Brexit: More on the UK’s Weak Hand

In theory there is no difference between theory and practice. In practice there is. – Yogi Berra1

As Theresa May’s self imposed deadline of March 31 for triggering Article 50 approaches, the Financial Times’ Martin Wolf has assembled some trade data that supports the argument that we and many others have made: that the UK is in a very poor bargaining position in Brexit, yet is deludedly overplaying its hand.

A few UK readers get annoyed when we go through the many real world constraints that the UK faces in negotiating a Brexit and in the possible futures it might have outside the EU. They get angry and declare us to be enemies of national sovereignity and/or defenders of evil Eurocrats.

The problem is that virtually all of these Brexiteers are selling Brexit theory, and Brexit theory is in turn a bunch of empty promises that the likes of Nigel Farage and Boris Johnson sold them, starting with that they’d turn over £350 million a week in savings to the NHS. They walked that one back right after the election results came in.

The fact is that the UK is a small open economy. That means, like it or not, the UK will remain in large measure subject to the rules and regulations of the EU because it will sell goods and services to them. The UK is too small to have one set of products made to lower/different UK standard and another for EU export. The only areas in which the UK will be able to “free” itself from EU rules are environmental and labor regulations, where the majority of UK voters like the EU standards, which are almost certain to be more citizen-friendly than what the Tories will implement on behalf of their big business buddies.

Similarly, as various experts have already warned, the UK is almost certain not to see a reduction in immigration post Brexit.

The only way to change these boundary conditions would be if the Tories were to embark on a total-war-level effort to make the UK economy more self sufficient. Nothing of the sort is in the offing.

And on top of that, the negotiation planning ranges from pathetic to counterproductive. The Tories seemed unaware of the fact that there was no such thing as a “default to the WTO” if their Brexit talks founder, even though parties as remote as this site has flagged that as an impediment prior to the Brexit referendum. They government has apparently been trying to get some sort of special treatment from the WTO and not surprisingly isn’t getting much of anywhere. Apparently it’s news to them that the WTO operates by consensus, and with 162 members, that’s hard to achieve, and lacks any sort of established procedure for making decisions otherwise. And let us not forget that the WTO Director-General warned the UK several times before the vote that WTO deals take years to negotiate (as in typically more than five, and the approval process can easily take more than a year), that there were other countries in the pipeline and the UK would not be able to jump the queue. It’s not hard to imagine that new entrants who got in the hard way would not support the UK demanding all sorts of waivers.

Mind you, the WTO cock-up is one of numerous examples of the Government living deep in its own bubble and sadly, via a boosterist press, persuading large swathes of the British public that it’s reckless and destructive course of action is prudent and noble. I could easily cobble together a 5,000 word post from the archives on other major Tory delusions and misrepresentations, but I’ll refrain in the interest of not trying your patience.

The high level problem is that Theresa May is playing a game of chicken and just like the Greeks dealing with the Troika, has managed to persuade herself that the UK is in the better position and the EU will capitulate. EU officials have tried telling the UK in God knows how many ways that they have non-negotiable boundary conditions. Yet May & Co. keep ignoring consistent messages from numerous EU officials, including Merkel. The UK has managed to achieve the difficult feat of creating near unanimity within the EU (the fractiousness of Poland and Hungary won’t affect the negotiating stance).

Former Irish Prime minister John Bruton described the downside of May committing the UK to a hard Brexit when the EU is very unlikely to offer concessions:

In working out the orientation to be given to the negotiators, the crucial thing is for the European Council to work out what would be it’s ” best alternative to a negotiated agreement” (BATNA). It is important to have an alternative ready because there is every possibility that no agreement will be reached within the two year time frame for negotiation, and ratification, of a withdrawal agreement.

Mrs May has said that, for her, no deal at all preferable to a bad deal. Her BATNA, so to speak, is no deal at all.

