More and more commentators are coming around to the point of view that a crash out Brexit is likely. As we’ll discuss below, it appears to be very probable. Even though most people tend to think of politics as a realm where positions can and do change and parties regularly makes strained compromises, as we’ll explain, there are boundary conditions that at this juncture make it very difficult not to have a hard Brexit.
One reason that the high odds of a no-deal Brexit are not being more widely recognized is that the consequences, not just for the UK but also for the EU, are sufficiently dire that many observers, particularly those that have not gotten into the weeds, assume that Sense Will Prevail and the Brexit train will therefore not be allowed to plunge off a cliff. Another reason is the Ultras are telling baldface lies of the “This is all Project Fear intended to deny you the benefits of a glorious Brexit!” sort. Sadly, they are getting far more press than they deserve and not enough effective pushback.
In the runup to the crisis, Richard Bookstaber published A Demon of Our Own Design, in which he described how “tight coupling” produced financial crises. “Tight coupling” occurs when a systems are too tightly integrated and processes can move too quickly to be halted, resulting in the system spinning out of control. His examples included how portfolio insurance led to automated selling in a large market drop, producing the 1987 crash, and Three Mile Island. One of his observations was that in a tightly coupled system, emergency measures to reduce risk generally wind up making matters worse.
Another Bookstaber case study was the start of World War I. He took the Barbara Tuchman Guns of August view, that treaty obligations and demands of loyalty and honor forced key countries to declare war when the state of communications of the day prevented them from speaking to each other and finding other responses.1
Even if Bookstaber’s World War I illustration is arguably strained, he is still getting at a larger truth: political events can develop a momentum that in combination with deadlines look an awful lot like tight coupling. There isn’t enough time to create the needed room to maneuver to stop or divert a rush to action.
Readers may beg to differ, but here is why a crash out Brexit looks awfully close to inevitable.
The Brexit Date Is Rigid, and Any Concessions Won’t Be Given to Help the UK
The EU will let the UK back out of a Brexit, but that’s a non-starter on the UK end. Barnier and some EU national leaders have said they’d welcome the UK doing an Emily Litella “Never mind” with respect to Brexit, even up to the very 11th hour. Accepting a petition to nullify the invocation of Article 50 would presumably take a unanimous vote of the EU27, but it is hard to see why any country would oppose it. The hardlines would welcome the spectacle of the UK admitting it needed the EU. The countries that are more friendly to the UK are the ones that have strong trade exchange, and they would be relieved not to be taking a large economic hit.
One possible stumbling block even if the UK were to grovel would be the EU would be within its rights to demand some concessions for being put through the nonsense of the last two years, like having the UK agree not to invoke Article 50 for at least X years.
The EU has been discouraging the idea that the UK might get an extension of the Article 50 deadline with no deal in place. Privately, EU officials have signaled that they might be able to push out the drop dead date if both parties were negotiating in good faith and needed a bit of time to get all the points nailed down. Even then it would presumably take a vote of the EU27, which is a high bar. And those sources have also indicated that the EU will be receptive to the idea of an extension only if it is in the EU’s interest.
Another reason why an extension wouldn’t be the break for the UK that it might otherwise appear to be is that the EU is not likely to push out the drop dead date for the transition period, now set for December 31, 2020, just because the UK didn’t get serious about negotiating until very late. The EU has been hardnosed about the 2020 limit because going beyond that would mess up EU budgeting and Parliamentary representation.
The EU Is Not Going to Cut the UK Any Slack
The fact that chief negotiator Michel Barnier regularly strains to appear to be polite to UK counterparts who would drive most sentient beings mad is not the same as making concessions, misinformed UK commentary to the contrary.
European leaders have said to the English language press that they regard Brexit as yesterday’s business when the EU has more pressing matters. They are not sympathetic to what they regard as UK stunts. The UK had virtually no friends in the EU when the UK invoked Article 50, and UK’s conduct since then has only served to harden opinion against them.
Even more important, there is close to no European press coverage of Brexit. There is no upside for being generous to the UK. The very morning after Brexit was announced, and consistently since then EU leaders have said that they expect that they will suffer as a result of the UK’s divorce, so in their minds they have already marked this trade to market. And EU business leaders supported the decision to prioritize preserving the integrity of the EU over economic considerations.
Now as the Brexit drop-dead date approaches, EU corporate executives are sounding alarms, in part because many of them discounted the possibility of a crash out. And Eurocrats and politicians are also likely to be underestimating the GDP hit of a disorderly Brexit. But there does not seem to be much willingness to change course on the EU side, in large measure because the UK, to the extent it is negotiating at all, has been negotiating in bad faith.
The UK Is and Will Remain Incapable of Getting Out of Its Own Way
I hate to tell you, this part of the equation is not hard to parse, despite all the noise in the UK press.
The Government has painted itself in a corner. Unless something very radical happens in the next few months, the UK has assured a “no deal” outcome through its position on the Irish border. For a whole host of reasons, a land border is not workable. The UK’s attempts at technology and regulatory fudges will not work. It is absolutely unacceptable for any EU country that regards its agricultural sector as important to allow Ireland to serve as a channel for smuggling in non-complaint products. The only viable option is a sea border, which was the backstop plan in the so-called December Agreement.
As Brexit followers recall, Theresa May rejected the existing version of the backstop over the summer, and has yet to propose a new one, even though the EU requires that there be a backstop of some form.
The EU has also made clear that coming up with an Irish border solution is a preliminary to concluding the Withdrawal Agreement.
A couple of weeks ago, DW gave a good recap of the state of play:
The UK’s Brexit negotiations with the European Union are at an impasse — that’s according to Prime Minister Theresa May. In a letter to her own divided Conservative party, she admits that, surrounded by red lines she is not allowed to cross, she can neither push ahead nor turn back…
Brussels has rejected May’s latest proposal, which would have meant negotiating a kind of free trade area only for goods. Just 11 percent of UK citizens liked that plan, according to opinion polls…
There are no viable proposals either on trade issues or the border between Northern Ireland and Ireland. The British government is set on a vague statement about its future relationship with the EU. However, Brussels is insisting on a concrete exit treaty that would at least finalize essential questions regarding finances, borders and civil rights. It is clear that time is getting short…
Up until now, the British have negotiated by playing dead and only coming up with something substantial and concrete at the very last moment, but that is not likely to work this time around. May’s attempt to split the EU with charm offensives in Paris and Berlin has failed. The UK’s negotiating position is growing weaker by the day.
