Saturday, 10 February 2018

The Ides of March

The reporting of the leaked government forecasts on the regional impact of various Brexit scenarios this week was a good example of the media's "bias against understanding", with little attempt to explain what the numbers actually represented, let alone what they would mean in practice. Some people interpreted them as evidence of economic depression (i.e. an absolute fall in output), which at 15 years long would be nothing if not remarkable, rather than a reduction in the rate of GDP growth over the period. That all Brexit outcomes are going to make us relatively worse off has never been in serious dispute (i.e. beyond the free-trade fringe), and some leavers were resigned to this from well before the referendum, valuing greater "control" over immigration and domestic law above national wealth. Few commentators noted that the forecast limit does not imply a recovery from sub-par growth after 15 years, that horizon simply being as far out as the analysts felt confident modelling. Given that national wealth is cumulative, it would take many years to make up the lost ground, and that's assuming we could achieve above-par growth for a sustained period (we haven't managed it yet during the recovery that started in 2013), so what is actually being forecast is a generation-long recession.

The noise around the forecasts has helped distract attention from the crisis in government over the Brexit end-state, so much so that I'm wondering if the leak was actually engineered by Number 10 rather than "meddling" civil servants. The division in the cabinet over the desired future is not one that can be bridged. A compromise between those who want maximum alignment with the EU and those who want the minimum would satisfy neither. It would be a lose-lose. As there is no win-win either, the only possible outcome is zero-sum: one side has to win and the other lose, hence the fevered talk of expulsions and leadership challenges. In microcosm, this reflects the larger negotiation between the UK and the EU, except there is little doubt that whatever happens the EU27 will not lose. The best the UK can do is minimise its losses (that was the real message of the multiple GDP growth scenarios), but that necessarily means rejecting any compromise with the Brexit ultras and seeking maximum alignment. This dilemma has led to the current irritable state of affairs in which the EU is pointing out that the UK government has yet to hand in its homework, while ministers in London pretend to be affronted by what they characterise as Brussels' high-handedness.

While cake has been the most prominent food metaphor to date, the tactical objective of the UK government remains cherry-picking: the idea that a series of bespoke sectoral deals can be negotiated that will preserve key European markets and supply-chains while allowing full autonomy in respect of trade agreements with other countries. The problem is that cherry-picking is politically unacceptable to the EU27 because of the obvious precedent it would set, not just for existing members but for those like Switzerland and Turkey who are resigned to non-membership but would like improved benefits. Despite its notorious weakness for fudge, the EU remains a construct built on institutions, hence all that is on offer to the UK is a limited set of menu options, essentially Norway or Canada. If this wasn't challenging enough, the true believers of Brexit (and the opportunists, for that matter) are disinclined to accept any deal that doesn't look like a clear loss for the EU. They want to be able to say that money has been repatriated for the NHS and that the EU has admitted it cannot live without our market for German cars and Italian prosecco. They also want remainers neutralised. They want, to put it bluntly, a dead body.

For the ultras, any continuing authority by the EU over trade or commercial regulation is a red line. Though they are insisting that this authority should end in March 2019, it would be reasonable to compromise on the transition period, despite the hype about being a "vassal state" (a time-delimited vassal state is obviously a nonsense), but that only amounts to a delay until December 2020. Any form of associate status of either the Customs Union or the Single Market would entail continuing EU authority in practice, hence the insistence that only a bilateral trade deal (i.e. one in which the UK has equivalent authority to the EU27) is acceptable. Though the maximum alignment faction, led by Philip Hammond, look closer to the EU27's position, in reality there remains a big gulf between them and Michel Barnier & co because of the insistence that the UK cannot be a member of "the" or "a" customs union. Brexit in name only might look attractive to the #FBPE crowd, but it isn't on offer from the EU27 except in the form of explicit membership of both the Customs Union and the Single Market, which isn't something that Hammond & co can sell domestically.

To no one's surprise, the Irish border has come back into focus as the most intractable problem facing the negotiating teams. Unless the UK stays within both the Customs Union and Single Market, a harder border is inevitable. The questions that arise are where and how hard. The Tories and the DUP are both opposed to a border in the Irish Sea, even though this would be the most practical solution and enjoys popular support (or perhaps indifference), even among unionist voters. For the DUP it is an existential issue that would represent the first step towards their full absorption into a united Ireland. Suggestions that a land border between Northern Ireland and the Republic could be magicked away by technology remain literally incredible. While the Tory ultras insist that there is no need for a hard border, they are essentially playing a game of chicken because they simply don't care what the outcome is. If a hard (or even hardish) border reappears, they will simply blame the EU. If it could be engineered, which I doubt, I suspect that Rees-Mogg and his ilk would accept an Irish Sea border as the price for a "clean break" for Great Britain.

All the structural forces are pushing towards a continuation of the status quo, both during the transition and after, while the political imperative of Brexit remains the need for a visible rupture, even if the material consequences are negative. Everything the government is currently doing is aimed at putting off the inevitable crisis that this entails and hoping that something will turn up. But nothing will turn up. The EU27 aren't going to do anything that calls either the legitimacy or purpose of the union into doubt, which means that a "generous" trade deal for the UK simply isn't going to happen. The Brexit ultras aren't going to go away. Labour will, quite reasonably, present itself as the only party capable of facing down the ultras and the DUP to secure a pragmatic Brexit. Whether they could actually achieve this will remain a counterfactual unless the government falls. The preservation of her administration until 2021 is Theresa May's prime objective, but there is every sign now that she will be lucky to last beyond the end of March. The ultras (and the opportunists) know that the transition agreement will set the tone for the final deal, so the chance to secure the Brexit they want will soon pass: "There is a tide in the affairs of men" etc.


