Jo Swinson for PM in 2019?

One of the plausible paths, in the Brexit chaos, is we end up with a general election in the autumn.

Boris may simply attempt to get a mandate for No Deal (or some other fantastical invention) on the strength of his personal brand or he may lose a vote of no confidence for trying to force No Deal through. If just a couple more Tory MPs were to resign the whip, it is not even clear he has a majority in the Commons and, in that case, the Queen may not have a basis to make him PM and an election would again be inevitable.

 

Would anyone win a majority? How many seats would each party get?

This could be one of the hardest elections to predict. The four main parties in England (Con, Lab, L-D and Brexit) each polling evenly with around a quarter of the vote, tells us very little about how they would perform in an election in a first past the post system.

If their votes are spread evenly across many constituencies as the Lib-Dems often are, then they can end up with lots of votes and very few MPs. If their votes are more concentrated in fewer constituencies, they can end up with far fewer votes but lots of MPs, like the SNP in Scotland.

Let’s start with the following assumptions and then think of some scenarios:

  1. Current opinion polls show Brexit, Lib Dem, Conservatives and Labour all with similar levels of support.

  1. Current polls on voting intentions show that almost half of Conservative voters intend to vote Brexit party, and almost half of Labour voters intend to switch to Lib Dem or Green

Attempting to factor in the first-past-the-post system, if we look at every constituency individually and try to project these shifting preferences, the landscape of elected MP changes dramatically. The result of this is nicely outlined in this post https://sluggerotoole.com/2019/06/02/general-election-seat-forecasts-are-no-longer-useful/

Pretty stunning results! Not a single Conservative MP in the next Parliament!

 

Peterborough by-election results

Usefully there has been a recent by-election so we can judge how this model performed.

A real first-past-the-post, 3-way marginal thriller with Labour, Brexit and Con all on numbers of votes and Labour just winning and claiming it as an important victory.

 


Possible conclusions….

  • Does this mean that Labour will do much better in a general election than the polls suggest?
  • Is polling data is meaningless and is a general election impossible to predict?

I do not think either of these are true. If we were to add an extra filter, then the results differ from the model in a very predictable way. The filter is that Peterborough is a strong Leave constituency.

I think it is sensible to say that in Leave areas, Labour’s “nuanced” Brexit stance will help its vote hold up better than the model suggests and as a result, the Lib Dems and Greens do worse. Conversely, the simple arithmetic implies that, in Remain areas, they will lose more votes to the Remain parties. The result of both these hypotheses will be the Lib Dem vote will be far less uniform that a simple model suggests.

For example in Battersea, Labour has a large majority but an 88% Remain vote. These are likely the type of voters for whom Labour’s “nuance” looks pro-Brexit. This makes for a seat that could swing from safe Labour to Lib Dem.

In this scenario, the Lib Dems win far more seats. The simple model suggests the Lib Dems are in with a chance on 558 seats; adding a material swing for Leave/Remain, then they could win perhaps half of those, and lose the other half by larger margins. London could easily become a Lib Dem stronghold in the way the SNP takes so many Scottish seats.

Another possible boost for the Lib Dems is tactical voting as we may have seen in the European elections. The polling intentions suggest a large number of Labour voters switch to Green. Some of those may be willing to vote Lib Dem if they believe that candidate has a viable chance of winning the seat. In a race with such tight margins, a small shift here could make a massive difference to total seat count.

The post quoted above says that forecasting MPs is a “fool’s errand”, and so these are best seen as projections and scenarios rather than forecasts. But on current polling, we could easily see the Lib Dems as the largest party, followed by Brexit Party, with the Conservatives and Labour both relegated to small fringe parties, even adjusting for first-past-the-post.

Reactions

The Conservatives would likely react by emulating the Brexit party even more. Whether they succeed or not does not matter. The Conservatives will either be replaced by the Brexit party or become it.