There is not remotely enough support in the UK for undoing Brexit for that to be a viable political position. No party is pumping to exit Brexit. And if the Guardian is to be believed, Labour is in the process of tearing itself apart.
Richard North highlighted a new poll in The Sun that found that 59% of the respondents said “I’m really bored by Brexit”. 55% oppose a second referendum and 40% think the UK should stick to the original March 29 Brexit date, deal or no deal.
And to add to the direction of political energy to useless ends, the latest distraction are the calls for a second referendum. A referendum is silly because it was only advisory in the first place. If sentiment towards Brexit had really changed, so that polls were consistently showing 60%+ now opposed, there’d be no need for such a nicety. A second referendum is merely a means of providing political cover.
We have already pointed out that there is too little time between now and March 29 to complete an referendum. There is also not enough time to legislate new procedures, and the Ultras are guaranteed to contest any referendum that did not adhere to the legal requirements, and they’d be correct to do so.
While the Independent cites a YouGov poll commissioned by People’s Vote with markedly different findings, that 45% of respondents support a second vote versus 30% who don’t, and 53% now say they’d vote Remain, that is not a give enough change to embolden politicians to stick their necks out and change their positions on Brexit much, if at all. And that’s before factoring in that there is a contingent of Leave voters who are fervent in their belief in Brexit, which is not matched by similar passions for Remain. Clive highlighted this section of a Guardian story earlier this month:
It would be comforting to think that what George Orwell called “the gentleness of the English civilisation” would mean that an overturning of 2016’s outcome would be grudgingly swallowed by the vast majority of leave voters, but I would not be so sure. Ukip is back in the polls, and has newly strengthened links to the far right.
A couple of weeks ago, I was in Boston in Lincolnshire, the town whose 75.6% vote for Brexit made it the most leave-supporting place in the UK. Many of the people I spoke to were already convinced that Brexit was doomed, and full of talk of betrayal. Some of what I heard was undeniably ugly, though much of it was based on an undeniable set of facts. People were asked to make a decision, and they did. The referendum was the one meaningful political event in millions of voters’ lifetimes, and we were all assured that its result would be respected. Whatever the noise about a second referendum, this is the fundamental reason why the likelihood of Brexitinterrupted remains dim.
If we take that as a given, anyone involved in progressive politics ought to focus on one imperative above all others: the defeat of the zealots who saw the dismay and disaffection of so many potential leave voters, opportunistically seized on it – and now want to pilot the country into a post-Brexit future that is completely inimical to their future.
In other words, despite growing awareness of and anxiety about the lasting damage that would be caused by a crash-out Brexit, it is difficult to find any channel for changing the trajectory of the course that Theresa May set in motion by invoking Article 50, and further restricted by her decision to nix the Irish backstop with no acceptable alternative in hand. It is possible to change public opinion in surprisingly short order with a concerted propaganda campaign, but there isn’t enough unanimity of elite opinion to set an effective program in motion.
It would be better if I were wrong, but Brexit has all the makings of Lehman-level event, although the knock-on effects would probably not unfold as quickly as they did in September and October of 2008. Not only would there be considerable disruption to some key EU ports, but the near-impossiblity of coming up with aviation agreements would lead to considerable dislocation of flights.2 And that is before getting to the scenario that Willem Buiter thought was a real risk for the UK in 2008: that of becoming Reykjavik on the Thames, of suffering banking crisis that would lead to a sovereign debt and currency crisis. And if anything Seriously Bad were to happen to UK banks while the EU economy was taking it on the chin, it’s not hard to see EU banks starting to go wobbly.
As Bette Davis once said, “Fasten your seat belts. It’s going to be a bumpy night.”
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1 Later studies of the start of World War I, such as Christopher Clark’s The Sleepwalkers, describe how bureaucrats and pols in many of the key countries were hawkish, but the monarchs less so. It’s very hard to judge counterfactuals, but a key element in the start of World War I was that Kaiser Wilhelm was inaccessible on his steam yacht when the Archduke was assassinated. Had he been part of the mix, it is not out of the question that the ruling families would have played a bigger role in decisionmaking and produced a different outcome.
2 Reactions to this issue too often fall in the “This is so terrible, of course it will not be permitted to happen.” The wee problem is that commercial airlines are heavily regulated and the operators accept the importance of regulations for safety reasons. No airline would violate the rules. Experts have also said it would take five to ten years for the UK to negotiate replacements to the agreements in which it participates via the EU. I haven’t seen anything that suggests that the UK is even remotely on track to solving this problem.
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Couldn’t we simply get around the aviation regulations problem by riding around on the backs of winged unicorns?
/despair.
Ah, but you are forgetting that passenger carrying unicorns are livestock, and so fall within the phytosanitary regulatory regime.
The past few weeks I’ve been thinking that no-deal has gone from around 50% likelihood to about 80%. May has boxed herself into a corner from which it seems impossible to escape. For me, one of the ‘unknowns’ has been what is going on within the Tory party. Rafael Behr has a very enlightening article in todays Guardian:
I think the importance of this, if true, is that many in the Tory party see a no-deal Brexit as less conclusive than the potential autumn crisis that seems very likely if May tries to push through a deal – any deal. And if its likely that the ‘broad middle’ of the Tory party is shrinking away, then this would make a no-deal exit an almost certainty. If the party think that the only real option is to just swallow (as they see it) a few months of chaos in order to survive politically, then the chances of May – or other forces within the government – pushing for a change in direction, are zero.
This of course cuts out the EU – but since, for all the reasons Yves has outlined, the EU has no desire or incentive to come to the rescue by offering a face saving way out, then it all falls on internal UK politics, and this means no consensus, no decision, no leadership.
If Tories believe that the public would let the away with a few months of Brexit chaos – which would almost certainly include sterling crisis (and thus potentially interest rate increase, and if there was one, it would have to be a large one, a half a point here or there never solves a currency crisis), job losses etc. then they are even more deluded than I ever thought them to be, and that’s a new one.
The problem with both Tories and Labour here is that both of them are so stuck in status-quo that they can’t imagine anything else. They still believe that even with all the chaos, only the two of them would be any viable alternatives. I believe both of them are for a rude awakening.
I honestly do believe that they think that it will be like Dunkirk. A bit of a short term mess, which will take a few months to clear up and can later be spun into a victory.
