Finance: Research, Policy and Anecdotes

We seem only a few days away from Boris Johnson becoming Prime Minister, with the firm pledge to take the UK out of the EU by 31 October, “do or die”.  Not that anything has changed in the situation or will change before the end of October. Though the tone of the debate has fallen back into war talk – references to a war cabinet, appeals to the Dunkirk spirit, and one of the Brexit MEPs wanting to use the navy to chase out non-British fishing boats from British waters, appealing to the Falklands War spirit. At the same time, the revolution keeps eating its children with Liam Fox, one of the original Brexiteers shedding doubt on a “WTO-Gatt 24” strategy and promptly being disowned by the “true Brexiteers”.

As it currently stands, there seem to be only three options left: try to pass Theresa May’s deal with a few twists and tweaks in the Political Declaration on the future relationship; revoke Article 50 and remain; or crash out. The first option would require quite some political manoeuvring by Boris Johnson; the second seems quite impossible, which leaves the last option. However, there is an increasing opposition to this option even among Conservative MPs and it might come to a constitutional stand-off between a Prime Minister who insists on the default option in the absence of other legislative action and a Parliament insisting that a no-deal Brexit cannot take place. Something that future constitutional scholars will have a field day in discussing and interpreting; in the current time, however, something that will take the British economy and people as hostage. But then again, we seem to be a stage where large part of the Conservative party and a certain part of the country are so obsessed with Brexit that nothing but nothing can stop them, not even the break-up of the United Kingdom, another economic crisis or even the destruction of the Conservative party.

What is the likelihood of each of these options? I get asked repeatedly but will not participate in the betting game.  Many far more qualified people come to different conclusions.  One thing we can do is to outline the different scenarios that might play out in the different cases.  If – against all odds – a slightly revised withdrawal agreement makes it through Parliament, a very long transition period would follow until the relationship between the UK and EU is sorted out; we can expect quite some more political upheaval in the UK during this time. A no-deal or Crash-Brexit would not be that much different but come with significantly higher economic costs. We can expect lots of recriminations against the EU and within the UK, possibly a general election with a very uncertain outcome and a very long period, during which the UK has to sort out its position vis-à-vis the EU and the rest of the world (but from a significantly weakened position).  We might also see Irish unification and Scottish independence (ok, that is very speculative, I admit). Common denominator to both options: there is no such thing as a clean Brexit; it is rather the starting point for a decade-long self-finding-cum-difficult-international-negotiations process for the UK.

But what about the UK-US trade agreement and Donald Trump riding in with the cavalry to save the British economy? Right, I will not even consider these ridiculous ideas, as they are so far out there in dream land, that it is not worth wasting anyone’s time. Suffice to say that Donald Trump does NOT care about the UK, but just about weakening the EU; that Congress (where the house is under Democratic control) has to approve such a deal; and that by the time such a trade deal could be ready (think 2024) the whole political landscape might look very different on both sides of the Atlantic.

So, as we are getting ready for the next season of the Brexit soap opera: there will be lots of common themes from previous seasons (as in most soap operas), but with different actors. The autumn promises to be quite action- and emotion-filled; now if only this were a TV show only and not politicians playing with people’s lives.

13. Jul, 2019