Labour could face up to this fiasco by retreating further into ideological purity; the British Communist Party takeover of the Labour party will be completed and Labour becomes a fringe group. Or they could replace Corbyn with a centrist Remainer, aiming to recapture young, progressive voters. The first step of course would be to form a coalition with the Lib Dems to stop Brexit.

Maybe the media is covering the wrong leadership campaign if they want to examine the next Prime Minister…

Jo Swinson in Number 10 by Christmas?

What is No Deal Brexit?

I have not written about Brexit recently, as unfortunately all this turmoil has been very predictable and leaves me nothing to add. But there are a couple of areas where I have found the reporting confusing and wanted to lay out my thoughts.

What is the “Will of the People” now?

This is still a mess and there is no outcome which will not leave large part of the country feeling alienated and angry. My read on the polls is that the exact phrasing of the question makes a big difference to the answer, meaning that all sides can take something to support their case.

YouGov do some of the better polling:  https://bit.ly/2HYOlQr

It is striking that every outcome still has a net negative opinion set against it. You could make a case, from the above, that the debate should be between soft Brexit and Remain. But asking the question slightly differently could end up with rather different interpretations. This is often made worse by the fact that despite all the tribal anger, many people’s views are remarkably soft or inconsistent. In this situation, context and framing can make all the difference to the outcome. For example, there are many who think No Deal is a bad outcome but prefer it to an extension, perhaps because they believe (falsely) this will bring an end to Brexit argument rather than form the start of even worse ones.

No Deal – ending place or pathway?

No Deal is by far the most popular option for Leave voters, supported by 70% of them. I think its popularity arises because it exactly represents the absence of any decision on the tricky key points of Brexit, thus allowing people to continue to deny the trade-offs and difficult decisions that need to be made. All the Brexit outcomes fail to deliver on the promises of the Leave campaign and so supporting any of the deals means admitting that the Leave promises were not true. In this regard, given that No Deal delivers nothing at all, it cleverly holds out the promise of magical endings and the continuation of the dream.

It is generally agreed that the initial stage after No Deal will be economically damaging. Opinions vary widely on how bad it will be, which is reasonable given this type of economic shock is rarely seen. I would expect it to be at least as damaging as the 2008 financial crisis, others think it will not be so bad which justifies their support. I do not want to go over this debate as what I find more interesting is where we are heading. It is always publicly discussed as though No Deal is a decision and thus an end point for Brexit, but it is, in fact, just the beginning of a whole new process.

Global Britain?

A key point to No Deal seems to be that it means the UK can make independent trade policy and strike new deals. As an aside I see this as one of the many disadvantages, as the UK would get far worse trade deals as a stand-alone country than it currently has as part of the EU, but to some at least it’s a truly British, bad deal as opposed to a EU good deal. To illustrate how these trade negotiations might go, I think useful to pick an example.

We can start with by far our largest trading partner, the EU, which accounts for approaching half of all our exports and so would be the deal we most urgently need. The EU has already laid out their preconditions for trade talks. Funnily enough, they are almost identical to the Withdrawal Agreement (May’s deal):

  • Irish border
  • Money
  • Citizen rights
  • but without the offer of a transition arrangement.

I would expect the UK to refuse this initially. The No Deal true believers will never change their mind, believing that we can live without any sort of formal trade deal with the EU, although from the above polling they are at most 25% of the population. Even now, 50% already see No Deal as a bad outcome and when reality strikes, I would expect that number to rise rapidly. Once public opinion shifts, then I expect us to agree to the EU’s terms. No Deal becomes a painful, chaotic and humiliating path to May’s deal. This is the same route that Greece took in 2015 and, along with a last-minute deal, has been my main prediction for Brexit.

