Brexit Endgame December: A Choice of Poison

December 11, 2018
December 11, 2018
UK Politics

It never quite entered with a bang, but it definitely went out with a whimper. Only a day before Parliament was set to vote to reject it, Theresa May pulled from consideration the withdrawal agreement she had negotiated with the EU at the start of the month. While the deal’s defeat was inevitable, it being pulled was not, and it is unclear if it was even wise politics. Theresa May’s almost election-style campaign for the “Deal” had not moved votes in parliament, but does seem to have moved opinion, earning her a degree of sympathy in polls, pushing the Conservative party into a narrow lead, and for the first time in over two years, making the debate on the choices facing the UK at least vaguely reflect reality. Her enemies, both within her own party, and in the opposition were both salivating at the prospect of removing her from office following the defeat of the “Deal”, but May has lived on borrowed time ever since the June 2017 election. And both her Hard Brexit enemies within the Conservative party, and the Labour opposition led by Jeremy Corbyn represent greatly diminished, albeit still dangerous forces, compared to a month ago. The former undermined by an earlier failed coup, the latter by the widespread mockery a month of scrutiny on their unconstructive non-position on Brexit has brought. May might not have survived either, but she stood a real chance of seeing them both off.

May, with the single exception of the 2017 general election, has never been one for gambles, a trait she shares with much of the British political class.  Faced with a decisive showdown, she, and perhaps more relevantly, her political allies, blinked. That has delayed the battle, not avoided it. The reasons for it still exist. The Withdrawal Agreement will still have to be voted on, the EU will not budge on the Northern Ireland “backstop”, there is no parliamentary majority for a “WTO” Brexit, the so-called “Norway Option”, the latest fantasy of the British elite is a non-starter due to a certain veto by Oslo, and moves towards any sort of second referendum are frozen until all other options are exhausted. May will have to fight these battles, and it’s unclear if the turf will be any friendlier.

In the meantime, events are where the British political class finds them most comfortable; in a holding pattern. That frees them to plot actions without carrying them out, and advocate policies without any prospect of being asked to deliver. Hard Brexiters such as Boris Johnson are saved the need to actually make a bid for the leadership and risk defeat. Thereby they are free to continue promising spots in the fantasy cabinets of their future administrations. Labour, which a few days ago faced the very real prospect of having to actually make a decision between the second referendum favored by its membership and MPs, and the approach of being all things to all people favored by the leadership, is free again to indulge in fantasies. Even the cabinet, having delayed a showdown over Plan A to January, can indulge in fantasies about a Plan B Norway Option which is equally dead on arrival.

Ultimately, the British elite faces the exact same choices it has for two years. The problem, is that all of them are either impossible legally, impossible logistically, or are ones politicians have convinced themselves are impossible politically. Rather than embracing the unavailability of the former options to make a case for the latter, politics has been dominated by a species of opportunistic free-rider who has paraded the impossible, and in the process made it impossible for already culturally cowardly politicians within the government and opposition to present a clear debate. Let’s go through the options

No Deal/WTO: This is the fallback option to end all fallbacks, the “Backstop” of the hard brexit movement. While they would prefer some type of “managed no deal” with the EU where individual agreements mitigate the worst impacts, they are prepared to simply leave the EU with no agreement and dare Brussels to its worst. After all, the EU isn’t going to invade are they? With what army? The problems with this option have been distorted by alarmism between worst case projections; famine, power outages, planes grounded, war in Ireland! And suggestions that there is no need for a deal, because all the things which could be done in deals make sense anyway, and with proper preparation the worst impacts could be mitigated. The reality is that while there is some truth to claims by hardliners that the worst is unlikely to happen because neither the EU nor the UK government have an interest in it doing so, and that the bad things that will could have been mitigated with proper preparation, the fact is the latter has not occurred and the former will be bad enough. There will be mass shortages of everyday goods, especially food, not enough to cause starvation, but enough to cause panic and a serious impact on standards of living. In the longer run, massive amounts of economic losses will pile up on the companies which cannot sell products they paid for, and transport firms which cannot transport. Investment will collapse. At the same time, uncertainty will raise interest rates and close off international money markets at the same time that revenues collapse and the Pound will be facing attack from every Hedge fund on the planet. While the Bank of England could likely prevent a total banking collapse, it’s unclear how long it could hold off a continuous assault, and one would continue indefinitely until an agreement was reached. With regards to Ireland. Hard Brexiters argue there is no prospect of a Hard Border with a backstop because the EU will not impose one, and Britain has no intention of doing so. This ignores the fact this is de facto endorsing smuggling and would legally render almost all British goods in the EU potentially contraband. While the EU would be unlikely to setup a hard border in Ireland or to “invade” they could easily impound the assets of British firms operating there and exports until an agreement on border controls and customs is reached which would further place pressure on the British economy. Yes, there are ways around this with goodwill, but as the decision to go for “No Deal” would be definition not only be an act of bad faith on the part of the UK, but a direct challenge to the sovereignty and legal rights of the EU(and Republic of Ireland), it is hard to see why they wouldn’t exercise the widest possible interpretation of their rights.