“No deal” would mean the UK simply crashing out of the EU overnight, sometime before the end of March 2019. This “no deal” scenario would be an overnight halt to flights, to trade and to commerce. There would be immediate, massive currency instability.

From the point of view of pure negotiating tactics, maybe it not surprising that Mrs May would threaten “no deal”. But to do so, in the absence of a well crafted fall back position, is something the UK cannot really afford. It vindicates Tony Blair’s description of the UK government as “not driving the (Brexit) bus”, but rather “being driven” by partisan and ideological forces it has not tried to control. In the absence of a real alternative to a hard Brexit, it is on auto pilot heading towards a cliff.

While most experts agree that negotiating the terms of a divorce in the two year exit period should be possible, getting a new trade deal in place is a completely different matter. While the US has been able to to that, that is because US bi-lateral trade deals are not negotiated. The US dictates terms and the counterparty might at most get a few tweaks. Negotiated trade pacts take longer. And even more important, the UK needs a services deal for its overly large banking sectors. Services agreements take much longer than trade deals. Even if the two sides had adequate staffing and good will, it would be pretty much impossible to get everything done in 24 months (yes, an extension is in theory possible, but that would require approval of all the 27 remaining members of the EU and no one thinks that will happen).

Let us not forget there’s already the hugely contentious of the UK’s overdue payments to the EU plus other exit charges, which the EU estimates at €60 billion. Given the EU’s better bargaining position, it can simply stand pat and let the clock run out if the UK does not make a reasonable counterproposal. And that’s only one of many fractious issues to be settled.

Martin Wolf believe that the UK can’t try the “Whoops, just kidding!” approach if it realizes it backed itself in a corner with Brexit. Do not forget that the Article 50 process provides for automatic departure in 24 months in the absence of an agreement, and there is no provision allowing for an Article 50 process to be revoked. Per Wolf:

I have no objection in principle to the idea that the application to leave could be reversed once the nature of Brexit became clearer. It is certainly no less patriotic to wish to remain than to leave. Moreover, the result of a referendum on a particular date cannot be sacrosanct for all time. It is possible that the electorate will change its mind. Those Brexiters who insist on parliamentary sovereignty can also not object in principle to a parliamentary vote on the terms of the deal that is actually reached, set against the option of remaining in the EU.

Yet, in practice, this option is highly implausible. This is partly because it would shatter the stability of the Conservative party at a time when there is no credible opposition. Yet what is even more important is the view of the rest of the EU. I find it impossible to imagine that after two years of hard negotiations, the UK would be allowed to get away with saying to its counterparties that the deal they have offered is so bad that it has decided to stay inside, almost as a form of punishment. This would violate all norms of decent behaviour. I suspect that any attempt to withdraw the Article 50 application in these circumstances would be rejected by the members, supported by the European Court of Justice. The latter would view such whimsical behaviour as incompatible with the survival of the EU itself.

And Wolf shows that contrary to the brave talk of Brexit fans, the UK indeed has more to lose than the EU does from the failure to reach an understanding:

The overriding objective must be to achieve the best possible deal on trade. The reality, however, is that the UK has a weak hand: without a deal, it would have its trade disrupted and relationship with the continent in tatters. Its counterparts know this. The UK does far more of its trade with the rest of the EU than the rest of the EU does with the UK. It has more to lose. Former prime minister Sir John Major has laid out the best approach: “The most successful results are obtained when talks are conducted with goodwill: it is much easier to reach agreement with a friend than a quarrelsome neighbour. But, behind the diplomatic civilities, the atmosphere is already sour.” Charles Grant of the Centre for European Reform, adds: “At a time of global uncertainty . . . Britain’s decision baffles its partners. They feel snubbed, hurt and (at least in some cases) insecure.”

As much as Donald Trump is the favorite whipping boy of the media, no matter how bad a President he ultimately turns out to be, the US has both enough checks and balances and economic/institutional inertia that the damage will be incremental. In fact, the real danger of Trump is it will allow the Democrats to go much further in a pro-corporate/neolibearal/pro-surveilllance state direction and declare it to be progress Because Trump.

