Reaching a deal with the EU was never going to be easy, and there was no chance whatsoever of agreeing something that would satisfy everybody. But we appear to be heading for an agreement with Brussels that nobody at all is happy with. According to some Leave voters, the person responsible, Theresa May, is a rabid Remainer who has deliberately scuppered Brexit. Their anger is understandable, but wide of the mark. May was a Remainer, but her early pronouncements – “Brexit mean Brexit” and “no deal is better than a bad deal” – were honest and genuine. The fact that she decided to hold a general election to make it easier to get Brexit through Parliament surely demonstrates that. Unfortunately, that proof of her honesty is also evidence of the real problem – her inability to understand and navigate complex problems. Anyone with experience negotiating deals has watched May’s performance first with incredulity and then with something akin to despair. No doubt at some point these negotiations will be used as a case study of what not to do, from failing to establish a credible walk away position, through allowing yourself to be salami sliced to the bizarre insistence that each part of the deal – say rights for EU citizens in the UK – can only be negotiated against the reciprocal issue – rights for UK citizens in the EU – rather than as part of the whole package. Agreeing the one thing the EU really wanted – the money – before even starting to discuss the one thing we really wanted – trade – beggars belief. At the same time, May has totally failed to put any pressure on the EU. The Government could have started negotiating trade agreements and dared the EU to stop us. We could have said the UK will no longer apply tariffs on the import of foods which we do not grow, such as rice or oranges (the latter have a particularly unbelievable complex schedule of tariffs) but which the EU exports to us. And since EU member states have made no secret of their attempts to persuade UK businesses to relocate, why have we not responded by offering preferential terms for EU firms willing to come to the UK? Compounding the problem, this timid and defeatist approach has played to the worst of the EU’s tendencies – its hubris and its pathological need to overturn democratic decisions it does not like. The EU has been encouraged to believe that we will change our minds about leaving. There is undoubtedly a substantial dollop of wishful thinking in that on the part of both the EU and those Remainers who have helped them reach that conclusion. It is unclear that either Labour or the Conservatives could propose a second referendum without losing the next election. The Tories almost certainly cannot and Labour would be taking a very large risk in doing so. Ironically, May’s incompetence has prevented Leave votes from changing their minds: Brexit still seems a good idea if somebody were to do it properly. But the EU believes that if it keeps ratcheting up the pressure, we will give in. Cannily, the EU has also been running a deeper plan for the last twelve months using the Irish backstop. This is a modern-day reworking of the Schleswig-Holstein Question, another geographical conundrum with no apparent solution. By taking a hardline position on the imposition of a hard border in Ireland, the EU has given Theresa May an impossible choice. There are three things May wants to do: maintain the Union, leave the Customs Union and avoid a hard border. But the EU has manoeuvred her into a position where no matter what she does, she can only ever have two of these things. This is imposed by the EU insisting that only it can adjudicate on whether a trade proposal makes the border “hard” or not. That gives them complete control over what the eventual trade deal looks like. And of course until we have left the Customs Union, no new trade deals can come into force. The frustration is that May does not seem to have understood what has happened. She continues to search for solutions to what is deliberately an impossible problem. The EU will not give her a unilateral way out of the backstop. Not only would that ruin their stratagem, but it would be an Emperor’s new clothes moment for the border issue. The cabinet, let alone the ERG and other MPs thinking sensibly, will not accept weasel words that do not give us a way out of the customs union unilaterally. No Robbins plans that confuse with complexity will pass muster. It is in this context that May appears to be considering yet another bout of can-kickery, with an extended transition agreement. But as so many have said, that does not solve the problem. In fact, it again illustrates the trap the EU has made for May – you can either stay in the Customs Union through an extended transition or stay in the Customs Union through the Irish backstop mechanism. Or vote again and just stay in. The further frustration is that May appears to think that if she somehow solves the border problem, the EU will accept her Chequers plan. But the EU has already rejected it, many times. They have not formally rejected it because they do not have to. But if it comes to it, the EU will reject Chequers because their own analyses shows that the UK setting its own tariffs and freed from only some regulatory constraints will be highly competitive. Michel Barnier himself, in a speech on 10th October (largely ignored by the media), said: “Minor divergences in regulations can create a significant competitive advantage for the UK if it remains in the single market for goods while diverging for all the rest. This means that it (the UK) could apply lower tariffs than ours while remaining in a single market for goods with us. From our standpoint, this could cause a serious risk of distortion of trade flows, to the detriment of our enterprises.” He went on to say: “We have therefore proposed to the UK… an economic partnership founded on an ambitious free trade agreement, doubtless accompanied by a customs co-operation, a regulatory co-operation, and also a level playing field commensurate