Worst of all, there is no way out. Hard Brexiters place their faith in the WTO, arguing that it exists to protect countries against coercive trade practices, but it is first of all a political organization which will be reluctant to call its efficacy into question by a confrontation with the EU. It will look for a way out of a decision, and will find one in the Good Friday Accords. If disputes between the EU are not a matter of global trade policy, but of an International Treaty ratified by the parties involved and jointly guaranteed, then it is a political dispute, and one in which the UK would legally be in the wrong. The danger posed by the Good Friday Accord then is not in what the EU might do, but that unresolved to the satisfaction of all parties it provides the WTO and every other actor with an excuse to abandon the UK.

Finally, even at its best, “WTO Terms” are far from comfortable. 10-11% tariffs on most goods combined with even higher ones on foodstuffs would see prices rise even above the levels imposed by shortages and a falling pound. The UK would furthermore be denied the right to preferential trade deals that could lower those prices. GATT would do little to protect the City, especially from a concerted attack by Frankfurt.

It is hard therefore to see a Hard Brexit scenario that does not end with the UK coming to table on whatever terms the EU proposes much as Greece did over the bailouts.

Managed “No-Deal”: The nominally preferred option of the Brexiters. This assumes bilateral agreements will be made to keep things running with individual countries and on individual issues. The problem is that this ignores reality. First, certain agreements would legally need to be with the EU, and even if the EU didn’t punish countries making the deals, it could impound British assets or goods. Second, it would require countries to break from the EU in a much more dramatic and legally dubious way than they have refused to due during the diplomatic process so far. Finally, the countries the UK most needs bilateral agreements with – France and Ireland over border controls – are the ones with the most extreme and specific demands. Ireland will demand the backstop, which defeats the purpose of the “no deal”, while France already expressed unhappiness with no provision being made for access to British fisheries, and is salivating at the prospect of devouring London’s financial services industry. It goes without saying that any and all trade deals the UK may with third parties would potentially be subject to EU challenge in the WTO just as with a non-managed No Deal.

Finally, it is worth noting there is no parliamentary majority for any version of “No Deal”. There may be a majority within the Conservative party membership, and perhaps even among MPs, but it seems likely that enough Tory MPs would refuse the whip in the event of such a government to make impossible for someone like Boris Johnson to form a government. Several indicated as much, suggesting they would resign the whip if he became leader. If that prospect was available ahead of time, would a majority of Tory Mps vote May out if they risked voting in Jeremy Corbyn? It seems impossible to imagine this being attempted without a new general election fought and won on an explicit platform.

Canada+: The problem with this option is that it is unclear what it means. In abstract it would be a free trade deal which would allow the UK and EU to respect each others regulations and have some degree of access to each others markets. But, any such agreement would require solving issues which don’t exist with Canada such as Northern Ireland. Canada, after all has no land border with the EU. As such this would also require a backstop, albeit one which applied only to Northern Ireland, and therefore would, as Theresa May argue, create an internal customs barrier and pave the way to the breakup of the EU. It would also require agreement of EU members. Access to Canadian fisheries is not something France or Denmark had unlimited access to, nor do they have millions of citizens within Canada. They do in the UK. Canada+ therefore stands for Canada+ resolving every issue which makes the position of the UK different from Canada, and those solutions are by and large what everyone objects to within Theresa May’s withdrawal agreement.

Norway++ - This is the new favorite choice of the politicians looking for a way out. Norway and three other nations, Iceland, Liechtenstein, and Switzerland are part of the European Free Trade Area. They enjoy access to the European Union’s internal markets in exchange for accepting conformity with EU regulations, a nominal fee and freedom of movement. In exchange they are allowed their own independent trade deals outside the block. That is about the only clear cut advantage over the UK’s current position within the EU. At the very least, this option would mean maintaining freedom of movement, and thereby alienating those who saw limiting immigration as a motivation for their Leave vote. Furthermore, it is a sometimes uncomfortable match. While Norway has generally had an amicable relationship with Brussels, Switzerland has been in chronic disputes, most of which it has lost, being forced on multiple occasions to reverse the results of popularly passed referendums, something which should concern those who say the UK is “obligated” to leave the EU even if it makes no practical sense in order to “respect the democratic will” of the referendum. Tell that to the Swiss electorate.

British participation, even could it be negotiated in the time remaining, would likely make the Swiss relationship with Brussels look like a love affair. It is perhaps for that reason that Norway has dropped a number of hints that British membership of the EFTA would be undesirable. While stopping short of explicitly promising a veto which might prejudice relations, Oslo has been clear it sees few advantages and substantial drawbacks to London joining the club.

While this option could be a path to eventually resolving other issues such as disputes over fisheries and the Irish border, they would not be resolved by a decision to pursue this option still leaving the need for some sort of backstop on the table. And even in the best case the UK would be a rule taker without the influence it wields now.