The other issue – and I think this is a huge one – is that the disruption from Brexit will not be a ‘single order’ type of disruption. The UK economy is stalling, the London property bubble seems to be in the first stages of popping and there is a huge level of personal debt floating around. Combine that with an austerity weakened public sector, and a visibly inept government (at least in 2007 they had the moderately competent Brown and Darling to take charge) and you have all the ingredients for a once in a century crisis.
Indeed. If it was “just” Brexit, the status quo might last. But combined with all else that goes on, I believe Brexit chaos is more likely to be a trigger to something else. Who knows what – but doubt it will be what either Tory or Labour strategists assume
Thank you, Vlade.
I agree with you, especially your last sentence, but reckon the Tories are likely to survive in some form / less bad shape, perhaps a break away faction led by George Freeman and Anna Soubry, soon to be joined by the Blairites.
There have been feelers with Macron’s party since last summer.
Yeah, it would not surprise me if both Tory and Labour fractioned, and that would create the new centrist party everyone keeps talking about. They would need to do that before next election though, so that the potential MPs from both of those would be able to basically stand in their own constituencies.
Vlade, question if I may. We’ve talked a fair bit about end games of Brexit but not a sterling crisis as one of them. Do you (or others here) have a sense of how this would play out.
I would think that if a sterling crisis was a likely part of a no-deal Brexit, they would start tightening my leverage now. So far they haven’t. And the one-way trade in sterling lately has been loads of fun.
It really is a tricky one to call. ForEx is still quite a volatile market, surprisingly so given most other (rather complacency-inducing) markets’ stability.
Look at this series and gawp in awe at the 1980-1985 plunge. Now that’s what I call volatility. It did even hit parity (£1 = $1) which isn’t reflected in that annualised spot-average. Hard to see that sort of devaluation being repeated. But of course the world was a very different place then…
No-one seems to expect sterling crisis. But then, no-one was expecting CHF crash.
Or, closer to the home, GBP befor Brexit referendum was on an up trend, but went down close to 10% on the day (which was my estimate of what would have happened – but then, in cases like this, it’s more luck than any skill, I was horribly wrong on CHF).
That all said, I’d expect that in case of no-deal, crash-out Brexit GBP will start a slide no later than Jan next year, as by then it will be clear that no negotiatet solution is avialable. The amount of crash on the day is a question, as it all depend on the headlines – in fact, if there are no real queues and the aircraft keep flying (because some fudge is achieved), the sterling may bounce, as the major export etc. effects will hit only about 2-3 months after the B-day.
If I was playing with FX, which I’m not, I’d be tempted to put a calendar straggle/strandle on against USD (likely the cheapest, although would look at CHF/JPY). If I was concerned about price, I’d do it EUR/USD, as I’d expect EUR to get hit by it as well, at least initially.
I’d also consider putting up some GBP ir curve play, but that I’d have to think a bit more. Same with equities, although the simple – long FTSE100 (currency unhedged) is not a bad trade IMO, as I think most outcomes are positive there (most, but not all, FTSE100 companies make money outside the UK, in non GBP. At the same time, soft/no brexit outcome would remove uncertainty, so could get a short-term bounce).
The above is no investment advice and you have to do your own research and decisions :)
Its probably just as well I’m not in that business, as my predictions on what would happen to sterling (I thought it would steadily decline at a much increased rate post the Brexit vote) have been wrong. So any predictions I’d make should be taken with a hefty pinch of salt.
But I think a significant factor is that it seems to me that the BoE has very little room to manoever with interest rates due to the high domestic debt levels, even a point or two raise could push a lot of people into default on mortgages and PCPS. I wonder too if the BoE might gamble that a bit of inflation might be a good thing to flush some debt out of the system. They certainly seem to be preparing for a strong monetary stimulus in the event of a crash out.
10 years ago the ‘conventional’ thinking was obsessed with the potential for inflation due to excess monetary stimulus – of course it was entirely wrong. This time I wonder if they have swung too far the other way and may be underestimating the potential for a declining sterling to set in step a self fueling rise in inflation, with a BoE refusing to intervene using conventional means.
Yes, the declining sterling will spur inflation – but I believe that as long as the decline is seen to be to a “new and permanent level”, BoE will ignore it – as it can do zilch about it anyways, stuck between rock and a hard place (where raising interest rates would make the problem an order of magnitude worse, as it would kill the UK banks with bad debt). The problem is if the decline becomes self-reinforcing (=accelerating), or if there is a sufficient banking crisis anyways.
If I was at BoE, I’d be closely monitoring the non-sterling liabilities of the UK banks and their term structure – for example, run a 30% sterling collapse stress test scenario on T+0 and T+360 (with things like inflation, bad debt etc.. taken into account, on some stressed parameters).
As range order tests, those would be good, yes. Turbulence can exceed those along the way: to me, that is the greatest risk. A 30% decline could be handled over time. If in a week, with the tight couplings in the UK financial system, some of them will get fried. There is little that the BoE can do of scale to cope with that, as you say, which I think those in authority there understand. “No panic talk” is the order of this day in consequence. If a bunch of banks bust or a clot of swaps don’t clear, it’s going to take bigger outside capital to raise the ship from the deep. And salvars take a permanent cut; that’s the Law of Leverages.
“And freer economic opportunity . . .” not. The Dutch were the bankers to Europe in 1775. They went to war with Britain in 1780, because . . . well just because. They were NOT the bankers to Europe in 1785; no one was, and the Dutch busied themselves with revolution. The British were the bankers to the world in 1790. This is how these things go down: fast, hard, and stupid.
I think a sterling and related banking crisis in the UK is a certainty in a crash out scenario. Very likely on a scale of such severity that the British government will be incapable of resolving it by themselves. That will be a pretty pot of peppered kippers.
All that is stated in the post is on a sound footing, I agree. The Tories are incapable of negotiating a viable exit or canceling Leave. They are likely in my view to be out of power by 29 Mar 19, but other parties as presently positioned are no more efficacious, yes. The EU cannot and will not help a noncompliant Britain out.
If there is reason to think that Brexit will be suspended at the chalk-brink it lies in a different kind of modeling for stability and turbulence in societal trajectories. That offers no certainty of a British Flinch, but the real possibility of that is something to discuss on a different day, perhaps.