with such a free trade agreement.” In other words, the trade deal the UK will be offered during the transition period will be membership of the Single Market and the Customs Union! Just as clearly, this is what the UK will be offered if we take any other “temporary” route, such as the Norway option. The EU simply will not offer us frictionless trade unless we are bound into the EU’s regulatory and tariff structures. In all the ways that matter, May has been negotiating the UK staying in the EU, but with less say than now. What is unclear, however, is whether despite all its cleverness, the EU has massively underestimated the risk that we reject what is on offer. The EU tends to assume that any resistance is not just futile, but short-lived and irrational. The UK may not take that view. Barnier was clearly surprised by May’s rejection of the unlimited backstop, and the EU has left itself very little time and very little room for manoeuvre if it has got this wrong. Of course, No Deal would not be nearly as bad as some have suggested. The UK would survive and probably thrive, but with some short-term pain. But the EU will suffer as well, and not just through increased trade friction. There will be no divorce payment and the reputation of the EU – about which it cares deeply – will be damaged. Most importantly, the UK will be free to deregulate and lower tariffs. That threatens not just the competitiveness of businesses in Europe, but the whole raison d’être of the EU itself. It is this that the EU fears, not another country following the UK out – there are no real candidates for that. Proving wrong the EU’s claim that its rules and commissions and technocracy are essential for prosperity and progress brings the EU to an existential crisis. But must we accept that there are only now two choices? There must be a better option, a partial deal that captures some benefits and avoids some costs, for both sides. To achieve that, however, requires Theresa May to reverse course, something she may not be capable of doing. First, May has to accept where she is and that she must make a choice. The obvious choice is that that maintaining the Union and respecting the referendum are more important than the hard border issue. Nobody wants to see the return of violence in Northern Ireland, but neither the Union nor our democratic processes can be held hostage by violent men. To soften that decision, she should announce that the UK will not implement a hard border, and will conduct customs searches on an intelligence-led basis only. A small number of dodgy lorries crossing the border unsearched is a small price to pay for peace. It is then up to the EU what it forces the Irish Government to do. Second, she should tell the EU that the UK will sign the Withdrawal Agreement as it stands, but with the removal of the transition period. No Deal will have no transition period either, so this is no worse than the alternative. The transition period simply delays the benefits of leaving for the vast majority of the UK, to the benefit of a small number of large businesses. The CBI and others will have a fit, but they have had warning of No Deal for some time now, and still have five months to prepare. The Government can make substantial funds available to them to help. Hammond has some headroom now, given the strength of tax revenues. The UK will pay the amounts already agreed as a gesture of good faith. Leavers will not like that, but we basically owe it. Third, it is not too late to start trade negotiations with the US and others. Let the EU take us to court, let them fine us, but start talking now. Nothing will be agreed by the time we leave, but we can make a start and make progress. We have the offers, we have the markets. Let us not waste yet more time. Daniel Hannan has led the thinking on new ways to trade, so appoint him under Liam Fox to lead a new team talking with governments around the world on alternatives to traditional Free Trade Agreements. Fourth, announce a group led by a free market advocate to urgently report on what tariffs can be cut and simplified immediately after Brexit. Announce a similar group (headed by, say, Jacob Rees-Mogg) to look at regulation, replacing those supposedly doing that now. And force Philip Hammond to come up with a package of attractive measures to be offered to businesses willing to invest in the UK after Brexit. That can include new investments made by existing firms such as Nissan and new ones relocating from the “near abroad”. Fifth, offer the EU the opportunity to negotiate a comprehensive free trade agreement with the UK after Brexit, but with a two-year time limit, after which the UK will walk. The UK will start negotiating immediately if the EU wants. Again, the EU may claim its rules prevent it starting now, but those rules are made by the EU, so they can probably ignore them if they want. Two years is of course far too short a time for the EU normally, but the UK and the EU are starting from a point of perfect alignment on standards and with an accepted and existing level of zero tariff and frictionless competition. It will never be easier to do a deal, if the EU actually wants one. If the government was very bold, it could even offer a two year import-only deal immediately, as I described before on CapX. The next few months do not have to be some sort drab and fatalistic damage limitation exercise. There is no point in continuing this pointless back and forth with the EU, which will achieve nothing but leaves businesses and individuals in limbo. May must make her choice. Would this mini-deal get through the Commons? The DUP ought to back it as it crosses none of their red lines. The ERG should find it enough of a proper Brexit. Labour will not, but it should be good enough to persuade a handful of Labour Leavers to vote with the Government. That leaves the Tory die-hard Remainers, but the numbers seem to just about favour May. But is she capable of reversing course like this? History suggests not, but perhaps May can surprise us all.