No Deal Planning

This video describes the current process. It is “all about confidence”
The quote at 2.41-43 perhaps the best summary.

https://www.youtube.com/watch?v=Y–i9lNqLjM


Remain

Where my view has changed the most is on prospects for Remain. I outlined before I thought it required too many independently unlikely things to happen. But quite a few have.
Most importantly:

  • Brexiteers absolutely refuse to vote for Brexit. Consistently and in large numbers.
  • May is an extraordinary person, rivalled perhaps only by Corbyn in her obstinacy, and has alienated everyone from her deal while refusing to countenance any other outcome
  • Opinion polls are shifting towards Referendum and Remain
  • The Labour party is manoeuvring itself around Corbyn, its Brexiteer leader.

The part of the polls I find most compelling is the trend towards Remain https://pollofpolls.eu/GB/23/post-brexit-eu-membership-polls

These polls are volatile, but I think that the move from the high point of Leave, the 2017 General Election, to the current lead for Remain, is very clear. It certainly looks shaky to claim that Leave is the “Will of the People”.

What is more interesting is what has driven the change in the polls over the past 3 years. It is not really from those who voted now changing their minds; once people state a view in public, they rarely change it, no matter what the fresh evidence.

What seems to matter more is demographics, tied to the fact that in the original referendum by far the best predictor of vote was the person’s age. What’s especially interesting is that we have not seen Remain voters switch to Leave as they get older the way that young Labour voters turn into middle-aged Conservatives. This suggests a voting pattern attached to a generational cohort, whereby beliefs are built around the notions of identity and culture which different generations feel differently.

Every year, there are 750,000 new 18-year olds who can vote, and unfortunately over 500,000 deaths (92% of those over 50). In the cohort view above, over time a switch will occur from a small Leave majority to a ever greater Remain majority. This means that the longer that Brexit is delayed, the more likely it is that the polls continue to drift towards Remain and we end up with a new Referendum.

The Conservative Party as the party of Brexit, faces a long-term crisis even if it manages to survive the current debacle as younger voters may forever find them toxic. The Labour Party has a long-term opportunity to embrace Remain and align themselves with the future majority of the electorate.

What does May’s Deal lead to?

If the UK Parliament were to pass the Brexit withdrawal agreement, the UK would leave the EU in an orderly fashion, but the future relationship would remain largely undecided. For once, I agree with Corbyn that this is “Blind Brexit”. I also think that hardline Brexiteers have a point that the backstop should not be seen as a remote possibility – it is the default – and if we have learned one thing from this 2-year debacle, it is that there are no alternative ideas on the Irish border that would work! The reason Rees-Mogg’s group has never come up with a suggestion for the Irish border is because a solution does not exist and without a solution we end up in the backstop.

How to achieve having the UK outside the customs union

No Deal!
It is not clear to me how much of the support for this option rests upon the delusion that the UK can achieve it by playing chicken with the EU, which ultimately would lead to a No Deal scenario. Although this would cause an economic crash, it would be possible to reconstruct the economy outside the EU framework achieving the political goal for the UK to have a separate identity from the EU. By this stage however, we cannot decide what the UK is comprised of e.g. does it include N Ireland? Scotland? England is separated and that is the goal.

How to achieve No Deal?

  1. Make it the default option – tick
  2. Sabotage any attempts to make a deal – tick (Special mention for Davis and Raab)

This is a clear minority view for both Parliament and the electorate but retains real power because it is the default option and the paralysis of the political opposition to implement a change in policy.

The vote for the Brady amendment last night is a victory for this group and it further continues their traditional path of making demands that are both impossible and vague. “Alternative arrangements” without any suggestion of what they might be is frankly genius if the goal is to not make any progress.

How to achieve Leave but have the UK inside the customs union

Vote for May’s deal, and default option thereafter is that UK is inside customs union (via backstop)

Given the intractability of the Irish border issue, the likely way out of the backstop is a negotiated permanent membership of the customs union. The details of the arrangement need to be decided and are politically contentious. If the soft Brexiteers can gain a mandate through public support, there is no reason we could not end up with a Norway like status.