Pretty good summary – much better than anything you can find anywhere else, so it’s a shame that a US-centric blog has to cover it (and do a better job) than anything official in the UK (I’d still love to know why FT, specifically FT Alphaville, is ignoring the whole Brexit, as from the little leaking around the edges their views are similar – especially since Bloomberg is about the only official media with a sensible Brexit coverage/analysis).
Few items I’d quibble with (like the EU will cut the UK some slack – but if that is deemed to be in critical EU interest, like getting a slightly better prepared for no-deal, or that poll of polls disagrees with Sun’s poll, long-term) but tbh, they are niggles. The main point – the trajectory is given, and hard to change, is pretty hard to dispute though.
Unfortunatelly, it does look like in this Brexit movie, the ‘n…. gets it’.
The large question remains, what happens then.Here’s where I believe North is naive assuming they can gently push it to where they want – but more dangerously so, I believe that Labour is blind in ignoring Brexit assuming it will be able to do what it wants to do regardless (assuming even it can actually win elections – and I don’t mean to get most seats, but also get majority)
Ah, well, may we live in interesting times.
vlade, your Brexit movie link does not seem to work.
I think that he means this one. The UK is hoping to be the Sheriff-
https://www.youtube.com/watch?v=Z_JOGmXpe5I
try this https://www.youtube.com/watch?v=tInMR7QQUVc
Vlade, I believe that FT Alphaville migth be suffering the proverbial “fed up with brexit” that is becoming so common apparently. I am sympathetic with this feeling because I have been suffering the same with the Catalonia thingie. When you don’t see anything reasonable in the political landscape you become bored/fed up with the issue.
There is one question for Yves and all the commenters here. I already assume that there won’t be a general Brexit deal to be signed on time. I also believe that May is playing the game of reaching some sort of sectorial deals independently as a negotiation strategy. There are, aside the politically difficult Ireland backstop, two themes that strike me as very, very urgent and shouldn’t be skipped even in a no deal scenario. First is the question of British and EU citizens rights after Brexit. Second is the question of blue sky treaty and the ability to fly freely between the EU and the UK.
Don’t you think a minimalistic agreement on these issues could be reached at least? Even if there is no agreement on the Irish border
The only “trade deal” in the Withdrawal Agreement, were there to be one, is just a political statement of intent. An actual trade pact takes years to negotiate, particularly one that includes services. The Canadian CETA deal took 7 years to negotiate. It went into effect provisionally three years after that, in September 2017. It still has not been formally entered into force.
Sir Ivan Rogers has said the UK won’t have a trade pact with the EU prior to the early to mid 2020s.
The only way trade deals happen faster is if you take the other side’s terms. The US dictates terms in its trade agreements and is willing to negotiate only a few items, so its deals get done faster.
This is an issue I have not mentioned and I’ve been pretty surprised no one else has either: that even if the UK gets a transition deal, it won’t have a trade agreement with the EU in place by the end of 2020, so it will have a crash out anyhow, but would have more time to prepare for it.
Thank you, Vlade.
A friend is leaving the FT to edit publications for a giant US investment firm and help on public affairs. His wife and he are relieved that he was able to jump ship. He reckons the MSM is dying, due in no small part to shareholders influencing coverage and editorial policy and the herd instincts of hacks who think they are or want to be part of the establishment.
Gee, thanks for that, vlade. :-) My preference is for more boring ones.
Kamikaze Brexit is undoubtedly a high probability event. Not being a bookmaker I prefer not to attach a number to it. Anyone who says it will not happen is living in cloud cuckoo land, however.
We should expect to see attempts to avoid it, though. I don’t remember who it was who ‘said that the EU would ‘arrondir les angles’ of the GFA (literally ’round the edges’) but I would expect them to offer something along those lines. I.e the UK would be expected to swallow the pill of the Irish backstop but the EU would make it a little easier to do so.
The real uncertainty to my mind is how the Commons will act when push comes to shove. Will enough MPs want to avoid the crash landing to enable Mrs May to sign a deal with the EU? I think we will only know for sure when the crucial time comes.
In the meantime the odious Johnson together no doubt with others is plotting an attempt to oust her.
It all has the potential as you say to turn into the most awful mess, with a financial crisis thrown in to boot.
I find it hard to interpret some of the noises from Brussels that they would ’round the edges’ – i.e. make face saving concessions to the UK if they accept the backstop. It does make sense as I’m sure almost all the main leaders would prefer the 18 month transition period to be agreed. But I also suspect that they know full well that there is little they can concede in the face of UK intransigence/incompetence that would work, and all they are really doing is preparing the groundwork for transferring blame for a collapse in the talks.
Two points.
The other thing that we sometimes hear is “Talking about crashing out is just a negotiating ploy. Neither the UK or the EU really mean it, but they have to bluff it to get the other side to back down.” That sort of thing can go spectacularly wrong.
Obviously if there isn’t a border on Ireland, there has to be a sea border as a backstop. But does it HAVE to be between Northern Ireland and Great Britain? Thus far, the EU has saved their tough talk for the UK. But if the Eire declines to enforce border controls with Norther Ireland, I could imagine the EU turning on them and “Punishing” them by falling back to having border controls between Eire and the rest of the EU.
There is zero chance of the Republic not enforcing EU rules at the border. The decision was taken long ago by the government that it must stick with the EU through thick and thin – Dublin really has no option. Failing to enact controls would be catastrophic for the Irish dairy and beef industry, which is crucial for rural areas and small towns throughout the country. The Irish government is fully committed to seeking out alternative markets, not seeking to fudge the border issue, they’ve been doing this frantically for the past 18 months (with significant success it must be said).
The issue however is logistics. The Irish border is almost impossible to seal, there are more road crossings between north and south than on the entire border of Russia and Europe. The Irish Sea border is the only border in the islands that can realistically be enacted in the timeframe.
Was speaking with a Tyrone woman the other day who works in Monaghan. While she knows about the border issues and worries about delays getting to work, she really can’t accept that a hard and firm border is coming.
She thinks it’ll be a bit like having to wait a few minutes at Aughnacloy, as in times past. I told her the border infrastructure was probably going to be magnitudes bigger and more complex than she’s ever experienced – like passing into a foreign country where your passport can be demanded.
As for her farm, she should expect sales and distribution disruptions if a crash out occurs.
She then fell back on the argument that GFA legal framework would force the EU to keep the border open! I was momentarily shocked. Then I answered that once the UK leaves the EU, there has to be a border. That is the point of a trading bloc. Those inside the bloc liberalise their trade and then, as a bloc, make trade agreements with those states outside the the bloc. She will be in a country outside the bloc.
