Ding ding. Round two of the Brexit negotiations gets under way this week, with the two fighters at the centre of the spectacle throwing punches in different directions. David Davis, the old knuckleduster in the red, white and blue trunks, seems more preoccupied with landing a knockout blow on Theresa May that could make him prime minister.
His opponent Michel Barnier, meanwhile, is striding out of his corner with his guard up — rigidly standing by all his demands about the rights of EU citizens, the settlement bill and the “ticking clock” that is dictating the pace of the talks.
“The cabinet does not seem able to think beyond the next few days
Away from this drama, post-Brexit battle lines are being drawn. Nobody really noticed, but last week the French president Emmanuel Macron and the German chancellor Angela Merkel revealed plans to build a new fighter jet together. Britain will have nothing to do with it.
That’s not especially good news for the 5,000 engineers at BAE Systems’ plants at Warton and Samlesbury in Lancashire, who manufacture the Eurofighter Typhoon.
As things stand, there is only a few years’ work left on the pan-European fighter-bomber. Production has already been slowed to keep the plants ticking over until new orders can be found.
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Now the future of the whole consortium could be thrown in the air by this Franco-German alliance — which is expected to lead to the development of unmanned warplanes as well as a more conventional design.
Unquestionably, there is an element of political posturing. Macron in particular appears to relish any opportunity to demonstrate that he will do everything in his power to prise jobs and tax revenues out of Britain.
Yet it’s a credible threat. The French-built Dassault Rafale has been the principal competitor to the Typhoon, winning several large deals at Lancashire’s expense.
Britain and BAE may well find a way to be part of this new project, as some defence industry sources have suggested to me. There is a bigger point, however. There still appears to be an assumption in government that we are somehow in control of what happens next to our economy. Yet as cabinet ministers plot, everyone else is getting on with life. Other countries are looking out for their own interests. Businesses are sensibly working to worst-case scenarios.
Barclays confirmed last week that it was looking to move jobs to Dublin. HSBC gave further indications that it would shift its capital markets business to Paris. EasyJet said it would set up a new headquarters in Austria. Industries of all kinds are quietly panicking about looming deadlines that seem not to have registered on the Downing Street radar.
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Car makers take pre-orders for new models up to 18 months in advance. How should BMW price new models coming from Germany for the UK market?
Ordinarily, airlines start to sell tickets one year in advance. Will they have clarity by next March on whether Britain will still be a member of the Open Skies treaty? Will they be able to sell tickets dated after March 2019? Ryanair’s Michael O’Leary raised this point last week. While business is often accused of being “short-termist” in its thinking, it is the cabinet that no longer seems capable of thinking beyond the next few days.
The great RBS escape?
A prediction: by this time next year, the government will have cut its stake in RBS to less than 50%.
Last week’s news of a £4.2bn legal settlement with the US Federal Housing Finance Agency, over claims the bank sold duff portfolios of sub-prime mortgages, is a big step forward. It’s the beginning of the end of the bad news that has kept the bank holed below the waterline, year after year.
The next big event will be a deal with the US Department of Justice over the same sub-prime mortgage issues. I am assured RBS genuinely has no idea how big that fine could be. Yet the wiser analysts seem to hovering around the £5bn mark — meaning RBS will have to stump up a further £2bn-£3bn in provisions, in addition to those it has already taken. That would be painful, but it would mean the results posted next spring would be the last to be polluted with toxic waste from the era of Fred Goodwin. Finally, the safe, clean, predictable bank that Ross McEwan was asked to create would be there to be judged on its merits by the market.
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I have a feeling that our cash-strapped government — whoever is leading it by that point — won’t wait long to start dumping shares. The idea of hanging about until the taxpayer can exit at a profit has long been abandoned. There will be sufficient appetite from investors to allow a good slug of stock to be jettisoned, pulling the taxpayers’ stake down from its current level of 73%.
Who will buy them? Not me. With wages stagnating, inflation edging higher and new doubts emerging about the housing market, I doubt many UK banks will be an especially wise investment. While RBS has been destroying the value in its shares at the behest of both Brussels and Whitehall, its rivals have stolen a march.
For the most important market information, see this week’s Databank.