Most importantly, given the tendency of Parliament to grandstand, it is hard to see enough MPs, especially on the Labor side passing up the chance to outflank the Tories on immigration and potentially bring down the government in the process to pass such an agreement.

May’s Deal: It sucks. But it sucks because the UK entered this process from a position of weakness, and exacerbated the disadvantage by refusing to horse trade. Failing to prioritize what it wanted, the UK sought the least bad deal on everything, except freedom of movement, and ended up with an agreement which leaves it worse off except on that issue, and even that assumes that giving up the right of British nationals to work in the EU is worth ending freedom of movement into the UK. On regulations there is convergence, but less of it. On the right to make its own laws and trade deals, there is freedom that does not exist within the EU, but far less than total freedom, and nowhere near enough to substantially alter the UK’s role in the regional or global economies. There is some access to EU markets for goods, albeit not services. There is of course the Irish backstop, a consequence of a refusal to cut Northern Ireland loose, and many of the worst fears come from the knowledge that London will not trade Gibraltar or Fishing rights for other goods in a final agreement. The main argument for the deal is it is not a disaster in any individual respect. The main argument against is every aspect except perhaps immigration leaves the country worse off. But all options are toxic, this one merely involved a refusal by the authors to pick their preferred poison.

Corbyn’s Mythical People’s Deal: This is May’s deal, except magically with much better conditions. Labour is not clear on what they will trade, though it is hinted that maybe, just possibly, they might accept freedom of movement. That would buy the UK concessions on trade, especially in terms of services, but would do nothing about the “backstop” which has now consumed the debate. One reason Labor seems to have mixed feelings on bringing down the government is the knowledge that this could not be delivered, and it is debatable whether a deal trading freedom of movement for economic concessions would be more or less popular given the expectations which have been raised.

A General Election: This is Labour’s preferred option. It allows Labour to avoid the question of what Brexit plan to support until hopefully they have a majority which insulate them for several years against whatever betrayal(May Deal 2.1? Referendum 2.0?) is carried out in office. The problems. First, it requires a two thirds majority to force an early election, or no one to be able to form a government. The first is unachievable without Conservative support, and the latter can go wrong in two ways. It can either fail to be achieved because it requires the DUP to want to risk a Corbyn government, or worse, Corbyn and Labour might succeed in forming a government because the Liberal Democrats and SNP, along with a few Remainer Tory rebels might want to see him try and solve Brexit. As Corbyn does not want to actually solve Brexit, especially before an election, as any solution will make winning a subsequent one vastly harder, this would be the greatest disaster of all.

There are other problems. One is time. The clock is ticking on Article 50 and there is not enough time for a general election without an extension. While the EU might grant one, they would be less likely to if neither party is running on a clear Brexit platform, and neither party has an incentive to. What precise mandate would be received if Labor was elected on a deal that can’t be reached?

Then of course Labour might not be elected at all. Corbyn trails by double digits as preferred PM and Labour is at best tied, at worst slightly behind.

This is less an option than an alternative to an option for the Labour party.

Second Referendum: Given that a public vote got the UK into this mess, and there is no Parliamentary majority for a path out, this seems the obvious choice. Especially since it is unclear if there was a political mandate for any sort of Brexit. There are logistic challenges. The archaic and backwards electoral commissions estimates it will take six months to test out a question and laboriously prepare a fair and balanced campaign. Plenty of other countries have legislatures designate questions and arrange votes in a matter of weeks, and there is no reason Parliament if it wishes cannot tell the electoral commission to pound sand. There is doubt about the questions. Ultimately that doesn’t hugely matter. Leavers will be angered by any vote regardless of options. The test for any Remain vote in terms of legitimacy will not be the margin of victory over any specific opposing option but whether it can match the 17.4 million votes cast in June 2016. If more Britons vote to Remain in the EU in 2019 than voted to leave in 2016, it is hard to argue there is doubt as to the mandate.

But here there is a collective action problem among the political elite. Ostensibly the fear is voting again would disrespect democracy, but in reality it is not anger over a majority being overruled, but fear they are not a majority which drives Hard Brexiter cries of betrayal. Nonetheless, a substantial minority will remain bitter and take out their frustrations on anyone seen as committing betrayal. Hence why neither party wants to champion this. But even if a referendum is embraced across party lines, vengeance will still fall on individuals. Hence it requires someone whose career is already over. Arguably the best bet is for Theresa May herself to call for one. Absent that, Corbyn has no wish to play Kerensky, and the clock is ticking.

Ultimately I suspect there will be a second referendum, if only because all other options will be both economically and politically disastrous, where’s another referendum is merely a political calamity. But absent either a unified front against grandstanding freeriders, impossible to imagine in the current climate, or an act of self-sacrifice which can realistically only come from Theresa May, or some extremely lucky maneuvering from Corbyn that is likely too clever for his own good, there is a real collective action problem. And hence why the pound is falling and we are in stasis until January. By which point, due to the need for companies to prepare for the worst, and implement “No Deal” contingencies, it may be too late.


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