She said she still felt she should be considered European and that this would mean that things would actually be worse, with regard to the border, than they ever have been since partition.
She went away a bit shocked.
I think we’re all going to be a wee bit shocked if no agreement is reached. More so than we expected.
(And as you said, Ireland is going to remain in the EU and will be fully compliant with all regulations and laws. There will be no such thing as an open border. Smuggling? Many a border pub and farm in times past was bought with the proceeds of border arbitrage.)
I’ve no idea how the border issue will play out in the event of a no-deal exit.
I suspect that the issue of local movements won’t be as badly effected as some think, as the ‘real’ controls will be on the main roads and the factory gate. They’ll fudge the issue of passports and local business people in small vans and so on – at least up until the first ‘contamination’ scandal. In other words, from day one milk and food processors will be the front line, along with checks on trucks on the highways. It will take months to roll out any sort of systematic controls on the other couple of hundred crossing points. The problem for local farmers won’t be at the border, it will be their distributors refusing to take their products (or using the excuse to insist on lower prices).
I’ve a number of colleagues who commute from the north. They are pretty worried, even the ones with Irish passports. My British colleagues have now largely gotten their Irish passports sorted.
“it will be their distributors refusing”. This.
Either they will not take it at all, or some undoubtedly will, offering much lower prices – as you say, until the first scandal.
Nevertheless, small farmers w/o friends will be stuck.
Which means that republic farmers may find “friends” across the borders who will do a deal (that they find hard to refuse), and then the unionst farmers may them farmers for unfair competition, and the fun begins.
Yeah I remember when going to Donegal that there was an official border check on Lifford but turn left to Clady and there might be a checkpoint or there might not be, and if you instead went through Aghayarn you could go to Ballybofey on one of the straightest back roads in Ireland without ever knowing partition took place.
I know the Dutch are hiring over a 1000+ new customs agent, but I think we’ve already started the hiring process as well.
Yeah, there might be some fudges to begin with if some sort of deal is reached but I tend to think that over time a formal border will develop.
On the other hand, if there is a no deal Brexit, I tend to think that temporary and extensive measures will be implemented fairly quickly until more permanent structures are put into place. It doesn’t take that long back fill an area with stone and fire up a few old corrugated-iron buildings until a more permanent plan can be put into place.
I know that Varadkar thought they had the backstop formalised, but given Tory bad faith negotiation tactics, I tend to think there is some contingency planning taking place. However, as you say, it won’t be too advanced and the Republic really doesn’t have a fall back plan as it never really got serious about the border at any time in the past.
‘effected’ should be ‘affected’. Sorry for being a pedant, but I find this error annoying.
Some wp programs–like that on this mac–change the spelling of words without being asked to do so. proofreading therefore is essential.
My own feeling is that in the event of a complete crash-out, the bulk of things will likely carry on quietly as normal for most of the border.
Simply put – the chaos in “places that matter” will be so enormous that the places that don’t matter will just be ignored in the short term.
If planes can’t take off, car factories grind to a halt and fresh produce can’t get in or out of the country, then focus isn’t going to be on a truck of sandwiches going from Derry to Buncrana.
If I were the Irish Government, I’d be hoping that everything is so catastrophic that the UK is on its knees begging for Article 49 inside weeks rather than months, meaning they don’t have to do much. I think it’s pretty much the best case scenario all-round at this point.
I don’t see Article 49 happening in weeks, as I would expect Brussels demands the UK accept the Euro in that event. That would be tough to swallow quickly.
I remember as a kid, passing through Aughnacloy. Thing was a fortress. It left quite an impression on me. I can see why the disbelief. The shock will be something alright.
Yeah, Aughnacloy was always a worry to them and the ‘architecture’ showed it but I always thought the crossing at Newry was bleaker and starker. When there, the troubles became personified. But I always made it a point to never cross around South Armagh. Not worth it.
The land border issue between the U.K. and Ireland may remain impossible to resolve regarding EU rules. I don’t hear much about the other land border between the U.K. and another EU Country – Spain. Spain shares a common border with Gibraltar (U.K.). Even without the Brexit situation mucking things up Spain wants Gibraltar back and Brexit could make that problem more complicated than it is at present.
One big difference is that there are border controls at the Gibraltar border (because the UK never joined Schengen), but the border controls between Northern Ireland and the Republic have been dismantled (IIRC as part of the Good Friday agreement, but I might be wrong about this particular detail).
IMNSHO, the Irish border issue will lead to war. A land border is just not feasible as highlighted over and again, while a sea border is an implicit integration of NI into Eire and the EU – not only Britons, but also Scots will consider this as unspeakable evil.
Also, your regular reminder that Britons will need to get a visa to enter Eire. Let that sink in.
Civil war in NI, maybe.
For the rest of the UK, they can take or leave NI. Preferably leave. Well, except for Scotland, who wants to leverage any special treatment NI would get, but otherwise I doubt cares about NI much either way too.
And there’s still no resolution for Gibraltar, and the UK military base in Cyprus.
War? Seriously. The US will come in and Suez Crisis that like it is 1956 all over again.
In all of this I’ve never seen mention of the Channel Islands. Anyone know how they will be affected?
From memory, those island and the Isle of Man have a weird status – I believe they are classified as British Overseas Territories (aka tax havens) and aren’t officially part of the EU.
The Tories can’t leave no at present, because there goes the majority
The war rhetoric is present in the statements of the ultras – this is Singham when he was at the IEA:
Now they need a battleground. Perhaps they consider Ireland containable while they test their new weapons.
Or it may just remind the Scottish people that independence from England is a reasonable option to consider. The two communities in Northern Ireland may well find that membership of the EU alongside Scotland will satisfy their most realistic economic and political aspirations as perfidious Albion does what it has always had a knack for doing. Ignoring and ignorance share the same root.
I can understand the EU’s position on the Irish border as if that is left unresolved, it could be very easily turned into a backdoor that would allow non-EU compliant goods to enter the continent via the UK such as bleached poultry. Actually, the EU has tried something like that in the recent past itself. The EU offered a trade pact with the Ukraine just before the 2014 Putsche. Russia recognized that this would mean that EU goods would be freely shipped through the open Ukrainian-Russian border which would undercut Russian businesses upon arrival and thus let the EU dominate Russia’s economy. After the Putsche, the Russians closed that open border so perhaps the EU recognizes that they same strategy could be used on it.