This is the option that likely has a parliamentary majority. But this is also the route that was voted down by a record margin!

The way to make sense of this contradiction is that this deal has the misfortune to be advocated by a PM who is both deeply partisan and incompetent. She has turned Brexit in to a party-political battle designed to appease her right-wing ultras which makes support from Labour MPs very difficult. We also have a similarly narrow-minded opposition leader who would prefer the No Deal option anyway, especially if he can blame it on the Tories. The dynamics are dominated by the Tories only listening to their own members and Labour ignoring theirs.

How to achieve Remain?

I see no credible path to this. Irrespective of whether Remain would win the popular vote I cannot see how a parliamentary majority could be formed to call a referendum. Perhaps a combination of

  1. Labour adopt as party policy
  2. Labour win no-confidence vote and there is a General Election
  3. Labour win the election
  4. Get referendum legislation passed with Remain as an option
  5. Remain win the referendum
  6. Remain win the next referendum (this issue is not going away)

That is quite a long list of independently unlikely things.

The way forward

A recent precedent for how implacable face-offs can be resolved is to look at Trump vs Pelosi on the funding of the wall. The issue was not decided by power or logic. It came down to the opinion polls – once it became clear that Trump and the GOP were being blamed for the shutdown they found a way to end it.

For Brexit we do not yet have any movement in the polls. Hardline Brexiteers and Remainers are still fighting for their preferred outcome. Neither have any interest in compromise.

What we need is for the silent middle to form a view. The people who are just completely sick of Brexit and want to move on. Then the moderate MPs will follow them.

Brexit – The Will of the People

In this post, I would like to move away from discussion of the rights and wrongs of Brexit but instead concentrate on what outcome people currently prefer. What would be the democratic solution?


Condorcet Paradox

This is a useful part of economic theory that does not get enough attention when discussing democracy. It may seem a little dry but please bear with me because it is very important.

A central concept in economics is preferences:

  • I prefer Apples to Bananas (A > B)
  • I prefer Bananas to Carrots (B > C)

Given this, you would also expect that:

  • I also prefer Apples to Carrots (A > C)

This is called having “transitive” preferences and is a key part of what economists mean for behaviour to be “rational”.

The Condorcet Paradox (https://en.wikipedia.org/wiki/Condorcet_paradox) shows that even if individuals within a group have transitive preferences, the group as measured by majority preference may not have.

In the example above

  • A majority of people in a group may prefer Apples to Bananas
  • A majority of people also prefer Bananas to Carrots
  • However, a majority of people prefer Carrots to Apples

It is entirely possible and logical, even though its it rather counter-intuitive.

Application to Brexit

In Brexit terms, I would have transitive preferences:

  • I Prefer Remain to May’s Deal (R > M)
  • I prefer May’s Deal to No Deal (M > N)

and completely consistently:

  • I also prefer Remain to No Deal (R > N)

For the main groups within the population, let’s imagine 1st, 2nd and 3rd preferences for the various outcomes in the below table:

In my imagined universe:

  • Remainers – would prefer May’s Deal to No Deal
  • May-Dealers – would prefer No Deal to Remain
  • No-Dealers – would prefer Remain to May’s Deal
    It may seem an odd choice but, for example, this is Dominic Raab’s expressed view.
    It seems for some, defeat is emotionally more acceptable than compromise.

Now let’s have a contest and see who wins if we ran a Referendum on each pair of outcomes:

In this case, the overall population makes these choices:

  • Remain is preferred to May’s Deal
  • May’s deal is preferred to No Deal

You may think therefore that Remain is preferred to No Deal but this is not the case. Actually:

  • No Deal is preferred to Remain

In this imagined case, there is no overall preferred outcome.

What do people actually prefer?

Polling data in the UK is consistent with this problem. Support for the three options is pretty evenly split, and even taking into account second preference, we are no clearer. Each head-to-head matches would be too close to call contests.

How is this relevant?

