Brexit End Points

Fig. 1 Probable Outcomes

 

Introduction

One interesting aspect of the unfolding of Brexit has been the emergence of strong voices with a depth of analysis and understanding of the process. There are too many to mention, but these include Prof Chris Grey (Brexit Blog), David Alan Green (FT and Jack of Kent), Prof Richard Murphy (TRUK),  Ian Dunt (politics.co.uk and the Remaniacs podcast), Chris Kendall (blog and the Cakewatch podcast), Steve Bullock (numerous articles) and also of  the Cakewatch podcast, Simon Wren Lewis (MainlyMacro), Dr Katy Hayward ( Queens University Belfast and Various) and Kirsty Hughes (Scottish Centre for European Relations). The BBC has been so poor on Brexit that it has been nicknamed the “Brexit Broadcasting Corporation,” however Sky News Faisal Islam and RTE’s Tony Connolly are both excellent. Nearly all of the above are on Twitter but special mention also needs to go to Prof Kevin H O’Rourke (Oxford and @kevinhorourke), Prog Brigid Laffan (Robert Schuman Centre and  @BrigidLaffan), Prof Brian Lucy (Trinity College Dublin and @brianmlucey), Steve Analyst, who describes himself as the most overestimated threader on Twitter (@EmporersNewC) and Jim Cornelius who describes himself as an accidental tariff nerd (@Jim_Cornelius). I’m sure there are many others and feel free to add other recommendations in  comments.

Of course there are a variety of possible outcomes, but the four most likely as illustrated in Fig.1, being No Deal (WTO), a Norway style option, a Backstop plus Canada like option and Stay in the EU. I have written about these many times before however the probabilities of each of the four most likely options seems to change.

No Deal (13.5%)

There is a fiction still believed by a substantial number of people within the  UK that “No deal is better than a bad deal” and that it will hurt the “EU more than UK.”  Both are complete nonsense, but some economic studies show that in economic terms Ireland will be hit more badly than the UK (Copenhagen Study) – with the economy being 7% smaller by 2030 than it would have been otherwise. The Irish however are far more concerned by people than economics, and maintaining an open border with Northern Ireland is their first priority.

No deal will be disastrous for the UK. As Ian Dunt eloquently puts it in This is what no-deal Brexit actually looks like:

No-deal is probably the most demented policy put forward by mainstream British politicians in the modern era. To see how it would work in practice, this piece looks at what would happen on day one. Doing this for the whole economy would take countless pages of Stephen-King-style horror, so it’s stripped down to one topic: food. This is the story of how our system for importing and exporting food implodes almost instantly.

It does not go well and worth reading the entire article.

Fortunately “No Deal” is still considered highly unlikely. David Alan Green outlines why in Six reasons why it is likely there will be a Brexit exit deal. It still remains a possibility however. As Kevin H O’Rourke puts it here:

And that means that No Deal is better for the EU than a deal that destroys the EU.

If the UK ideologically digs its heels in then it is certainly true a no deal can happen by accident. Jonathan Lis also argues A no-deal Brexit will not happen. Here’s why in the Guardian yesterday.

Norway+ (13.5%)

Norway plus is Norway plus a Customs Union. This on the face of it looks like a sensible option and looks ideologically like BINO – Brexit in Name Only. Even Prof Simon Wren-Lewis who argues eloquently on this option seems less certain and has written in his recent blog:

Perpetual Brexit requires leaving most of the negotiation of what the final relationship will be with the EU until the transition period. That might seem odd, given that this final relationship is what the Chequers document is all about, but see below. I think the EU will probably be broadly OK with that (although I do not think they should be [2]), as long as May agrees to the Irish backstop. As I argued here, May will do all she can to convince the EU that it is politically impossible for her to agree to this backstop. But the likely outcome is that she will fail, and her interests therefore require that she does accept the backstop to get a deal.

Backstop and Canada+ (45.5%)

Ireland is a medium sized country by EU standards. It is 10 out of 27 in terms of GDP and is growing rapidly, despite being hit hard by the Global financial crisis. In total contrast to the UK, Brexit uncertainty has done little to dampen the Irish economy. Indeed the opposite is the case with 7.8% growth in 2017 and the 2018 figure from an already impressive 5.7% being upgraded by the Bank of Ireland to 6.5%.
Immediate threats such as food and medicine shortages are unlikely to worry the Irish too much as they are about 1000% self sufficient in food (the country produces enough to feed about 10x its population and has recently overtaken the US as the most secure country food-wise in the world) and more than that in Medicine. Economic threats by the UK are also unlikely to work.