I know that Kaiser Bill cops a lot of flak over not stopping the war but at the time, mobilization was as good as invasion and no country would want to be unmobilized next to a mobilized one. He is recorded as trying to stop the mass-mobilization. Once the order was given, it was explained to the Kaiser by the General Staff, nothing could stop it. Like a revolver, a regiment would assemble at a particular train station and board a designated train thus emptying out the train station for the next regiment. To stop it would have hundreds of thousands stacked up in train stations around the country and the intricate schedule of the trains had to be met. It was irreversible. It was sort of like assembling an army with a just-in-time technique. And at the end of the war the General Staff stepped back into the darkness and left the Kaiser holding the bag.
The other side of the Irish border is that the UK has always seen it as a backdoor for illegal migrants, so the Brexiteers insistence that they would leave it open is nonsense (if you believe what they say about it being all about controlling migrants). In terms of migration, there is already an effective Irish Sea border for non-EU citizens, as its mostly at the seaports and Belfast Airport that the UK checks that illegal immigrants are not slipping into London that way. As I’ve posted here several times, the checks on vehicles going from Belfast to Scotland on the ferry are if anything stricter than from Dublin to Wales. It already is a security and migration border in all but name.
As for WWI, the whole theory about rail timetables being the cause is fascinating – I can’t recall who originally wrote about it. Its a great example of how tightly coupled processes can drag societies into illogical situations.
“tightly coupled processes” as explanation for the 1914 disaster is a bit defective
–The tsar and tsarina were coupled much more closely to Rasputin, who told them absolutely not to go to war, than they were to the French banks. Yet they went with the banks instead of Rasputin.
–For France to go to war Poincaré’s chauvinism was not sufficient. Caillaux had to be killed politically and Jaurès killed physically.
–For Germany to go to war, whatever the generals told the kaiser about railroad timetables, The SDP had to betray its antiwar commitment and vote for funding the military mobilization. Ebert, Scheidemann, Kautsky, and Noske were not concerned with railroad timetables.
–for the Austrohungarian Empire to go to war, the Serbian monarchy had to reject a perfectly reasonable (in view of manifest Serbian complicity in the Sarajevo attentat) Austrian demand.
–for Britain to go to war their Aristocracy had to be utterly stupid (though that was and is a permanent condition).
I think it was AJP Taylor who popularised the idea in the 1960s. His point was not that war was inevitable in 1914 (it was not) but that at a certain point in the development of the crisis events themselves took over. The issue about timetables is that the war risked being won or lost by speed of mobilisation and despatch to the front. The Germans, frightened about a war on two fronts, needed to defeat the French (quicker to mobilise) in time to do a pirouette and redeploy to meet the Russians (much slower to mobilise.)
The essential problem, as I’ve seen in real life and I’m sure others have as well, is that beyond a certain point of complexity, you aren’t managing the crisis, the crisis is managing you.
Also, the Powers were gripped by an existential fear of short and long term survival. If Austria, an empire composed of many nationalities, didn’t crush Serbia once and for all, it feared disintegrating. If Germany didn’t fully back Austria, which was its only great power ally, it would stand alone against France and England and what was believed to be a Russia ever growing in power. If Russia didn’t fully back Slavic Serbia it feared a national backlash resulting in breakdown as in 1904-05 including an end to the Tsarist regime. France probably wanted war foremost to get back its lost provinces. And it calculated that 1914 was a great time for war since Russia was getting powerful, but not so powerful that it would be left dominating Europe after Germany’s destruction. Also with Serbia on board, Austria’s army would have to fight it and Russia in the same area and at the same time. England had to eventually be all in in the event of war. They couldn’t let France be destroyed by Germany if Germany won. And they couldn’t let a victorious and vengeful Russia, supported by a victorious and vengeful France, be unleashed in Eurasia if England, despite her promises, held back and let them fight alone. On the other hand, and very dangerously, all five Great Powers simultaneously believed that their alliance would be fully victorious in a single season.
The power realities standing behind the two alliances, plus the belief that war in Europe would eventually come anyway, plus the dynamic of both Fear and Greed, allowed the Powers to simply let war happen. The leaders were all dissembling both to everyone else and to themselves. The crisis started in late June 1914 and erupted into war in August. Plenty of time to solve things if they had really wanted to. They had solved all the other crises for twenty years, so why not this one. Much of that time was spent making sure that allies were on board. Once everything was in place, the war happened.
The realities of the mobilization plans only allowed the real decision makers to keep incompetent self absorbed monarchs in place once the decision to hold hands and jump off the high diving platform had been made. I don’t believe that great wars happen by accident. Of course maybe nuclear wars do because there’s really no time to think.
I think there is, finally, a growing recognition that this government is structurally incapable of agreeing a negotiating position, and no plausible reshuffling of Tory cards is going to change that. A General Election with a new government might make things a bit easier, but then again it might not. So we are now (as I have been suggesting for some time) effectively down to two options. The first, obviously, is a crash-out Brexit, possibly attenuated by a few emergency agreements. The second can only be described as Some Other Solution – ie some agreed set of political manoeuvrings, not involving substantive negotiation, which will park or defuse the issue in the short term, which is in the interests of almost everybody. Speculation about that is not very productive, because it could involve almost anything, depending on other factors. I would agree that a second referendum, even if logistically possible, would be a waste of time, because it wouldn’t solve anything. But even that wouldn’t necessarily be ruled out at some stage in a complicated, multi-stage escape plan stretching over several years. EU states would go along with that as the lesser of two evils.
But a lot of this brings us back to May. She clearly saw herself in 2016 as a historic figure, triumphantly leading the UK out of Europe. I think even she must be wondering how she can get out of this situation with a whole skin. The solution, if there is one, would be based on pure political cynicism. She’s changed sides once, and could do so again, perhaps in the direction of an agreed pause in the negotiations. I think it’s impossible to overestimate the cynicism and instinct for self-preservation in the Tory party, which is one thing that gives me, paradoxically, a sliver of hope.
