“My take is that the EU leadership is far more interested in punishing Britain for voting for Brexit than it is in its own immediate economic interests. The thing Brussels has to fear more than anything else is that if Britain comes through Brexit in good shape, and especially if it’s seen to benefit as a result, other countries could head for the exit, and still others could start treating the threat of a referendum as a useful bargaining chip in their disputes with the EU. Thus, I’ll predict that the EU leaders will either reject the Chequers plan outright, or accept it but with demands for alteration that will be politically unacceptable in Britain.”
“… many European politicians have made a cold calculation that a ‘successful’ Brexit could create political momentum in their own countries for looser ties with the EU.”
In Shakespeare’s play Julius Caesar, the soothsayer warned the Roman dictator to “beware the Ides of March”. Those of my readership who are classical history buffs will already know the outcome: the great Roman leader was stabbed to death by his closest allies in an act of brutal betrayal.
Just as in Roman times, March is also a critical month for Great Britain as the clock ticks down to when Britain formally leaves the European Union (EU) on 31st March 2019. Britain’s Prime Minister Theresa May would not be human if she doesn’t occasionally wake up, sweating, in the middle of the night in 10 Downing Street at what the outcome will be for the British nation.
The truth is, nobody in Europe knows what the outcome of the Brexit negotiations will be, whether a deal will be agreed or not and whether a deal, assuming it is agreed, will be of a “soft” or “hard” version. As somebody who successfully predicted the narrow Leave victory at the beginning of 2016 on this blog, I thought it would be sensible to review whether my forecast of a “semi-soft” Brexit still stands.
Before I proceed, I will need to discuss an issue that may concern some of my readership. John Greer, the political thinker and analyst who I have referenced many times on this website, recently wrote an update on Brexit on his blog Ecosophia which I will reference in my post. He uses a very unconventional methodology to his near-term forecast of the Brexit outcome, astrology, which he considers a reliable approach to forecasting the future.
My own view is that I know nothing about astrology and have no idea if it works or not. However, if Greer’s approach works for him, and more importantly the underlying rational political logic and analysis dovetails with my own research and thinking, I see no reason why I shouldn’t reference and use his forecast in my own blog.
With that out of the way, I will proceed with my latest thinking on Brexit.
The underlying logic behind my forecast of a Brexit deal based on a “semi-soft Brexit”, largely along the lines of the Chequers plan, assumes that EU member-states will be primarily guided by their immediate economic and strategic interests. The UK is a major economic and military power and a no-deal outcome would negatively impact the EU27 economies, risk triggering a European recession and potentially lead to a surge in support for populist parties across the Continent.
Strategically, a toxic Brexit divorce would shatter NATO and destroy public support for the UK’s military protection of central-eastern Europe from Russian revanchism. With Russia, Turkey and America increasingly hostile to the European Project, refusing to engage with a soon-to-be Brexit Britain would be an act of strategic madness by Europe’s leading powers.
The hostile reaction to May’s Chequers plan, which involved painful concessions by the Prime Minister and the loss of two senior cabinet ministers (David Davis and Boris Johnson), by the EU would suggest that my assumption was wrong. It looks increasingly clear that the major centres of power within Europe, Brussels, Paris and Berlin have decided that preserving the integrity of the single market is more important than protecting existing economic and geo-strategic ties with Great Britain. There can be no “a la carte” Brexit, whereby Britain is partially in and out of the single market which is the core of May’s Chequers plan.
Either you are fully in, including signing up to freedom of movement for EU citizens, the Norway option, or you are fully out, with limited access to the single market, known as the Canada option.
Recent headlines have suggested that the EU are softening their position to save Theresa May as her political enemies surround her with their (metaphorical) knives. Reading the small print of these articles indicates no such thing. The EU are not prepared to make any substantive concession on Chequers and are only prepared to allow vague wording in the political declaration on the future relationship between the EU and the UK to help May push it through Parliament.
The calculation within European capitals is that a mutilated Chequers Minus package, once Barnier has had his pounds of flesh, will be a de facto ultimatum to the British government. Take it or leave it.
Certain issues will be fudged, kicked down the road and flowered up in vague wording but the core of the withdrawal treaty will be on the EU’s terms. As Ambrose writes in the Telegraph, Barnier’s game plan was “… was to pressure the Government into whittling down Chequers: either accept the Customs Union, swallow EU law across the gamut of services and goods, and give way on free movement or accept the thin gruel of a limited goods deal – one that should lock in the EU’s £90bn trade surplus, without reciprocation on services, where the EU has a deficit.”
It is precisely these alterations that John Greer was presumably referencing when he writes that “the EU leaders will either reject the Chequers plan outright, or accept it but with demands for alteration that will be politically unacceptable in Britain.” A humiliating Versailles-style settlement, assuming that the British government carries on negotiating on the basis of Chequers, is likely to lead to either the collapse of negotiations should the May team decide that the deal is unsellable back home or a later collapse as the Tory party and/or the Parliament reject the proposed settlement.