By contrast, the Tories are ideologically and operationally incapable of doing the sort of national emergency planning necessary to manage a Brexit transition and implement a national industrial strategy. It is thus very likely that history will treat May as a far worse failure as a leader than even the Derided Donald.

1 Yes, I know that the attribution to Yogi Berra is depicted as inaccurate. But it’s too pedantic to go through the list of possible sources for this quote.

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  1. vlade

    The problem is not just Tories, where the rabbid anti-EU part is now running the party (I’d like to know how the party is really split on pro/anti EU basis, as I suspect there’s still quite a few pro-EU tories but most of those lack the courage to step up to May). The real problem is that there’s no opposition in the UK, and May runs the country as she wishes w/o any sort of control by anyone. If Trump with the full support of Republicans (which he doesn’t have) is said to be authoritarian, then May is a few rungs above him (including in 1984-like behaviour where everyone who’s not with me is “enemy of the people”).

    It’s a sad place where the best opposition to rampant mis-government by May comes from unelected Lords and people like Blair/Major. On the other hand, to me it confirms that unelected bodies that have little to lose short term do make sense now and then.

    1. PlutoniumKun

      The thing is, it seems to me that its not just Brexit, but there are lots of other budgetary chickens coming home to roost the next 2 years, including a possible property crash and the consequences of deep cuts in public spending. May is like the pilot of a plane on autopilot which has lost all its hydraulic fluid, but doesn’t know it yet and won’t until she switches the autopilot off and tries to manually change altitude.

      1. PlutoniumKun

        I just realised I mangled and repeated John Brutons bad metaphor about May above, I think I need another morning coffee.

      2. Colonel Smithers

        The structural and cyclical weaknesses of the UK economy are known to the EU et al, according to a Belgian diplomat I met last December, and will form an interesting backdrop, if not feature in the talks. He has just transferred from Paris and wanted to meet and greet Whitehall officials. The request was turned down, so he suggested a meeting with other diplomats new to London. That was also rejected.

    2. Colonel Smithers

      There are some, but they are keeping their heads down, according to one I know. He is part Danish and looking at new pasture.

    3. PKMKII

      The real problem is that there’s no opposition in the UK, and May runs the country as she wishes w/o any sort of control by anyone

      Why is that? I know the LibDems are typically useless, but what’s keeping Labour down? Too much neolib vs. leftist infighting with the ascension of Corbyn?

      1. Colonel Smithers

        Yes, that’s right. The neo-liberals in Labour would rather lose elections than fight their Tory brethren. Many of the Labour neo-liberals have financial interests in the dismantling of the (welfare) state.

        The LibDems are run by a neo-liberal faction dubbed Orange Book Liberals after a sort of manifesto some of them wrote in the noughties. I call them Orange Order, i.e. knuckledragger, Liberals. (Sorry, PK.)

      2. vlade

        Labour is keeping Labour down.

        Most recently it’s not just Blairite Labour wing, but with the Copeland byelections (first byelection in 35 years where the sitting gov’t gained a seat), there’s fewer and fewer people in Labour who believe that Corbyn can win general elections. Polls show Labour polling less than 30%, the last poll puts them at 16% behind Tories (and high teens is consistent polling for the last month or so) which would mean basically electoral wipe-out for Labour. Labour is losing even in Wales, where it used to run double-digit lead in preferences, it’s now down to 5%.

        On preferred PM, Corbyn is a whopping 30% behind May, meaning that even a lot of Labour supporters would prefer May to him as a PM.

        And some are now starting to say that if Corbyn loses on this scale, a lot of his good policies will get tarred with “loser” brush, which will make it harder for someone else to pick them up later.

        1. Colonel Smithers

          Thank you, Vlade. Sad, but true.

          A couple of things about Copeland. It has been a marginal / toss up since 2010, after boundary changes, and includes a big Tory rural hinterland. It was also reported that Labour had not canvassed / campaigned there for a dozen years.