I don’t believe that May ever saw herself ‘as an historic figure, triumphantly leading the UK out of Europe.’ I believe that she saw only that she was at the head of an unpopular government on this issue, and she wanted desperately to save her skin. The way forward was to present Brexit in the worst possible terms, in the hope that, as Clive’s remarks make clear, that position would persuade so many of the Leavers that this was going to be really, really tough – so that a groundswell of changed minds would make a new referendum in prospect so overwhelmingly in favor of remaining that she could then become ‘an historic figure championing the cause the people insist upon – remain!’
The bit of Brit in my makeup has me cheering for both sides in this – I’m sure Leavers have qualms and Remainers have righteous indignation and we-told-you-so. I take what Yves says on faith – the situation couldn’t be worse than it is. And the current government is indeed to blame, having dragged its heels on all the issues that might have led to a soft landing, if that was at all possible (which I’m in no position to judge.)
But just for the record, here is an op-ed piece from RT this morning:
https://www.rt.com/op-ed/436500-brexit-uk-ruling-class/
I have always seen Galloway as a corrupt pseudo-leftist tub thumper. It does not surprise me in the least that he made a united front with Farage, Johnson, et. al. Nor that he regards 36% of an unfairly restricted electorate as representing “the peepul.” Nor that he is totally incapable of seeing that young people–most of whom were not permitted to offer their advice in that “advisory” poll–are overwhelmingly aware that the Tories (with Corbyn diddling while Britain burns) are preparing a disaster.
Young people certainly would be overwhelmingly aware of possible disaster. Wasn’t that the gist of my post? (Leaving out the tub thumper bit, of course.)
After I posted I read the New Statesman article, “2018: the year the failure of privatisation and austerity became undisguisable”, posted in Links . Easy to understand why a second referendum would not work, even if young people who didn’t vote before voted now. Britain seems to be caught between a rock and a hard place; best wishes to them.
And also the two articles on Greece – it all pertains. Many thanks, NC!
All of this hand-wringing over a hard or soft Brexit is IMHO wasted energy. The brute fact is that the current system of “tightly-coupled” global neoliberal capitalism has failed the human race, has prioritized finance and profit over people and planet, and simply must die if our species is to survive. And the EU, as a key manifestation of the disease of global neoliberal capitalism, is as deadly as the larger system itself. So fastening seatbelts may well be in order for all of us, but a fatal collision between an inhumane and ecocidal new world order and the best in the irrepressible human spirit is just down the road and must occur at whatever cost, no matter how much we may fear it and obsess about it.
If “global neoliberal capitalism” is a disease, the cure for it has long, long, been known–worldwide proletarian socialist revolution. But alas and alack, no known insurance company has a policy covering that therapy.
I couldn’t agree more. Framing Brexit in terms such as “hard” and “soft” is simply a false dichotomy. The fact of the matter is that Brexit is not about black and white opposites; it is instead shades of Grey. And the details are simply beyond the grasp of politicians; in the end the grass roots work, as always, will be handled, issue by issue, by career Civil Servants.
There is simply no incentive for any side of the negotiations to decide anything yet. Neither party really knows what trade/relationship issues are going to be important until the separation occurs and political forces become more pressing, or more urgent. If one wishes to term this as a ‘hard’ Brexit then so be it.
Of course this is not the best way to deal with the matter, but that is realpolitik, unfortunately. Once could call it a ‘squeaky wheel gets the grease approach’. That’s how I personally see this playing out.
So, for example, expect lot of squeaking from the likes of Mercedes Benz, BMW, Volkswagon, Renault, and so on. My guess is that these types of trade issues will come to the fore first. There will be others – and yes there will be a lot of squeaking from the UK side too.
It will be messy for a year or so, but I predict that two or three years after Brexit, one will look back and wonder what all the fuss was about.
Yes.
This seems to be Mitchell’s position… to break up the Eu is not possible from inside because finance has too much power and democracy doesn’t exist, it will just get progressively worse.
It is easiest, though hardly easy, for Brit to lead the way because at least they have a sovereign currency. Once you surrender freedom it takes a lot of pain to get it back… be good if this time a hot war is avoided.
John, I assume you’re referring to William Mitchell, who, along with Thomas Fazi, wrote “Reclaiming the State,” a compelling book in which this argument is cogently made. These two authors seem to be among the very few academics who get the big picture of what MMT opens up–the extraordinary possibilities, at our fingertips, of a post-neoliberal, humane, and environmentally-sensitive world. Let Tennyson praise Brexit in his own words:
Ring out a slowly dying cause,
And ancient forms of party strife;
Ring in the nobler modes of life,
With sweeter manners, purer laws.
Ring out old shapes of foul disease;
Ring out the narrowing lust of gold;
Ring out the thousand wars of old,
Ring in the thousand years of peace.
Thank you, Yves.
I have just returned from lunch with two friends from the same EU founder member state, one at Moody’s and a former diplomat, the other the number 2 at the London embassy for the past two years and formerly number three in Paris and South Africa.
Other this month, they reckon the odds for a crash-out have shortened. The pair expect Article 50 to be somehow extended, if only to protect the EU27 and allow a less turbulent transition.
It was interesting to hear that the thing the EU27 fear most from Brexit is the loss of British intelligence and military capacity and prowess. I mentioned that British forces are at their least numerous and equipped for a global role since the Napoleonic Wars, jihadists on HM’s pay roll (e.g. the Manchester bomber) and suspicions of false flags in Wiltshire. The Moody’s lady can’t believe such British perfidy, but her Francophile compatriot / serving diplomat friend / former colleague does.
Although smaller member states often lobbied the UK for help to push back Franco-German stitch-ups, the pair fear the loss of British defensive capability more.
Moody’s and other data providers are relocating analysts to the EU27 as they can only cover EU27 firms and sell that data to EU27 consumers if established in the EU.
@ British and US spooks observing this blog: Take note and action! You have the continentals spooked.
The problem is the UK has to ask, and I don’t see how May does this. Even an extension would be seen as a betrayal by the Ultras. I see the party as too divided for her to be able to do that. Moreover, Parliament is sovereign and I am pretty sure she would need Parliamentary approval.
She’d need to be laying groundwork now and she isn’t.
This is very difficult territory (and for the most part unexplored), but governments in general can conduct negotiations how they like (the US as always is an exception). It would depend on what May was asking for. If it was to pause, or conceivably even reverse of Brexit, she would of course be vulnerable to a vote of confidence. If she lost it, then it’s hard to see how she could proceed, and in that sense she would need “approval” if only negatively, from parliament. But she could almost certainly find enough cross-party support for a decision to pause the negotiations. I think the accusations of betrayal by the ultras are already factored into her calculations, since they are effectively inevitable, whatever happens. .