The Irish are worried about the peace process in Northern Ireland and support of the Good Friday Agreement. They are determined to keep an open border with Northern Ireland. People before trade. They are not prepared to move onto trade talks until the Withdrawal agreement has been agreed (about 80% has). The major outstanding issue is the Irish backstop, which is an “all weather” insurance policy. The only feasible policy that is on the table is that NI has the absolute minimal regulatory alignment with the EU customs union and single market, which will ensure no hard border on the Island of Ireland. This will involve customs checks for goods flowing into NI from the UK, largely via Cairnryan in Scotland. Talk of impingement of sovereignty paranoid hyperbolic nonsense largely promulgated by the DUP and their allies in the ERG.From the Irish perspective:

  • The backstop is non negotiable, but they are open to de-dramatisation of wording and to credible alternative schemes from the UK side.
  • No credible alternative has come from the UK side.
  • Trust levels are very low. There is a belief that the UK will try to kick the can down the road and if push comes to shove, will write peace in Northern Ireland off as collateral damage.
  • The entire Dáil and Senate is behind the backstop, with not one single dissenting voice. Criticism if any has been in allowing the UK leeway till October.
  • The EU including the commission, the 27 Governments and the Parliament are 100% behind Ireland.

From what I can gather from the UK perspective:

  • The UK would like the backstop to apply to the entire UK, this would split the four freedoms and be a major victory from the UK perspective, saving it from economic disaster.
  • The UK is intentionally dramatising the backstop, not just to keep the DUP onside, but to beat the patriotic drum and hopefully generate the poll bounce Thatcher had in the Falklands War.

I think the balance of forces are very much against the UK. Ireland and the EU will not back down. The backstop is limited to NI. No deal will be such a disaster for the UK that it will ultimately have to back down. I think Simon Wren-Lewis’s analysis is essentially correct. Once the backstop is agreed Britain can essentially go its own way and a Canada type agreement is absolutely feasible. This of course will be very economically damaging for Britain but far less so than no deal.

Stay in the EU (27.5%)

This is absolutely my preferred solution. I would prefer is the Government had the courage to say that it was an advisory referendum and that the result had no legal basis. Of course this was not explained to the public at the time. Cameron in his wisdom  stated that the Government would abide by the result. An even greater tactical mistake was triggering Article 50 before any proper strategy was in place. More and more information is however coming out about the industrial scale cheating on the Leave side. (The industrial scale dishonesty had of course been known from get go). A strong PM would have the courage to call the referendum null and void. We do not however have a strong PM and even if we had it would tear the Tory party apart.

There is however considerable momentum building towards a people’s vote. There are a number of roadblocks.

  • As David Alan Green correctly says time is running out. Indeed it may already be too late. However in this circumstance the EU would likely extend the Article 50 trigger date beyond the 30th April.
  • It is almost certainly necessary for the Labour Party to get behind a peoples vote; momentum is however building and there is a possibility this may happen by Autumn.
  • A stay result in a peoples vote is not guaranteed, however opinion polls are moving in the right direction and may well dramatically do over the next few months.

 

Summary

The assigned probabilities could (and almost certainly) be wrong. The UK government is again hyping up the threat of a no deal scenario. Updated versions of Fig. 1 will be posted on a regular basis.

 

Comments

  1. Samuel Johnson -

    Agree with all of this, whatever about the probabilities. The solidarity across the political spectrum in Ireland, north and south, with the exception of the DUP, is little noted in the UK. Also ignored is the fact that support for Remain in NI has risen from 56% on the day of the referendum to 71% and rising.

    The scale of the DUP’s own goal in having reopened an animated debate about the constitutional status of NI, when it simply did not need to be raised now, would be astonishing if it wasn’t so utterly in character. They have managed to alienate just about everyone except the Tory ERG who, I suspect, do not hold in the same regard in private as they do in public.

    Rumour of a superinjunction suggest there’s another NI political scandal to follow Paisley’s latest. Either way, it could happen yet that some ridiculous banana skin event will be decisive in bringing down this utterly rotten govt.

    Frothing Brexiters seem very sure the EU is about to collapse. “Italy!” they cry, oblivious of the scale of the sword of Damocles hanging over the City of London in terms of Chinese debt, or of how petty and inane much of our quotidian zero-sum politics is going to appear in 2 degrees time. I still hope for a reversal or negation of what Russian influence helped achieve on both sides of the Atlantic but it’s harder to see it happening in the UK.

    Meanwhile, Facebook is grovelling and promising to smack its own bottom before the Oireachtas (Parliament) Communications Committee in Dublin, reckoning that the best way to deal with the reaction to the recent undercover Channel 4 Despatches programme is to apologise and promise to do better. This committee distinguished itself not so long ago in having members, including a formerly prominent athlete, prove incapable of getting to grips with the concept of adjacency in terms of a proposed new national postcode system (surprise, it has turned out to be a costly failure and is not used for delivery planning by the post office or anyone). The Committee is unlikely to accomplish anything useful. The power asymmetry is just more evidence of the need for effective supranational regulation of transnational corporations and the need for international cooperation generally. The EU is the only organisation with the clout to take on the likes of Facebook and stand up to the American govt, whose politicians dance for coins from the likes of Facebook.