          1. vlade

            Well, I don’t know what is the definition of marginal, so I don’t know whether you include 2010 as marginal or not. If not, there was only one election since then (except for the by-election), which was a Tory sweep out..

            There are two interesting bits in this by-election to me.
            1) UKIP got trounced – they went from 6k votes just about 2k votes
            2) LibDems doubled their electorate – although it was still just about half of what they used to get in this seat.

            It’s a by-election, so the turnout was much lower than in election, but even accounting for that it tells me that the UKIP voters aren’t likely to go Labour these days, so Labour trying to pander to them is not going to work.

            This can be very well seen in the Stoke byelection, where UKIP and Tories got together almost 50%of the vote (similar to 2015 election). Which tells me that Stoke voting for Brexit wasn’t necessarily Labour voters. In fact, Stoke should be worrying Labour even more, as LibDem candidate there almost doubled his vote on much weaker turnout.

        2. Foppe

          Without an inclusive, positive message that meaningfully differs from the Tory one, I don’t see that happening. But that message won’t get out there with so many blairites still present. That said, per what Yves said, Corbyn needs to force the party to go talk to and listen to the people who voted leave, both to teach the party that lesson, and to inculcate the belief that politics is about making a difference and fixing shit. This focus on brexit, and letting that dominate thinking, will kill any/all enthusiasm, and doesn’t contribute to building a new party, because Brussels was only a problem insofar as the policies it pushed were/are the same as the policies pushed by Downing St./Whitehall. If Corbyn et al don’t get that and start moving (and forcing Labor to own its past 20 years of Blairot), they are indeed irredeemables.

          1. vlade

            To do that, Corbyn would still need to build some alliances – because he can’t rely on selling the message only to the hard left. The tough reality is that anyone who wants to win electins needs to capture at least part of the middle (or alienate all voters so much that only the extremists come to elections, but we don’t really want to go there). At the moment, Corbyn is doing his damnedest to allienate them all.

            I agree that Corbyn (and Labour) needs to listen to people who voted Leave, and understand why they did so – and address those reasons, instead of sitting behind Tories and nodding whenever May prounouces “will of people” while pushing policies that will hit the poorest the worst.

            1. Foppe

              Well, it’s partly about listening and ‘feeling their plight’ and making them part of something, partly about explaining the political dimension of how this happened in the first place, because most people in the street are wholly sold on the notion that govt can no longer do anything in the current, globalized age. And teaching them that TINA to demanding politicians do shit for everyone.

  2. PlutoniumKun

    I wonder if May will try for a quick election (I know technically its illegal, but I’m pretty sure she could engineer one somehow) to take advantage of the disarray in Labour and most everyone else – the LibDems seem to have gone to ground. The fact that the only sensible voices so far are ex PM’s like Blair(!) and Major says everything that needs to be said about the ineptness of Labour. The electoral timing now means that the next election is likely to be in the middle of the worst consequences of what is likely to be a chaotic exit, and she is too much of a politician to want that. She also has the problem of a very small majority and the likelyhood of being dependent on DUP (i.e. Northern Ireland knuckledragger) votes if some Conservatives start rebelling.

    1. vlade

      It’s not illegal – she just needs 2/3rds of the parliament to vote for it. Which Labour is unlikely to do, as it has no incentive for it right now (quite opposite). We have Cameron to thank for that too..

      The right political course would have been calling new election after the Brexit referendum, since gov’t campaigned for stay, and more importantly, since no-one campained for any _specific_ form of Brexit. But I was told at the time that Tories felt they had no money to run a new elections, so they never looked at it as a serious option.

      1. Colonel Smithers

        Thank you, Vlade.

        A former colleague and Tory activist told me that none of the parties has the money for a campaign and begun to raise the money for 2020, and the troops are exhausted.