The slow-motion train wreck is unsurprising. Readers may be able to look up my prior posts on this.
There are a few points where there are further collisions.
The notion that the EU 27 will unanimously vote for anything will soon collides with the Germans and their allies once again fighting a two-front war, the second front this time against the Poles and the Hungarians. It may very well occur to the Poles and the Hungarians that the price for their supportive vote as part of the 27 on extending the Brexit deadline is an acceptable resolution to the foreign immigrant and Constitution challenge questions, namely the immigrants are going home and the EU will stop complaining when the Poles change their judiciary.
It did not sound as though the Europeans processed the UK No Deal Is No Deal position thoroughly, as there are things that they want in terms of money. A post-May government may neglect to appropriate the needed funds.
One might still hope that there would be status quo ante Brexit pending negotiations on air travel and foreign resident relocation. If sides want to be unpleasant, forcible relocation can be quite rapid, though hopefully not as unpleasant as the post-World-War II anti-German ethnic cleansing was in Eastern Europe.
The problem with the money is that a lot of it is what the UK has already commited to, so would likely end up in fron of an international court. Say, if you promised your wife 100k loan (and she had it in writing), the fact you divorce her doesn’t change your legal liability unless it was excplicitly taken care of in the written docs.
It would certainly drag for years though.
I do not think there is any chance of B-Day being postponed by more than a few weeks, bar a major shift in the UK’s position. The EU will not want UK MEPs returning to the EP in May if the UK is still on its way out. So I would be surprised if that aspect gives anyone much leverage to gain something significant elsewhere.
I do not think that money issues give the UK significant leverage either. The amounts are really not that large in the wider order of things – equal to a few weeks economic growth in the EU. Welshing on their commitments would, however, do serious damage to the UK’s status as a trustworthy counterparty, which in advance, supposedly, of trade negotiations with other countries, would be a pretty dumb thing to do. Not that that rules out the English doing just that.
Air travel – I think it is most likely that the EU agrees that EU flights to the UK can continue. British air companies are busy making arrangements to change nationality, as far as I can see.
I wonder, would the UK reneging on its obligations to the EU be considered the same as defaulting on loan payments?
I suggest it would depend on the lawyers you consulted. I expect you could find some who would say no (especially in the UK) and others would say yes.
Either way, people would be more careful in any dealings with the UK for years to come. Money up front?
Describing a hard Brexit as a “Lehman Moment” is understating the risks substantially.
There are quite a few tightly coupled entities involved, not all of them identifiable until things come apart.
Based on the personalities and interests involved I consider a Hard Brexit to be very close to inevitable, and the consequences will be both severe and in some cases surprising.
It will be quite the show.
Thank you Yves and all
Reuters: concern over shifting the clearance of derivatives
https://www.reuters.com/article/britain-eu-clearing-deutschebank-idUSL8N1II1R3
Economist: more on derivatives
https://www.economist.com/finance-and-economics/2017/10/12/brexit-will-give-the-derivatives-market-a-nasty-headache
I can’t paste the text across, but key points:
1) Derivatives and options are often adjusted, via compression (many old into one new) or novation (change of legal names/ownership).
2) both these methods of ongoing risk management are unavailable without passporting
3) option to move these into an EU27 legal entity, but potentially at the risk of new terms and collateral calls (where the counter party has to pay out cash to reflect the changes in value after being “mark(ed)-to-market”
Perhaps a deal to save their own (ie Deutsche Bank) will be made but the UK will be cut adrift.
Recent reports that EU workers will be allowed to remain in the UK is pure desperation…grudgingly little and grudgingly late.
The institution I work for has started to put Brexit plans into motion.
Tight coupling is a very apt description for what is happening. If there is a final deal at the 11th hour, it will benefit very few in business, as by that time they will have executed contingency plans (their insurers and banks will make sure of that).
Sterling down. Prices up. Zombie companies closed. Jobs lost. Food scarce. Benefits up. Disposable income down. Consumer spending down. Taxes down. Police stretched. Legal system overloaded. Health system back into crisis.
I think there will be an election, whether preceded by civil disorder or not.
Yes, and the winner of the election will get the blame. Why?
I was sad, and a friend said
“Cheer up, things could be worse.”
I cheered up.
And things got worse.
little Peterkin:
‘And what good came of it at last?’
Quoth little Peterkin.
‘Why that I do not know,’ said he,
‘But ’twas a famous brexittry’.
This make me almost weep. A tightly or loosely coupled system is a system with feedback.
There are four components to feedback: delay, distortion (or linearity), phase and amplitude.
Feedback is well understood and is a well establish field of engineering and mathematics.
What almost brings me to tears is the apparently amateur approach to financial systems, and the apparent complete denial of the understanding of feedback – both linear and nonlinear, and how “linear feedback” over too many stages of transmission can convert apparent “regulating feedback” into “destructive feedback”, due to small non-literariness in the system.
Here’s the audio amplifier rule of thumb: “No negative feedback over more than three stages of amplification.”
A system with positive feedback is an oscillator.
It would be interesting the describe the stages of signal processing, or the steps, in the so called “Tightly Coupled Processes.”
I’d be willing to assert there are more than three people (signal processors) in any chain, all of whom change the signal (spin the content) in some manner.
Concision: The Brexit Process is inherently unstable, and like all Complex Systems will abruptly change from one temporary equilibrium to another, in a unpredictable manner.
“I told you so” does not work for all speakers simultaneously.
I think you are taking too narrow a definition of the term. Tight coupling can refer to a rigid joint in mechanics, for example. It’s also a commonly used term in software, where it’s used to mean system components that can’t easily be changed without breaking other system components. In both cases the key concept is rigidity and resistance to change, which is the sense in which it is used here.
I see no reason why Brexit should be framed as a signal processing problem.
There is nothing more tightly coupled than just-in-time logistics. There is no warehousing. Coupled with greed, even in a most perfect world, this has led to shortages of death preventing EpiPens. Clearly this is not a perfect world. Already, due to Trump Tariffs, WalMart is seeking alternate sources which will lead to shortages and rising prices. Will politicians enforce the UK/EU border? It goods must be inspected for compliance, shipping will come to a halt. The British may allow anything and everything legal and illegal in but not the EU. This is the reason for the European Union’s existence in the first place. British EU exports will seize up.