    1. Sean Danaher -

      Samuel

      probabilities are a guess of course but I have consistently put an “Irish Sea Border” as a the most likely outcome, shortly after the referendum result or even before. I know I am unusual here and many of the commentators in the first para were slow to catch on to the importance of the Irish Border – with the obvious exception of Katy Hayward.

      There is also as you say a remarkable cross party consensus across the island of Ireland, with the singular exception of the DUP. Andrew Adonis has been very vocal about the DUP, since his three day trip to NI, and is convinced that they are two faced. Despite saying that they want an open border, in reality they want it as hard as possible. Adonis if of course of Cypriot ancestry and can draw parallels with his own experience.

      There are rumours I have heard about DUP trips to Israel and more to come. It’s interesting also the support for the disgraced Ian Paisley Jn. but UK politics seems to have no honour anymore.

      Climate change is a major worry. On my own part I have installed a 3kWp PV system, a Ground Source Heat pump and a combined solar and air source heat pump – but of course having Trump in the US is no help.

      The world seems to be going to hell in a handcart – the EU for all its faults is one of the few brakes on this. The Trump presidency makes Brexit even more deranged.

      1. Samuel Johnson -

        Didn’t know about the Cyprus connection. Interesting. Suppose you saw Brian Lucey’s reaction to Adonis’s recent appreciation of the DUP?

        I’d like to follow yr example on the CO2 front. Insulated the house but PV is tricky as we’re at the edge of a wood and get lots of organic stuff on the roof – leaves, moss, sticks.

        Saw some laudatory tweets about reduction in UK emissions today but no comment on the extent to which they may have simply been outsourced to China or elsewhere.

    2. Charles Adams -

      Thanks SJ, I particularly enjoyed:

      “how petty and inane much of our quotidian zero-sum politics is going to appear in 2 degrees time”

      and on America where

      “politicians dance for coins from the likes of Facebook”

  2. Ivan Horrocks -

    Sean I note that ‘perpetual Brexit’ (the Norway plus type option) is being heavily briefed about today. In other words the bulk of the negotiation moves to the transition period. I suspect that’s what May is really angling for with her visit to Macron, and Hunt and co’s visits to other EU countries (their summer holiday homework, as it were). This option has the advantage for May and for EU leaders of keeping her as PM for ad long as possible, staving off a Johnson challenge (none would want to see Johnson as PM – another Trump as far as most EU leaders would see it), plus also delaying the possibility of an election. And here I think we’d find they don’t want a Corbyn government as most want a fellow neoliberal in power in the UK. So my money has moved from a no deal hard Brexit to ‘perpetual Brexit’ as I think this suits both the EU and May’s side of the Tory party.

    1. Sean Danaher -

      Ivan. it’s quite bizarre. There is nothing new here. the EU has always wanted a watertight legal withdrawal agreement, some vague political words on the future trading relationship and to kick the full legal trading relationship into the long grass, where the UK will be a third country and have even less leverage than it has now. Simon Wren-Lewis has long argued that this is the most likely option. The legal text of Article 50 is written this way. Flip Chart Rick wrote about it here in April https://flipchartfairytales.wordpress.com/

      The Corbyn angle is interesting, but I think it is over-analysis. What I find more bizarre is that the Tory government is painting this as a victory. I think the EU may be more worried about a far right takeover in the UK than a socialist government. They also want stability and ownership of what is agreed. I could be wrong of course – there is an ascendancy of neoliberal governments in the EU, which is very depressing.

      I agree, provided the Withdrawal agreement is finalised, perpetual Brexit will be the most likely option. I need to update my bar chart!

  3. Sean Danaher -

    Samuel
    I hadn’t realised Adonis’s Cypriot connections till recently – at an anti Brexit rally in Newcastle a few months ago. He specifically spoke about it and said it gave him extra insight into the NI situation. I meant to query him further but he slipped off when I was speaking to Mike Galsworthy.

    I haven’t seen Brian Lucy’s comments do you have a link?

    Another possibly interesting document is one published yesterday by Charles Tannock http://www.charlestannock.com/ni.pdf “A Hong Kong in Ireland: NI’s Brexit Opportunity.” Tannock despite being a Tory seems very sane. I think Chris Patten has also spoken about this option.

  4. Samuel Johnson -

    Tannock very favourably disposed to Ireland, visits often. I assume he has some connections. Certainly better informed than most Conservatives.

    BM’s comment was “No shit Sherlock” as near as I can recall (pretty well). I notice unprofessorial language. Hah hah.

  5. Seán Danaher -

    Samuel
    I note that both Kevin O’Rourke and Chris Grey are both mentioned in the acknowledgments of Tannocks document. This is a vary good sign. The bridge/tunnel between NI and Scotland which is one recommendation would be nice in a perfect world but I can’t see the costs stacking up.

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