If means the UK, as a whole, DOES NOT HAVE A PREFERENCE and therefore there is no single “democratic” correct answer. Representative democracy, with parties and elections, has been our way of dealing with issues like this. Having a referendum on an issue with more than 2 possible answers just leads to nonsense, just as happened in the initial Brexit referendum.

Identity politics vs Pragmatism

The Brexit ultras who want No Deal can be seen as being driven by identity politics. This means that national identity is overwhelmingly important compared to economics. If you are a Remainer for whom Brexit is a matter of identity politics then for you then wanting a referendum is very logical. That is the only feasible route to Remain and anything other than Remain is a loss.

For economic pragmatists supporting a referendum is very dangerous. Remain is by far the best outcome but No Deal Brexit is catastrophically worse than any deal and avoiding a catastrophe is the most important thing.

For political pragmatists supporting a referendum is very dangerous. The result will be close and will not close the issue. There will not be any clearer sense of legitimacy for the outcome and after another 6-month campaign our divisions will be even more entrenched.

Should we have another Referendum?

As an ardent Remainer, you would think that I support another Referendum. But I do not.
Partly given the logic above, I do not think Referenda are consistent with our democratic system and thus a sensible way to resolve a complex issue like this. But also more pragmatically, I think Remain may struggle to win again and there is a good chance No Deal is the eventual winner; or even if Remain were to win, it would not be by a sufficient margin to close the debate.

Brexit – What happens next?

This is the question I am most often asked and also the hardest one to answer.
I will try to provide a framework for the many overlapping threads:

The possible outcomes

  1. No Deal (Chaos Brexit)
    It is often said that there is no majority in Parliament for this, however there is also no majority for anything else. The key point is that, if nothing happens, on March 29th, the UK leaves the EU with No Deal, and there must be an Act of Parliament to stop it. It is the default option and, as such, this chaotic outcome should not be underestimated.

To avoid it, one of the other outcomes needs to find a way to a majority.

  1. May’s Deal
    This option will have be voted on in Parliament and is universally expected to fail.
    The fundamental problem is that this deal spells out that Brexit is clearly worse than Remain and clearly worse than Fantasy Brexit.But to be fair any Brexit deal would have the same problem.
  1. Remain
    With the news today that Labour may be attempting to form a coherent policy on Brexit, this option has gained a glimmer of a realistic chance.

Non-possible outcomes

  1. “Fantasy” or “Have cake and eat it” Brexit

Given that it would require more compromise from the EU, the EU is never going to offer anything like this and will not allow any renegotiation for this purpose.

  1. Delay Brexit while we work out what to do

A delay would need the unanimous agreement of all 27 EU countries, so it seems rather unlikely for them to do so.

 

If the options are so simple, why is it all so complicated?

The simplest answer is that this situation is unprecedented so there is no clear procedure to follow.
Here are some of the wild cards:

  • Vote of No Confidence in May.
    This requires letters from 48 Tory MPs. However, they have not managed it yet, and may never get there. Even if they manage to get enough to trigger a vote, it is likely that May would win and then she could not be challenged for another year, her position strengthened. But if May lost, then we head to a new leadership election which is a lengthy process, pretty much running down the clock to Mar 29th. This is why only the most hardline Chaos Brexiteers champion such a route.
  • Vote of No Confidence in the government.
    It is highly likely that Labour will call for one after May loses the vote on her deal (and probably if she lost a vote of No Confidence within the Tory party), but it unclear if they expect to win it. If they did and forced a general election, it would be fascinating to see what the manifestos would say. With May as leader, it seems likely she would stand on a platform of her deal. Do Brexiteer rebels have to honour the manifesto pledge? Note there is no time to replace her with another leader before an election!

