Monday, 30 September 2019

Brexit: the battles to come...

For the purposes of this hypothetical no deal scenario I'm going to assume there has been a general election in which Boris Johnson has won by a small but functioning majority. By all rights Jeremy Corbyn should have resigned but hasn't. Dysfunctional opposition is here to stay. We have left the EU without a deal.

Chaos at the ports was not what was anticipated. Third country measures are not yet ready on the continent and the EU's unilateral contingency measures, along with well executed marshaling ensures port operations are stable albeit with reduced volumes of freight. Airlines function more or less normally since most have already moved their operations to the EU.

The Tories will claim that there was undue panic. In this post I will not dwell on the secondary economic effects which are sure to be far reaching. The concern here is the immediate political confrontation with the EU.

The EU has made a number of assurances to the Irish, including (if memory serves) a direct promise from Juncker, that there would be no border in Ireland. This is where we see what it really prioritises - single market integrity or the Good Friday Agreement. I don't put much stock in the latter argument but they clearly do so any attempt to impose any kind of controls is going to raise eyebrows in Dublin. Perhaps the Irish government will change their tune to save face, but the Irish people will certainly notice.

Either way, the lack of an agreed protocol will be a matter of serious concern for the EU. It's not an acute concern in terms of regulations and standards in the short term but has the potential to pose an existential threat to the single market. One suspects it will take a little while before the full effect of tariffs on UK produce is fully understood so the Tories are likely to operate under a false sense of security believing the EU will approach them first. Arrogant brinkmanship does seem to be their thing.

This is where the EU can afford to wait us out. Sooner or later the government comes under intense pressure to sort out come kind of trade relationship. Being that the Tories still have only a wafer thin grasp of trade issues, operating from the same set of flawed assumptions, they will seek an interim "mini deal" on tariffs from the EU. No doubt the term Article 24 shall be uttered.

This is where the EU throws a bucket of ice cold water on Tory assumptions when it declines such an offer without first agreeing to backstop mechanism to close the hole in the EU customs frontier - the terms of which shall be dictated not negotiated.

At this point the Tories are going to look like total clowns in that they'd have blown a withdrawal agreement by way of refusing a backstop and would lose too much face politically if they then caved into EU demands. So we then have a standoff. Tories will convince themselves that they just need to wait until those "German carmakers" put pressure on the Commission. Which won't happen.

As this drags on, confidence in the UK starts to slide as does Johnson's popularity and standing in the polls. The Tories then face a wipeout in local elections. Soon after, Johnson begins to lose votes in the commons, facing pressure to step down. By this time the secondary impacts of Brexit begin to catch up with him and we see a number of blazing rows as we watch a number of sectors in crisis while the response from ministers is vacillation and bluster. At that point the letters to the 1922 committee start rolling in and we face another Tory leadership election.

My bet is that someone like David Gauke will be the immediate favourite since he looks like the only vaguely sentient adult in the room. The closest we'll get to a unity candidate. Likely it will be a coronation rather than a drawn out process since neither the party nor the country is in the mood for a tiresome section ritual. This time we will see a sense of urgency. Or at least I'd hope so.

Following the coronation we will see a more emollient tone from Number Ten but the EU will be in no mind for a protracted negotiation on the NI issue and will set the backstop mechanism as the ultimatum, along with whatever provisions are required to settle the issue of citizen's rights and the financial commitments. That will be the down payment just on an Article 24 agreement on tariffs. There follows the longer and much more fractious question of trade and the future relationship

A leading demand will of course be an agreement on access to UK fisheries and possibly Gibraltar which is sure to be a humiliation for the Brexiters. This may prove to be a sticking point that sees negotiation stalling. And it won't be the first of its type since every member state will have its own pound of flesh in mind. The UK is then forced to make a succession of embarrassing concessions and climb down on just about every red line. We'll keep trying to double spend the UK market access leverage we have but it won't work.

You can see where I'm going with this. Likely it will be years of bickering, stalling, internal debates and major rows culminating in an election defeat for the Tories, putting Corbyn in Number Ten. Unless. The best way to survive a knife fight is not to get into one. This is why we really should look at the EEA as a readymade (or ready for tailoring) basis for future trade and cooperation. It certainly requires concessions from Brexiters but will avoid the major humiliations and delays that go with a bespoke relationship. It wall also dampen calls for readmission to the EU.

Since it looks like we are leaving the EU without a deal, anyone with an interest in limiting the damage to our trade and international standing needs to be thinking about a rescue plan for Britain - and in my view EEA Efta is still a no brainer. We might find by then the pre-Brexit resistance to such an option from both sides subsides when we see for ourselves the realities of no deal. We had best hope that such an option is still a possibility and that the EU recognises the danger of an impoverished and humiliated basketcase on its doorstep. We're going to need a lot of goodwill that we are not in any way due or entitled to.

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