  1. Could there still be some life left for the extend and pretend strategy?

    The March deadline is for the transition period. If all can agree BINO for the transition period then another 2 years is available for fudge. Lots of talk of bespoke deals. I can't see the ultras dying in a ditch for being a vassal state for 2 years. Also how many ultras are there in the parlimentary conservative party. Only 35 alledgedly. Maybe after March 2019 the UK can start printing blue passports and make some other token gestures. Once in the transition period the obvious thing to do is extend it. After all everyday we are in transition to tomorrow.

    Could something turn up in Europe?

    The German SPD membership have a vote on the grand coalition deal. Not a forgone conclusion. All kinds of anti Euro forces (some very unpleasant) coming out for the Italian elections (March 4th). Could the Italians forge a spanner to throw into the works? Also, to my old eyes, Macron looks at least 2.54cm shorter than when he was elected.

    There is potential here for some interesting European fixtures.

    1. The transition deal is pivotal. If it's maximum alignment, then the momentum will be towards BINO, which means the ultras will become marginalised as the debate over the final deal centres on the degree of high alignment.

      To turn the momentum the other way and preserve the chance of a clean break, or at least minimum alignment, the ultras need the transition deal to mark a clear rupture. That means not only a time limit on the CU & SM but a material change in their operation that can be used as the thin end of the wedge so that the final deal negotiations focus on the degree of further divergence. The point of maximum leverage for the ultras is now.

  2. Is the power/ability of the ultras being overestimated?

    After winning the referendum the ultras couldn't get one of their number elected as leader of the Tory party. The point of maximum power for the ultras was June 2016.

    Do the ultras really want to win?

    For the Tory ultras the anti EU cause is totemic. None of them expected to win the referendum. They have had 18 months to share their plans for the UK outside the EU and nothing sensible has been forthcoming.

    Would the ultras be happy to loose?

    Whatever the final aggreement the ultras will be unhappy with it and will press for a more distanced relationship with the EU. It's like talking to free market people. If you say the UK has had 30 years of free markets and it's done no good, the free marketeer comes back with the markets haven't been free enough.

    1. The ultras are obviously weak in Parliament, but they are stronger outside, both in terms of popular support and media backing. Crucially, they probably have a majority among Tory Party members, which means their route to power is through Number 10. They failed to get there in 2016, but that was down to incompetence and vanity.

      Do the ultras want to win? Yes, I think they do, but they are reluctant to admit that their plan is essentially one of creative destruction: the bracing discipline of free trade. They want an estrangement from the EU, and that will become more difficult if the transition doesn't mark a rupture.

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    3. What kind of economy do you think the ultras hope to create in Britain, given that (as per Patrick Minford) they seem happy to write off industrial production?

      What do they see as Britain's USP – do they want to turn it into a giant tax haven for the world's kleptocrats (sort of like a European version of Batista's Cuba)?

      I don't see though how such an economy would be capable of supporting 65 million people though, as the economy of any tax haven has to be much smaller than the economies that supply the people who stash their money in it...

    4. It would be easy to accuse the ultras of wanting to engineer an economy divided between a louche financial hub in London and a low-wage environment elsewhere (i.e. an amplification of what we've already got), but I think some are sincere in wanting to remove what they see as fetters (industry regulation, consumer protection, tariffs) in order to see what naturally emerges. They put their faith in free trade and deregulation.

      Of course, this means experimenting with people's livelihoods, which is easier to do if you are personally rich enough to be insulated from any negative effects. It also means repeating the mistakes of the early 80s, and refusing to learn the lesson that Thatcher's support for Europe was driven by economic imperatives. In other words, this theory has already been tested to (near) destruction.

      The problem with the ultra's approach is that it requires an asymmetrical relationship with our largest (and nearest) market, namely the EU, in which we can flood them with cheap exports and unregulated services while avoiding any reciprocal obligations. The EU27 obviously have no intention of agreeing to this.

    5. How much of the ultras' arrogance is down to the fact that many of the Old Etonian type Brexiteers are rentiers who live off the wealth acquired by their imperialist ancestors (and thus for them personally the Empire never really fell)?

      Very different from ordinary Leave voters, who were mostly driven either by extreme paranoia (about the EU itself, or about Islam and Muslims) or by a yearning to resurrect old industries that (largely unknown to them) only existed for as long as they did because they were propped up by captive colonial markets...

    6. The myths of empire obviously play a part, but I suspect the mythology of Thatcherism plays a bigger part - i.e. there are plenty of Brexiteers who made their wealth through the deregulation and asset sales of the 80s and 90s who now imagine that an even more extreme programme of deregulation and touting for foreign inevestment will transform the British economy.

    7. Touting for foreign investment? What prize do you think the Brexiteers expect to be able to offer investors, that would be more attractive than the market offered by the 30 post-Brexit members of the European Single Market?

    8. Cheap labour on the EU's doorstep.

    9. They won't be able to undercut Eastern European wages unless they seriously reduce the cost of housing (which would enrage the homeowning Tory base).

  3. Reading BoJo in the Sun this AM and strapping on a thick pair of rose tinted glasses.

    Could it be that the Government is about to roll over with a heavily disguised Soft Brexit?

    The key BoJo phrase for me was "as we must". Whatever he's doing it's with great reluctance, supposedly.

    If the the Tory ultras are to be sold out the men to do it are BoJo and Gove.