      2. PlutoniumKun

        Yes, sorry, ‘illegal’ is the wrong term (again, I blame a caffeine deficiency this morning for my semi-coherent posts), I was just too lazy to look up the details, I knew there was some way around it.

    2. Anonymous2

      There is quite a lot of evidence, for those who try to read between the lines, to suggest that May’s strings are being pulled by others like Murdoch.

      A few years ago, Peter Tapsell, an old school Tory MP, asked in the Commons why so much of the UK ‘s media had been allowed to be in the hands of a man who reportedly hates the British. As I recall, answer came there none.

      Perhaps it is true after all, as some have suggested, that Murdoch is pursuing his revenge for being snubbed by English snobs at Oxford in the early 1950s and wants to do the country as much damage as possible.

      1. PlutoniumKun

        To be fair, I think its more than just the Murdoch media which has been avidly pushing Brexit – the Mail, Express and Telegraph have all been on board.

        But it is curious at how May has been so direct in pushing a hard Brexit – its out of character for her – apparently her nickname in cabinet was ‘the submarine’ because she always went out of sight when things got rough*. She was a lukewarm Remainer during the campaign and I think everyone, including her colleagues, expected her to keep all bets hedged as long as possible once she took power. Either she has suddenly found conviction or, as you suggest, there are strings being pulled.

        *there are also very dirty jokes doing the rounds providing alternative explanations for the nickname, but as this is a family blog…..

        1. Anonymous2

          I agree completely. It is not just Murdoch.

          In a sense I use his name as a proxy for a wider group but consider him a ring-leader.

          He is after all a wily old Fox (the channel ‘s name is a little has to be a little joke?).

          1. PlutoniumKun

            Thats a great read. Sometimes I think the best way to understand Conservative party politics is to read Jane Austen, followed up by the Just William books.

          2. Paul Greenwood

            I think Little Lord Fauntleroy (Cameron) left a big mess for someone of an older generation to clean up. May has an impossible task, certainly the biggest mess since 1970s when fears of coup were in the air as Cecil KIng Diaries showed and Peter Wright Spycatcher. The days of Mick McGahey and Gen Sir Walter Walker are far more dangerous especially after 1972 and 1974 Miners’ strikes.

            EU was where Heath parked the UK having run an inept economic policy that built very high inflation into UK life and deregulated Finance so it asset-stripped the industrial base. He let spending out of control until wage inflation reached 25% and left the country working a 3-day week with power cuts on a defined cycle. Reading by candlelight and listening to battery radios was the state of play in 1973-74 when UK joined EU.

            Every EU country is headed for turmoil, not least of all Germany which is headed for crisis

          3. vlade

            great. So we’re stuck with hardliner, who doesn’t even necessarily believe their position, but will tie themselves to the wheel regardless, because that is the position she inherited.

            1. Anonymous2

              I agree Runciman’s piece is a good read. I do think there is more involved in the current situation than May simply saying ‘you have to give the people what they voted for’. There was a fair amount of discussion after the referendum about what sort of Brexit the UK should contemplate: Hard, Soft etc. May spoke of the need for ‘some control’ of immigration, which could have been an emergency brake. It was only after she met Murdoch in New York that she went to the Tory party conference and came out as looking essentially like a Hard Brexiteer.

              Her trip to NYC before the party conference was presented as being to meet US bankers. However they said they did not feel she was listening to them. Given she could equally well not listen to US bankers in London as easily as in NY, I suspect the real reason for going was to establish what approach Murdoch would support, which is what we were told at the party conference.

              Murdoch seems to like UK party leaders to come to him. If you remember, Blair flew out to Australia to meet him. I think it is a way of emphasising dominance.

      2. Colonel Smithers

        Murdoch kept a bust of Lenin in his student digs. His father was not keen on the Brits, either, especially after Gallipolli.

        One of the daughters, Elisabeth, fell in with the Chipping Norton set, the clique around David Cameron. Cameron’s true circle are aristos, not parvenus like the Murdochs and Rebecca Brooks.

