while Britain accounts for only a third of Europe’s. For Britain, this means any deal would be better than none at all. 

thinly-veiled ：薄く不透明な
credibility：信用
bear：を負う

The irony is that by running away from a European Union they thought was about to fall apart, Brexiteers have instead made it stronger. Voters in France and the Netherlands are rejecting populism, and politicians in Brussels and Berlin have switched gears towards reforms and pro-EU spending measures. 

fall：崩壊する

An unclear strategy
Theresa May, self-appointed leader in this historic negotiation, has so far revealed little about her strategy. We do not know whether beyond this secrecy lies a feasible plan. But one thing is sure: the prime minister has already weakened Britain's negotiating position. 

First, she wrong-footed the start by threatening to walk away and to make the UK a Singapore-style tax haven. Second, she has made unrealizable promises. Keeping substantial access to the single market and having strict immigration controls are mutually exclusive for the EU: achieving both is highly unrealistic. Third, the prime minister has not been honest about the true cost of Brexit. May said repeatedly that Britain could walk away without a deal and be fine. Instead, a painless exit without a cliff-like effect on trade is only possible with a transitional arrangement. To obtain that, the UK will likely have to pay the €60 billion it owes from its past years of membership, as well as a membership fee for access to the single market. 

cliff-like effect：貿易で崖っぷちに立たされるような影響

Brexiteers have bought into the illusion of shaping a fairer and more independent country. Soon they will realize that the politicians’ promises are just empty words. They will have no one to blame but themselves. 

blame：自分に責任がる

Brexit game theory: A bad deal is better than no deal
May officially triggered the Article 50 exit clause on 29 March and set out the UK’s negotiating letter to the EU. In our view, the four major points of the negotiations will be: 

1. The “divorce bill”: how much the UK still needs to pay the EU after leaving 
2. Free trade agreement (FTA) with the EU 
3. Immigration policy 
4. Transitional agreement 

From a game theory perspective, we think the Brexit negotiations are likely to lead to a bad deal for the UK, which it will eventually have to accept. 

perspective：観点から

On the one hand, the EU has an incentive to offer a bad deal to the UK, so as to set a tough precedent for other countries: the political costs of appearing too lenient will outweigh the benefits of maintaining benign trade relations with the UK.

precedent：先例
lenient：寛大な
outweigh：に勝る
benign ：温和な

On the other hand, the UK is economically more dependent on the EU; 44% of its exports go there and 48% of its foreign investment comes from them. This is not to mention the potential damage from a loss of passporting rights to the services sector, which makes up for around 79% of UK GDP. Hence we think the UK may try to act tough at the start of negotiations, but eventually will have to compromise to avoid bigger economic fall-outs. 

fall-outs ：抜け落ちること

As we illustrate below, the equilibrium scenario based on both sides’ incentive structures will be the EU offering a bad deal which the UK will accept. 

The EU has an incentive to offer a bad deal, and the UK has an incentive to take it.





Negotiating the divorce, while still seeing the kids
The first negotiating point will be to settle the divorce bill which the UK owes for its past years of membership. Beyond that, the key will be for Britain to secure a transitional agreement and avoid a cliff effect on trade. However, to reach a deal and to have access to the single market, the UK may have to compromise on immigration and potentially pay a fee. Both would require May to take a softer stance, something that is currently politically difficult given the split within the Conservative Party. 







The “divorce bill”: European Commission President Jean-Claude Juncker and the EU’s chief negotiator for Brexit Michel Barnier have said that the UK has to pay an exit bill of around €60 billion, and the bill would need to be agreed before beginning negotiations on an FTA or transitional agreement. The UK’s Brexit secretary David Davis so far ruled out paying for a hefty bill, as it would be politically challenging given that Brexiteers campaigned on a promise of “saving £350 million a week from Brussels”. Ultimately, we think the UK and EU will agree to a bill, but that this will only be paid after a trade deal is finalized. This would allow negotiations to continue, while not appearing as a defeat for May. 

In our view, the complexity behind the Brexit bill calculation means there is room for the UK to negotiate when it comes to the EU’s current estimate of €60 billion. The exit bill itself mainly comes from the UK’s budget commitments for 2019-2023, which it still needs to pay post-Brexit, unfunded pension liabilities for UK staff who worked in the EU’s institutions, and other contingent liabilities. According to estimates by the Centre for European Reform, the bill could range between €24.5 billion and €73 billion, depending on the calculation methods and what will be covered. 

contingent：不確定の


A protester holds a blackboard outside Parliament after Britain's Prime Minister Theresa May triggered the process by which the United Kingdom will leave the Euopean Union, in London, March 29, 2017. 
REUTERS/Hannah McKay - RTX337CF 

Free trade agreement: May aims to achieve a “bold and ambitious free trade agreement” with the EU and start negotiations early, as expressed in her letter to President of the European Council Donald Tusk. May has downplayed the challenge of achieving an agreement by stressing that sectors like the auto industry and financial services may adopt existing single market agreements. 

downplayed：軽視する

However the reality will likely be an extended period of uncertainty, as both sides may agree the broad terms of a trade deal before 2019, but leave the details and ratification for a later date. Additionally, as part of the broad terms agreed to, the EU and UK will need to agree on an institution to settle FTA disputes so as to give the EU assurances that following a trade agreement, the UK will not undermine the single market through regulatory dumping. 

assurances：保証
ratification：批准
undermine：徐々に損なう

Immigration: The Brexit campaign focused on the cost of net migration and promised voters fewer migrants if Britain left the EU. May will now need to deliver on this promise, as she highlighted in her January speech. While May has effectively ruled out the possibility of implementing a point-based migration system for EU nationals, the final deal may include a limit on net migration from the EU under a work permit scheme. 

Transitional agreement: UK-EU trade will need to be governed by a transitional agreement, between the date that the broad terms of an FTA is agreed and when the FTA comes into effect. Rather than negotiating separate terms for this transitional agreement, we think during this period UK-EU trade will remain governed under EU law and the European Court of Justice. Could the UK make a u-turn? 

u-turn：政策を転換する

A turnaround on the Brexit decision is very unlikely and would result in a split in the government and the Conservative Party. However, the rational strategy to avoid a bad deal or no deal would be a more friendly negotiation aimed at agreeing on a transitional agreement and avoiding a cliff-like effect on trade. 

Doing this, however, requires political capital. The prime minister's approach so far has been a tough one, partly to appease the hard-liners in the party. Negotiating a soft Brexit while appearing to be hard on the EU is a difficult strategy, and in our view it would take time and more signs of economic weakness before the UK is able to soften its approach. 

Brexitのどの位置を通るのかの議論だが、どれをとっても大変そうだ。EUから出ていくためには６００億ユーロを払うということだが、離脱派は週に３億５千万ポンドを節約できると言った。実際にはそれどころではないようだ。ソフトにしてもハードにしても前途多難だ。FTAを目指すのであれば相当の妥協をしていかなければならない。EUはイギリスのいい思いはさせないだろう。

どうころんでも、イギリスに分が悪そうだ。６月にメイ首相は信義を問うための総選挙を行うと言っているが、彼女の党が労働党よりも圧倒している。支持するしかないのだろうが、ますますこのEUとの交渉は混迷を深めていくだろう。ということはますますイギリス経済は凋落していくということになるのかも知れない。

日曜日。とりあえず、慰安婦と南京大虐殺はまとめておくことにした。ではまた明日。