There is another important reason this is so complex. A lot of UK politicians do not understand the EU because they have never tried to. They really believe the EU can be forced to renegotiate. Talking to politically engaged people here, I get the sense that they are so engrossed in Westminster and party politics, they miss the point by assuming that important decisions are made here in the UK, without considering the viewpoint of our negotiating partner. I have previously used the example of Greece; if you misunderstand the EU then you play chicken and lose. Unfortunately, political journalists seem to have the same issue. They are obsessed with covering domestic political gossip here in the UK and so the coverage focuses on Westminster intrigue and the related confusion, whilst simultaneously missing the issues that are relevant.

  • Another Referendum?
    I think that a large majority of MPs and the electorate do not want this, but it still may happen if Parliament cannot agree any deal. The important issue here would be what question is asked. One aspect of this that I have not seen discussed is that the EU would have to agree to a 6-month delay to Brexit to allow this to happen. Therefore, the EU would have to agree with the question posed; if the vote was between Remain and May’s Deal, they might agree; if No Deal were one of the options, I do not see why they would do this. 

 

My personal forecast

I still think that the most likely outcome is that something close to May’s deal is agreed.
Perhaps losing the first vote will actually help her bring the rebels into line?

  1. Voting pattern could resemble the TARP votes in the US in 2008
    i.e. the politicians want to make a statement that they hate the deal before reality strikes and they have to vote for it the second time
  2. Labour officially endorse a new referendum which brings the Brexiteers into line
  3. May renegotiates a softer Brexit (recent EFTA talk) and gets enough Labour MPs to support
  4. We crash out of the EU, have chaos for a short period and then ask the EU if we can have the deal please and they allow it.

How bad is No Deal Brexit?

We have all seen the headlines yesterday with Bank of England estimates of a 25% hit to the currency and the Brexiteers talking about how the economy will be better off.

I will try to lay out what drives their wide disparity.

1 . ‘No Deal Brexit’ will cause limited problems

This is the case made by people like Krugman. Essentially the value of UK exports to the EU is 15% of GDP. Even with a really disruptive Brexit, this would fall by at most 1/3 i.e. 33% loss of exports. Given domestic substitution, the case could be made that this is still far too high a number and so GDP would be less than 1% lower, depending on exact elasticities.

2 . ‘No Deal Brexit’ will cause no problem – it maybe even better than the current situation

Take the analysis above and add in fantastic trade deals with the rest of the world which will more than make up for the lost EU trade. Trade deals may well take a little while to negotiate so there will be a minor cost short term, but longer term the UK will be better off.

I could take issue with any number of assumptions in the argument above. In particular, the gravity model of trade makes a mockery of the idea that you can replace an enormous market on your doorstep with markets halfway across the globe. Furthermore, it is hard to see why the UK would get better trade deals than the EU currently gets; negotiating deals with reduced clout, it seems obvious such a deal will be worse.

But leaving this aside for now, we can see the order of magnitude of potential benefits of new trade agreements with the rest of the world as perhaps 1% of GDP at best.

3 . ‘No Deal Brexit’ is Chaos Brexit

The reason for this is we do trade with the EU is a simple manner – we have highly embedded supply chains across vast swathes of the economy.

The classic example is of course the car industry (https://www.theguardian.com/business/2017/mar/03/brexit-uk-car-industry-mini-britain-eu)

It is important to recognise that these movements of goods do not form part of the official figures for exports to the EU. National Accounts are based upon transactions – i.e. the final sale of goods. When a company moves parts around between different factories in the EU it is not doing a transaction. It does not sell them to itself. Imports within the EU are called “acquisitions” not imports. Note that they are recorded for VAT purposes however, based upon the change in value (value added at each stage in the process), but this does not give a sense of the importance of intra-company physical movement of goods across the border.

The mistake in the analysis of people like Krugman, is to have a very simplistic model in which the UK and the EU are the sole creators of goods and they trade with each other, much like a model of trade between two parties in an economic textbook. The reality is that the UK and EU are intertwined in the production process and the impact of this is grossly underestimated by only looking at the destination of the final product.