        1. Anonymous2

          Bannon is alleged to have been an admirer of Lenin as well.

          He and Murdoch perhaps admire someone who from nowhere manages to seize total power? I cannot believe they are secret Bolsheviks.

          1. Paul Greenwood

            Admirer of Lenin simply means someone who looks at a man who detached a small group from the 1903 Social Democratic Congress to plough their own furrow and risked oblivion but called his clique “Bolsheviki” to suggest they were a “majority” rather tan a splinter group. Nothing more. It doesn’t suggest they want to get syphilis, be shot, be embalmed, or even have their brother hanged.

            1. susan the other

              I thought Lenin et al actually co-opted “bolshevik” in the heat of the October Revolution when they knew they were in the minority but could see it was possible to grab power… pure propaganda as usual… In “Berlin” by Willmore (I think) she tells us about the cafe crowd in the early 20th C, sitting around smoking and drinking coffee – the bolsheviks (social democrats) were on one side and the mensheviks, something more like fascists, were on the other. When Eisenhower asked Allen Dulles what a “social democrat” was Dulles replied, “more or less a republican.” And we’ve all heard the story about how the Germans put Lenin on the Train from London to take control of the Russian uprising and give the German military a break on their eastern front. Whereas Stalin and Beria were groomed by the British. and on and on…

        2. Paul Greenwood

          Gallipoli was a bit of a disaster really. It is interest Attlee was a young officer there and I bet he reminded Churchill by his presence in Cabinet not to rush Normandy Landings with German gunners as he did in Gallipoli

          1. Colonel Smithers

            Thank you, Paul.

            Your reference to the great Clem reminds me of how when the generation of politicians who had served in the forces / WW2 faded out, the shysters (Thatcherites and Blairites, all chicken hawks) began to prosper and wreak havoc. The shyster idol, Thatcher the milk snatcher, refused to join the war effort, unlike Lillibet Saxe-Coburg, and preferred to help her father (an interesting character and subject of a book) run his corner shop in Grantham.

    3. Adrian D.

      Yesterday’s budget – with increased tax on ‘white van man’ (the ;hard-pressed’ self employed) suggests that the Tories aren’t considering anything imminently as far as a snap election is concerned.

      Labour is indeed in disarray, but are hamstrung by having to appeal to a base that is the most bipolar in Brexit terms and a catastrophically self-interested Parliamentary Party who would give the DRC a run for their money on cynically undermining the intentions of the membership. Corbyn has played a bad-hand only adequately (see this for a nice Stateside review of his situation that you just won’t get in the MSM over here):

      1. vlade

        I disagree on the bipolar – 2/3rds of Labour voters voted Remain, if you believe the exit polls. Yes, a lot of Labour seats went Brexit, but it doesn’t mean Labour voters went Brexit, as UKIP+Tory coalition could have easily get majority in those seats (which it might not be be able to get in Parliamentary elections short).

        Moreover, Tories are now picking a lot of white-van Labour voters, while the middle class Remainers (and there are such out there) are slipping to LibDem if anywhere.

        In other words, I believe that right now Labour is working very hard to alienate a lot of its potential voters while not being able to attract any new.

        1. Christopher Rogers

          I’m not too sure where you get your figures from to claim that 2/3rds of those who voted Labour in past elections, voted to remain in the EU Referendum last June. Indeed, hailing from one of the Labour heartland constituencies in South Wales my constituency (Torfaen) voted 60%-40% to exit the EU – this being a Labour seat for generations, whilst Monmouth – a staunch Tory seat – actually was one of the few areas in Wales to vote remain. Now, this could be an outlier, but was repeated in many Labour areas across England & Wales, areas ignored by the metropolitan elite and taken for granted by an ‘out of touch’ Labour Party machinery that mirrors its DNC peers across the pond – to put it bluntly, I and my peers are regarded as ‘deplorables’, many unwanted within our local CLP’s. For my own sins in trying to democratise the People’s Party and push an actual Leftwing agenda I’m barred from being a Party member for two years, and if I appealed this decisions, would face a 5 year ban for having the temerity of telling the truth and fighting for actual socialist principles. As for the assertion of ‘no opposition’ to Ms May and the Tories, well at a PLP level this is probably accurate in the sense that the majority neoliberal Blair babe contingency would prefer a Tory government to an actual leftwing Labour government – Copelend was a classic example of this, its recent MP being a huge critic of Corbyn who bolted when a better financial option was made avaiable and the timing of both Labour MPs resignations were timed to undermine Corbyn with maximum effect, which they duly did!