For any Chequers-Minus/Barnier deal to survive the ordeal of getting through the Conservative cabinet and Parliament, Prime Minister May will need substantial support from Labour and the Welsh and Scottish nationalists to win the vote. This is not inconceivable. Berenberg Bank, who I have referenced before, continue as their base case (60%) that precisely such a scenario will occur, although they are forecasting a 40% chance that the deal will be rejected.
There are a number of other scenarios that could play out over the next few months.
- Canada is resurrected
The first is that May, under pressure from her Brexit hardliners and the refusal of the EU to engage with her Chequers plan, adjusts and aims for a Canada style free trade agreement. This is unlikely to happen since a Canada style deal would not solve the Irish border quandary of ensuring no hard border between Northern Ireland and the Irish Republic post-Brexit. May committed to precisely such an undertaking in December 2017 with the EU27.
- May toppled from power
The second is that Tory backbenchers will attempt to topple May from power in the coming months. Eurointelligence, in their briefing today, note that should May be toppled by the former Foreign Secretary Boris Johnson, “…he would dump Chequers and call for a Canada-type deal. This would lead to a head-on confrontation with the EU over the Irish backstop, which will remain unacceptable to the UK in this particular scenario. If the EU blinks over Ireland, there will be a compromise. Otherwise, a hard Brexit.”
The prospect of May facing a leadership contest is growing amid widespread grassroots rage about Chequers and the manoeuvrings of ambitious Tory politicians sensing blood.
- EEA comes back
The UK Parliament rejected in a previous vote a proposed joining of the EEA, also known as the “soft Brexit” option which would involve remaining within the single market and customs union. Both political parties have rejected this option, for two reasons. The first is that Britain would become a rule-follower without any input or influence of the shaping of the laws and regulations within the EU27. The second, even more politically explosive, is that Britain would not regain control over its borders.
Immigration was a key issue during the referendum campaign and many MP’s are wary of the backlash from Leave voters should they bounce Britain into a soft Brexit which doesn’t involve “taking back control” of our immigration policy and borders.
- Article 50 extended
Should negotiations collapse or the withdrawal treaty is rejected by the UK Parliament, the prospect of crashing out of the EU without a deal will lead to widespread calls for Article 50 to be extended. For Britain to postpone leaving the EU would involve the approval of every EU government across the EU28, including the UK.
The EU have made it clear that they are reluctant to prolong the Brexit agony and would be loathed to extend Article 50 beyond May, when critical European parliament elections occur. The prospect of dozens of UKIP MEP’s returning to parliament would be intolerable to European elites already frightened of the rising tide of populist and nationalistic forces across the Continent.
The only realistic way Article 50 could be extended is if a deal is close to completion and would be approved on a time limited basis only.
- Brexit revoked
In the event of a failure to reach an agreement, the government could agree to revoke Brexit, subject to the approval of the UK Parliament and the EU27. This strikes me as highly unlikely. It would lead to unprecedented political and constitutional chaos with the prospect of serious civil unrest from enraged Leave voters.
The political and financial elites of Europe assume that Britain will swallow whatever package is eventually hammered out by Barnier and his team since the prospect of a Hard Brexit is unthinkable. Yet, the same elites said the same thing before the Brexit referendum about the possibility of the British people voting Leave or the Americans voting for Donald Trump in November 2016.
Having read the various no-deal reports I’ve reached the conclusion that assuming that the UK ensures interim holding arrangements with its neighbours the worst-case scenarios of food and medicine running out will be proven wrong. A hard Brexit, with Britain falling back on WTO will likely lead to a degree of disruption for the first few months but the worse-case predictions are unlikely to come true.
There is a reasonable chance that the UK could economically boom post-March, thanks to the further fall in sterling, the saving of the 40 billion divorce bill (equivalent to 2% of the British economy) and inflationary wage pressures on the economy as the supply of foreign EU workers dries up. Rising real wages for the bottom 80% would increase consumer confidence and boost the UK economy.
As Bernard Connolly, the European Commission’s former currency director and founder of Connolly Associates, said a weaker pound has already led to a big improvement in the UK’s current account – when adjusted for the jobs boom and full employment, the metric that matters. A further slide would make the UK economy even more competitive and narrow the deficit further.
If I summed up my thoughts in one sentence, it would be that my head says there will be a deal but my gut is telling me it will be a no-deal/hard Brexit.
Overall, I now consider the chances of a no deal outcome (e.g. Hard Brexit) equally likely as a deal, whether based on a Canada-type deal or a Chequers Minus/Barnier package.
I will provide a further update in the coming months as negotiations proceed.
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