Is No Deal is vastly Under Priced and will the Johnson Government Ditch the Backstop?

Fig. 1 The Nightmare Comes true.

Introduction

The Johnson premiership has begun. The tortuously negotiated Withdrawal Agreement (WA) is hated by the new government. There are contradictory signals, and it is unsure what changes could be made to make the WA acceptable to HMG. We seem to have moved from a time limit on the Backstop to no Backstop. Even if the Backstop is removed completely  apparently that will not be enough? The so called £39bn has also resurfaced as an issue.

The Johnson government is trying to reset the clock back to June ’16 as if none of May’s premiership ever happened. This time of course the action will play out in under 100 days rather than over 3 years.

Johnson is refusing to even talk to the EU or any of the Capitals until the WA is dropped in its entirety. This certainly has come as a relief in Dublin, makes the summer tactically very simple and frees up time which would be otherwise wasted in fruitless talks. Though there has been a phone call.

Ireland Under Pressure

London is putting a lot of pressure on Dublin to ditch the Backstop and the attack dogs of the right wing press are writing ludicrous fact free and vindictive articles. From R Littlejohn:

I’m also led to believe that Steve Barclay, who is staying on as Brexit Secretary, has been to Dublin and read the riot act to pipsqueak Irish Prime Minister Lenny Verruca, reminding him on which side of his bread he’ll find the Kerrygold. As a consequence, Verruca is coming under serious pressure at home to stop playing silly beggars on the so-called backstop.

There has also been a bizarre article from Nick Timothy which is truly perverse. Of Varadkar he writes:

He doesn’t understand the Good Friday Agreement and he’s jeopardising the peace process. He’s risking a no-deal Brexit and a hard border on the island of Ireland

The truth is of course 180° the opposite. The Irish government have put peace on the island of Ireland and the protection of the GFA is their top priority.

It seems as if there are still elements in England which view Ireland in much the same way as Russia thinks of Ukraine – a satellite country that should know its place and do as it is told. There seems to be a resurgence of old tropes regarding Ireland, e.g. this from David Yelland:

This of course will rally nearly everyone in Ireland around its Government. There is nothing like an external threat to pull a country together. Support for the backstop runs at something like 92% of the public in IE and 60+%, probably 66.6+% in NI.

The Backstop is an all weather insurance policy to protect the Good Friday Agreement, border communities and the all island economy, which is invaluable for border counties, with tortuously intertwined supply chains, and of course the 146 areas of cooperation from the mapping exercise.

The EU is not going to back down or reopen the WA.

All the NI border constituencies are Sinn Féin seats and are Nationalist and increasingly so. For the Border communities, a No-Deal scenario is considered temporary, unstable and will put immense pressure on London.  Dublin backing down on the backstop will be seen as a betrayal of historic proportions, not seen since 1922 when the Irish Independence Treaty was signed. This of course only happened under the threat of “immediate and terrible war”, which fortunately is not an option this time.

For some No-Deal is also desirable as the opinion polls (Fig. 2) show that it may accelerate their dream of a United Ireland.

Fig. 2 Lucid Talk Dec ’18 Opinion Poll

 

The Walk Away Myth

It is an article of faith that threatening the EU with No-Deal will create movement and lever the EU to give the UK a better deal. This is considered nonsense by almost everyone who has actually negotiated with the EU.

There is the fact that the damage to the UK will be about an order of magnitude greater to the UK than the EU, but more important the EU is essentially a law based, rather than politically based entity. The EU is vastly more powerful than the UK. The WA is considered the best available under the legal framework and indeed considered overgenerous by many of the member states.

The UK is also perceived as being hopelessly split and still undecided as to what Brexit actually means. Both of these reduce the UKs negotiating capital considerably.

The bigger question is whether the top strategists in the Johnson Government believe the walk away threat. I think it is unlikely, but as the Brexit faction more and more resembles a faith based religious cult it is possible.

What is the Johnson Government Actually Up To?

Possibly the Johnson Government actually wants No-Deal? This is  powerful argued  by Steve Bullock in this Twitter thread (also in The National):


This essentially argues that the Tories are putting party before country and want to outflank the Brexit Party on the right. This is the only way they believe that they can win the next election. It is worth reading the thread in full but the core argument:

And this guy and his advisors are not politically stupid. They know they’ve got nothing else but nationalistic fervour and wartime-style oratory going for them. It’s all they’ve got, and they need the conditions of national crisis to make it work.
Having successfully conned a significant proportion of the population into believing the harmful rank stupidity of No Deal would be patriotic – a chance to stick it to the foreigners and remoaners (now re-classified as non-believers in Britain) – they think it’ll work.

This guy is of course Johnson.
Of course this may be giving the Johnson government too much strategic credit. The May government seemed to drift around and survive from day to day on a purely tactical basis.