            1. Nell

              Yes – in terms of numbers more Labour voters across the UK voted to remain in the EU. The difficulty for Labour is that those voters are scattered across constituencies – including safe Tory seats and safe LibDem seats. When the referendum vote is looked at from the lens of constituencies there are many traditionally Labour constituencies where the majority of votes went to Leave. It would be very difficult for campaigners in a general election to argue that Labour represents the people if it disregarded the referendum pattern of voting within a constituency.

      2. Colonel Smithers

        Thank you, Adrian, for the link.

        It’s interesting to see the UK MSM get (their knives) ready for the potential successors to Corbyn from the left, Angela Rayner, Rebecca Long Bailey and Richard Burgon.

        Jones is a regular talking head on the airwaves. He has no expertise in anything, but opines on a lot. A couple of years ago, on a late night TV review of the newspapers, he advocated moving African villagers from game parks and the countryside, so that the wildlife could be left to breed in peace and not be threatened by poaching. There may be some merit in an exclusion zone and evidence of local poachers, but at no time did the clown mention that vast tracts of Africa are owned by foreign magnates like Richard Branson, excluding locals from any ability to profit from tourism, and the scale of hunting by tourists (especially from the US and Spain).

  3. Jeffrey Kegler

    To do the sort of quoting you do in the epigraph, you can use the “attributed to” tactic. Thus::

    “Some of the best things I said, I never said” — attributed to Yogi Berra.

  4. Colonel Smithers

    Apart from Wolf and the Evening’s Standard Anthony Hilton, I can’t think of any journalists who have addressed / analysed the issue in the depth it deserves and conveyed the weakness of the UK’s hand. Pro EU (and neo-liberal) rags like the Grauniad (sic and its sister the Observer) and Russian oligarch owned The Independent are so far up their own backside and wetting themselves about Trump and Putin that they (seem to) forget about Brexit.

    1. PlutoniumKun

      I only glance through the Guardian these days, I’m so disgusted with the direction its taken under its new editor, but I’ve been surprised at how poor its Brexit coverage has been – nothing in-depth at all, just whinging from the usual commentators. The fact that Yves, from a distance, can provide much better researched and more incisive articles than mainstream UK newspapers on the topic says everything you need about the way journalism is going.

      1. Colonel Smithers

        Thank you, PK. The airwaves are no better.

        You make an excellent point about Yves’ coverage. Foreign MSM, governments, trade bodies and firms are doing a better job, too.

      2. JustAnObserver

        PK: Glad you brought up the editor change. I think that explains a lot as I really think Alan Rusbridger would not have allowed the RUSSIA! PUTIN! hysteria to get such a grip. Says everything that Katherine Viner was instrumental in stopping him becoming the chair of the Scott Trust.

        “Comment is free but fact are sacred”. C.P. Scott’s probably spinning in his grave so fast they’ve connected him to the National Grid.

    2. Paul Greenwood

      UK’s hand is weak everywhere. It is an overcrowded island whose living standards seem to have soared since de-industrialising. 1970 it had 35% Basic rate of Tax and 75% top rate and had a military of 176,000 soldiers plus 80,000 reserves. Today it has 75,000 soldiers and cannot afford equipment.