It is worth then considering the likely reaction of industry.

If making cars in the UK is subject to expensive issues and frictions in the supply chain with a possible tariff when you try to sell into the EU – then why make them in the UK at all? Make them entirely in the EU. Will there remain a UK car industry selling to UK buyers? Well possibly – but given the enormous economies of scale in manufacturing, it seems far more likely that production moves to the EU. Then we not only stop exporting cars, we have to import even more of them. With over 1 million people in the UK currently employed in the wider automotive industry that is a huge problem.

The way we get to a real economic catastrophe is very similar to what we saw in the financial crisis. You take a well-functioning system and smash it. Then stand back and be very surprised by the unintended consequences.

Brexit – The Endgame

Quick Recap thus far

The path of Brexit up to this point has been depressingly predictable. I have previously laid out the logic of the issues and nothing meaningful has changed in the past 2 years which is why I have found nothing new worth writing about. The EU has been very clear at all times on its approach whereas the UK seems yet to work out what it wants Brexit to mean.


Options for the UK

  1. Remain
  2. Leave EU but maintain very close economic ties
    This makes the UK a rule taker and is very similar to being in the EU except with no say. A clear loss of sovereignty with no obvious benefit i.e. Brexit means “Giving Up Control”
  3. Leave EU and break economic ties
    clear rise in independence but at a very severe economic cost. This could be

a.  Orderly i.e. a negotiated transition or

b.  Disorderly i.e. “No Deal” Brexit.

The current strategy of the UK is to move to a transition that leaves options 2 and 3 both open.
In this way many decisions are deferred, however the Irish border is an obstacle that makes it difficult to fudge.


The Irish Border Problem

The issue can be stated very simply, either

A. UK has no customs border with the EU
This is much the same as the current situation and so is unacceptable to the Brexiteers. May has committed that we will not do this.

B. UK has a customs border with the EU
If so where?

  • Around the UK i.e. a land border between Northern Ireland and the Republic
    This breaches the Good Friday Agreement and, as one of the red lines, is unacceptable to the EU. May has committed we will not do this.
  • Around Britain i.e. a border in the Irish Sea.
    This is unacceptable to the DUP. May has committed we will not do this.

You will notice that the UK government has strongly and categorically ruled out all possible options to appease different factions. How can this be resolved? The main approach so far appears to participate in magical thinking, but we fast approaching the point where choices have to be made. Furthermore, denial of the issues and refusing to make a choice at this stage becomes a choice with ramifications.

 

Brexiteer solution

It is important to recognise the Brexiteers do not form in any way a unified group with a plan. They are united in their opposition to the EU, not in their plans for what comes next.

  • Boris Johnson – resigned so he could continue to talk nonsense and magical thinking solutions from the side-lines. He will claim whatever happens was not his fault, would have worked out much better if he were in charge, and therefore should now be PM.
  • Michael Gove – wants the exit from the EU to be as smooth as possible e.g. temporary Norway, thereby not risking a 2nd referendum or a “no Brexit” but leaving the difficult issues for later. Presents himself as the pragmatic face of Brexit and therefore he becomes the next PM
  • Liam Fox – had tried to follow the pragmatic line of Gove but recently has been dragged into arguments on sovereignty, with the ECJ involvement in the Backstop quitting arrangement.
  • Jacob Rees Mogg – profoundly does not care about Ireland and thinks it is ridiculous that the independent future of England could be impacted as such. Taking his values from the 18th century, his attitude to the Irish is no different. The border is not important to him and he dismisses anyone who suggests it should be or that he should come up with a proposal.
  • The DUP – I do not have the foggiest clue as to what they want. A return to the Troubles perhaps?

Some of these factions are aligned with May in aiming for an agreement with the EU that fudges the Irish border issue (the EU are masters of drafting wording which can be interpreted any way you want). However, others are demanding clarity and will vote down any deal with does not have it, believing that a game of brinksmanship with the EU will lead to a better outcome.