The majority in the HoC is very small and likely to fall further after the Brecon and Radnorshire by-election. The quality of the members of Cabinet is also not very reassuring.

Farage of course will prove difficult and we may see a WTO Brexit, or indeed any Brexit which does not restore the UK to its manifest Empire MK2 destiny, being rebranded as a betrayal of “the will of the people”.

There is also the problem of the US. A swift and lucrative trade deal is very high on the Brexiters agenda.

The US Trade Deal

Trump is very keen to have a trade deal and has stated that there could be a three to five times increase in trade. This seems unlikely as trade experts use  “elasticity” to measure the likely effects of elimination of tariffs on trade volumes, recon it is going to be nothing like this and will at best contribute something like 0.2% to GDP. David Henig is worried and in Trump’s UK trade deal: An abusive relationship with a now vulnerable country argues that it will be a very poor deal indeed for the UK. (David has also written a good thread on  the necessity of Backstop, which I highly recommend).

In the context of a possible US trade deal it is important to remember that Congress not the president is in charge of US trade policy. The single most important person in the US in terms of trade policy is the chair of the Ways and Means Committee. This of course is Richie Neal, an Irish American, who was heavily involved as a junior congressman in the Good Friday Agreement negotiations in 1998. In ‘This is not about a return to empire’ – US Congressman warns Johnson on Belfast Agreement, Neal states that:

Presidents don’t write trade agreements, members of Congress do.

and

There is no way that Congress is going to take up the agreement if the Good Friday Agreement is jeopardised.

It is worth stressing also that the US is gearing up for the 2020 Presidential campaign. Trump will be desperate for votes and will not want to upset the very powerful, c 35m strong, Irish American lobby. There is in no equivalent English or British one. The election is likely to be won or lost by very small margins and Irish American votes will be vital for success on both sides. Florida and Pennsylvania in particular are key states as shown in Fig. 3.

Fig. 3 Irish American Votes, Electoral College (EC)  members and Republican Margin in 2016.

 

Economic Headwinds

The Johnson premiership has not boosted the immediate economic fortunes of the UK. The Pound Stirling is in Free Fall, auto manufacturing is badly hit in both sales and investment and growth expected to be at its lowest since the GFC.

More disturbing perhaps is the recent Institute for Government report makes a number of alarming predictions in the case of a no deal Brexit:

  • The Union will come under unprecedented pressure – with Northern Ireland most acutely affected by the economic impact and facing major constitutional effects.
  • Major showdowns in Parliament would continue, on the Budget or Queen’s Speech – both due shortly after 31 October.
  • It will drain Whitehall’s capacity – at least 16,000 officials will be working on Brexit by the Autumn and numbers are likely to rise after no deal.
  • The UK would still need a deal with the EU on future trade, but that would be more complex and harder to agree.
  • Struggling or failing businesses will look to the Government for support.

Conclusion

For the Irish and the EU No-Deal is indeed preferable to a bad deal. A deal without the Backstop is simply not worth signing. There is a belief also that the UK will have to enter into some form of deal with the EU, particularly as there will be no trade deal with the US if the GFA is threatened. There is talk of a New Zealand deal, but NZ is smaller economically than Ireland and UK exports to NZ are less than 5% of that to IE. There simply isn’t anywere sensible for the UK to go trade wise particularly as neither Canada or Japan are rolling over their existing EU deals.

The only other economy of sufficient size to make a dent in the likely loss of trade with the EU is China.  This may be too toxic even for a desperate Tory party given the increasing instability in Hong Kong and the concessions the Chinese are likely to demand.

It may well be that Johnson is desiring a No-Deal Brexit for political reasons. In the medium term the economic and political consequences will be so damaging for the UK, I suspect the Tory Party may well be finished anyway.

A No-Deal Brexit is not a destination. Like the triggering of A50 it is just a waypoint. It will, far from strengthening the UKs position, make it even weaker. In Churchill’s words

This is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.

 

