Tuesday 24 December 2019

The Brexit bubble will eventually burst


In many respects the coming year is a blank page. We have rehearsed all the arguments but now we are to see how all the theory translates into practise. If there is one thing we have learned it is that nothing is going to go the way we expect it to. There are those who always said we would end up with Boris Johnson running the show, pushing us toward a hard Brexit, but I don't think even they anticipated the road we have travelled. In another universe there were sufficient Labour MPs to pass Theresa May's deal, there would be no Boris Johnson and we'd be out of the EU already, working toward a softer Brexit than the one we are faced with now.

In acquiescing to a general election it would seem parliament has surrendered the considerable power it had and now we have an unopposed Tory government which seemingly is going for the full monty Brexit. But then things are not exactly as they appear.

What we are seeing is a rather cack-handed approach, with the Tories still believing this is some sort of game where if they set out their stall so as to sufficiently worry the EU, then the EU will fold and come running after us. Hence they speak of "putting no deal back on the table". On Tory street they still think Johnson was able to reopen the withdrawal agreement against all odds when all the experts said it could not be done. They think it worked last time and they think that is the basis on which to proceed.

But then the EU didn't fold on any of its red lines. We simply reverted to an earlier version of what is essentially the same deal, fudged so as to appear sufficiently different so that the hardliner Brexiteers could climb down from their opposition to any deal. If anyone folded, it was the ERG. That, though, won't stop the Tories seeking to repeat the tactic as their opening gambit, claiming that there will be no alignment with EU rules.

It would appear this is taking a leaf from Trump's book, having secured significant tariff reductions from China by way of playing hardball. This sort of makes sense were the default position the status quo, but it isn't. That's been the whole flaw in Tory understanding from the get go. We are not talking about equal powers at a standoff and no deal (or any deal where the UK crashes out of the single market) leaves us excluded from a number of lucrative markets.

But with Tories being Tories there is nothing to dissuade them from this approach. We have to see it played out in real time. A lot here is contingent on how far the EU can flex on its own system of rules where we can expect some movement largely because a no deal outcome is in nobody's interests. The EU is not isolated from the effects of a UK in deep recession and the EU has existential concerns in its back yard that could be exacerbated.

That, however, is a lot to bet the farm on. The EU can make concessions but not to the extent of threatening its own territorial and customs integrity and never as far as giving preferences member states do not enjoy. There are also those MFN clauses in EU FTAs that third countries will be looking at closely. There is a limit to how far the EU can go. There can be no special status for the UK in respect of exceptions to the rules being that the system simply doesn't work if a third country unilaterally sets the lowest bar of market entry.

We can see how this will play out though. History will repeat. There will be a manufactured point of contention (a decoy for the media) where they believe the EU can and will fold, we'll see some movement from the EU and a deal will be agreed, and the Tory press will hail Johnson as a new Churchill despite the fact we'll be leaving with a threadbare deal excluding us from major services markets, trashing our aerospace and services sector, and the true extent of its impact will not be felt for some months, perhaps even a year, which allows them to blame it on just about anything but Brexit.

In the meantime we are to suffer all the Brexiteer cliches about "seeing the whites of their eyes"as though we were haggling for a carpet, all the while those Notices to Stakeholders remain the elephant in the room. Though economic modelling is wholly unreliable, the EU Notices read like a system of market permissions which are binary. You either have preferences or you don't. You either conform or you don't. If you don't then you don't get to participate in EU markets. It's that simple.

Hitherto now, all the predictive models focused on four possible options - Norway, Canada, Switzerland and no deal. On present trajectory we're looking at something in between no deal and a not-even-Canada FTA which may save UK goods from tariffs but will lead to the full imposition of regulatory controls at the border along with all the regulatory barriers to services ie. GDPR.

In case you need it spelling out, that's bad news. It's bad news for trade with the EU (our largest single trading partner) but it's also bad news in terms of rolling over and finalising existing deals with the rest of the world being that they are waiting to see what level of market participation we retain with the EU. A radical pivot away from the EU regulatory ecosystem makes us a less viable base of operations. As poorly thought out as our departure policy is we appear not to have a coherent trade strategy for the wider world.

I don't know how or when, but in due course I can see this blowing up in the faces of the Tories. It won't take a full parliamentary term before we see the inadequacy of whatever comes out of EU negotiations and then we are set for a decade or more of further negotiations to patch up the relationship on all the peripheral issues not given cover by the Brexit deal. Not forgetting that all the nasties in the Northern Ireland chapter will come into sharp focus.

This is perhaps the only lifeline the Labour party currently has. Were it not for the Brexit party they'd be all but wiped out. If Labour is serious about ever becoming an electable party it has to show that it is competent in opposition. If they still can't score goals with the goalposts left wide open then there's no hope for them. Much of what is about to transpire is wholly predictable just on the basis of the Notices to stakeholders. When it hits the fan the only people who'll be surprised are the Tories who think this is all one big game of poker.

Brexit day will not be the final day of reckoning. The Remainers will get what they surely deserve, but the true day of reckoning will be when the Tories are confronted with their hubris and profound ignorance. Only when both sides of this are stripped of their delusions will the bubble burst, and then, maybe, we have a basis from which to rebuild the country and its politics.

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