This leaves us at a point of impending chaos which makes it the hardest stage to predict. I found this BBC graphic a helpful guide as to some of the possibilities (https://ichef.bbci.co.uk/news/624/cpsprodpb/125F1/production/_104294257_brexit_flow_chart_12_11_640-nc.png)

 

Brexit – where are we going? An alternative view

May says that the deal may be struck in the next 24 hours, and so at the risk of being immediately proved wrong, I will lay out another potential path, with the help of a little recent history

A Greek tragedy?

In all the analysis of the various complexities of the negotiations, I have not read anything which draws upon the similarities to the Greek financial crisis. This is surprising given the clear precedent on how the EU behaved during a negotiation and furthermore, how it reacted to a crisis.

 

Recap

Greece spiralled into a huge government debt crisis starting in 2009 and couldn’t contain it domestically. To fund the large ongoing budget deficits in addition to historic debt burden, it was forced to turn to the IMF and the EU for loans, resulting in the first Greek bailout package in 2010.

A key part of the bailout terms involved Greece submitting to austerity demands from the EU. This then developed into a narrative within Greece over the next few years (note the echoes for today)

  • Germans are the enemy – they are imposing this pain on us. Lots of references to World War 2 and reparations (read The Telegraph in the past 2 years?)
  • The EU needs us more than we need them. If we drive negotiations to the brink they will cave in and offer us better terms (listened to any Brexiteer in the last 3 years?)
  • Varoufakis claims his clever negotiating strategy (i.e. not engaging in any meaningful dialogue) will force the EU to give in and back down (David Davis past 2 years and still!?)

 

Pushback from Greece?

In 2011 amid public anger over austerity, the Greek Prime Minister called for a referendum on a second bailout, attempting to pushback on the EU’s demands. However, when it came to it, the Prime Minister called off the referendum and then resigned; Greece backed down and applied for a second even larger bailout with expanded austerity.

 

Crunch-time

  • Early 2015
    Having been elected in January on an anti-austerity ticket, the Greek government did not want to agree to the third bail out terms. The EU said there would be no improved offer and that any further deal would likely have harsher austerity conditions
  • 5 Jul 2015
    The Greek government calls a referendum, telling the electorate to reject the terms of the EU offer as it would give the government more leverage in negotiations and they would secure a far better deal.

The referendum votes down the bailout offer by 61% to 39%

EU does not improve its offer

Greece faces immediate economic collapse
(already in default after missing a payment on 30th June 2015)

EU banking system does not collapse.

EU allows Greece to choose to leave the Euro if it wants to.

  • 13th July 2015
    Greece accepts a revised bailout from the EU with harsher austerity conditions
  • Aftermath
    The Greeks seem to view all this as a great success in standing up to the Germans

 

What does this teach us?

It shows us that the EU is highly predictable. It does exactly what it says it will do. The EU does not back down in a game of chicken against a smaller nation. When the EU tells us that it would prefer “No Deal” to breaching its red lines, it means it.

The UK, on the other hand, will not be able to secure a better deal from the EU via a repeated game of brinkmanship. If the Greek saga is anything to go by, the deal will likely get worse.

It also shows that nations are capable of material self-harm in the name of independence. We should not assume that the UK will not end up with a “No Deal Brexit” just because it is horrific.

 

What happens if we are Greek?

  • May agrees a deal with the EU
  • Either the Cabinet or Parliament vote it down and we move towards No Deal.
  • Corbyn’s Opposition continues to fail to come up with any alternative plans and just wants to use the chaos to claim power.
  • We wait for the EU to offer us a better deal, which of course they don’t.
  • The market and economic implications start to bite, but perhaps not enough for us to agree to make the deal.
  • We drop out of the EU into chaos
  • After a week of chaos we go back to the EU and take whatever terms they offer us.
  • We call Brexit a triumph.