Comments

  1. Dave O'Neill -

    The WA with backstop was rejected by HoC last time round largely because Geoffrey Cox indicated that there was still a (unquantified) legal risk that the UK would be trapped in the Backstop. Anyone who has ever had to prepare and review a contract with with legal advisers will know that the legal adviser is just that, an adviser, and most likely they will highlight and caution against risks but will leave it to the contract team to make the final decision unless that risk is dangerously significant. Common sense would indicate that there is no point trying to “trap” the UK into remaining in a union it doesn’t want. So HoC funked making a decision which as leaders they should have done and used the AG advice as a handy out. Voting against the deals was an act of cowardice.
    The UK could of course have walked away at any stage if they thought they were being treated unfairly in negotiations.
    I suspect that at this stage a large proportion of the EU would be glad and anxious for the UK to leave on any reasonable grounds. But however that is managed it needs a method and some protection for the GFA. That is what the WA and Backstop are, a method and reasonable protection. So far the Leavers have been vocal in demanding that the WA and the Backstop have to go but without presenting in any written or detailed form what their proposed alternative is.
    Leo is not the most diplomatic of people and there are a few occasions when he would have been better to say nothing. But on the essentials he has broad support as you explain. That is unlikely to change unless Boris can offer some convincing and attractive alternative. So far there is no sign of that, or of any alternative. People here understand the potential impact of no deal but can see no logical alternative. Calls to “bin the backstop” from some commentators like Dan O’Brien and Eoghan Harris are not gaining much traction as they can’t provide any reason except “don’t upset the Brits”. That is not necessarily a bad idea but is not an alternative approach. There may have been a wobble for a day or two after Boris was elected but that has passed and the Irish government has probably got stronger support for the official policy because of the political disarray in London.
    If the EU were to give in to pressure from Britain then the Irish situation would become more problematic. But given the confusing signals and bluster coming from London it would be self destructive for the EU to try to appease what cannot be appeased. It is clear to many people looking in from the outside that Brexit is primarily a British domestic issue and therefore there is probably nothing the EU can do except let it run its course and try to contain it offshore.
    While many people, politicians and governments in the EU would like to see reforms there probably aren’t any rushing to emulate the UK.
    The UK decision to leave may be seen as an act of both incompetence and cowardice.
    It would have been braver to stay in the EU and try to manage reforms from within. This would have been difficult but the UK could have provided leadership and gained status.
    Leaving in the manner that is being pursued has been incredibly incompetent and humiliating for them. Before invoking article 50 UK should have had a detailed plan to present to and negotiate with the EU. Instead it showed up in Brussels like a Tramp with a tin cup looking for no one knows what. This is how many colonies of the UK left in the 50’s and sixties. In a rush with chaos and long term disaster for their populations.
    The motivations of the majority of Leavers are still not very clear beyond dreams of lost empire. But it is worth having a look at the writings of Dominic Cummings to get some idea of the thoughts of the real movers and shakers. Actually some of his ideas on first inspection are quite interesting and are more to do with transforming the political system. It’s probably easier to do that in a UK free from EU governance. So my read would be that Brexit isn’t so much about leaving the EU but gaining the opportunity to reshape the British political system free from any constraint. And presumably once Britain is reformed the rest will become targets. Just a thought.

    1. Peter May -

      As you say, Cummings is an interesting case and someone with whom in other circumstances there is probably much to agree. Of course the EU is pretty dire in many respects but it is not as dire as Britain is now. And with the UK’s unwritten ‘constitution’ for me at least, being in the EU helps to keep the ‘excesses’ in control.

    2. Sam Johnson -

      That’s not a fair representation of Dan O’Brien’s position on the backstop. First, he objects on the ground that it is potentially likely to achieve the opposite of the intended effect. Second, he argues that it is likely to sour relations with the unionist community on the island of Ireland and damage efforts at reconciliation. Nothing whatever to do with not offending the UK PM du jour.

      The objection to Dan’s points are 1. Deferring the problem is simply going to put Ireland in an existentially weak position in future when the British wish to diverge from EU regulations, with consequences for our place in the single market. 2. The DUP made no consideration of the economic impact of Brexit on NI before supporting it or conniving to use £425,000 of dark money promoting it in London, and no consideration of the impact on the GFA. They are entirely responsible for the circumstances in which they find themselves and are free to change them by resiling from Brexit, in line with the wishes of NI voters, or accepting the backstop. Reconciliation is a two way street and their attempt to foster permanent division on the island is simply not one they can reasonably expect acquiescence to.

      As for Varadkar being undiplomatic, pass the smelling salts. Sometimes a bit of plain speaking is necessary and nothing he has said remotely smacks of the kind of bile that is aimed at Ireland from the UK’s right wing press and Brexiteer Tories.

      https://twitter.com/Niall001/status/1150431326006317058?s=09

      The Irish have put up with the splenetic invective and hatred of the likes of Ian Paisley for a very long time. Unionists can accommodated in a friendly manner in future when they come to terms with the UK no longer being in a position to dictate to the majority on the island of Ireland, and for UK here, let’s be clear, their allies are English nationalists who don’t give a fig for Ireland or NI and to whom NI’s unionists are nothing more than a means to an end: power.

  2. Jeni Parsons -

    Dave O’Neill says above: ‘this is how many colonies of the UK left in the 50’s and sixties. In a rush with chaos and long term disaster for their populations.’
    How true – and how tragic that proved for many of the countries involved. While a lot of people in the UK said at the time that it just showed how unready these countries’ populations were to benefit from taking control of their own destinies.

    And now it’s the UK’s turn to ‘take back control’ – and we’re seeing the same incompetence, arrogance and adhesion to dogma of which some former British colonies were accused. Kwame Nkrumah, Julius Nyerere – you are vindicated! Your former rulers are even more addicted to their own dogmas than you ever were.

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