      People could barely afford a fixed line telephone in 1970 now teenagers have iPhones and houses have FST and cars even when unemployed on benefits. The unemployed today have far higher living standards than industrial workers in 1971 yet there is no industry and huge trade deficits.

      UK is in cloud-cuckoo land. BreXit is the only sign that some people recognise an adjustment is necessary

      1. Anonymous2

        The spending is of course largely financed by selling the more attractive assets to foreigners. This cannot end well.

        I agree the Brexiteers sought change but it is, I fear, the wrong sort of change and will serve to make a bad situation worse.

        Indeed you can argue Brexit is the ultimate self-indulgence of a people in denial about the real situation of the country. ‘Living above our means? I know, let’s make life more difficult for our exporters – that should help.’

      2. Synoia

        yes, in the South. Not so much in the north.

        The difference in prosperity you illustrate is attributable to North Sea oil. and gas,

  5. Eustache de Saint Pierre

    As an Englishman I agree with the doom & gloom above & within the present political context it does make a lot of sense. My only reservation to the above is due to what I believe is the high possibility, that other events will become a large factor in all of this.

    Even without the upcoming elections within the EU, there are it seems to me to be many stress points within what is a very faulty structure. Of course they might be able to keep attaching sticky plaster over these areas & in the meantime, the UK will be left to swing in the wind, but as I am primarily concerned about my Grandchildren’s future – what about the long term ?

    I have read plenty of material which leads me to believe that the present system is unsustainable, with recommendations from many sources on the benefits of localism, less is more etc. Perhaps the above are all fairy tales & wishful thinking & there is no way out of tangled almost globalised Neoliberal web we are presently stuck in, leading us to be forever at the mercy of the giant financial spider at it’s heart, but isn’t it the historical reality that change only comes from some sort of cataclysm, with Brexit & Trump for all their stupidity as being an unfortunate necessary part of this ?

    I really do not know, but I believe that we are already on the road to nowhere, but I would prefer it if we at least had the chance to either work it out or screw it up for ourselves & we do have precedent after the last great European fiasco, when a government was elected that created in my opinion a truly Great Britain, in which for a short period at least, life for the majority was massively improved.

    I am sure you will all consider me to be pretty stupid & a hopeless dreamer, & by the way, I have not been annoyed in terms of the opinions here, as I consider this to be a place of wonderful clarity & am very grateful for it. However I was slightly irked by those who appear to believe that London should be seen as somehow representative of England. To my mind it is the equivalent of comparing NYC to Ohio or the Lannisters to the Starks.

    1. Boulevardier

      Thank you Eustache – a very measured comment. Who knows where the EU will be by the end of 2017?

    2. Uwe Ohse

      Even without the upcoming elections within the EU, there are it seems to me to be many stress points within what is a very faulty structure.

      Yes, there are a lot of stress points.

      But every political and/or economical structure has stress points, and the larger ones have even more. Each and every one survives longer than those critics expect who focus on the stress points.
      A political or economical structure dies not because it is stressed, but because the negatives of the structure outweigh the positives by a large margin – the margin is due to inertness and the tendency of the human being to avoid risk.

      Whether the EU has reached the point where the negatives are equal to the positives is not certain, since there are still lots of people and businesses who benefit from the EU. I tend to think that we are near that point, but it may well be that we are still far from it. It is impossible to tell without the benefit of hindsight.

      But that margin has almost certainly not been reached, and whether it will be reached sometime soon, is an open question.

      The, cough, oh so well executed brexit, cough, will only strengthen the risk avoiding tendency. It will possibly, if it continues to be so professionally done, strengthen for some time the position of those who do not want a major EU reform.

      Don’t hold your breath waiting for the funeral of the EU. Wilders, Le Pen, Grillo, AFD – none of them will be stupid enough to follow May into the abyss. They’ll find some way to avoid it.

      Some day the EU will end. No political system survives forever. But not yet.

      1. vlade

        To an extent, you can already see it (the Brexit strenghtening the risk avoidance tendency) – LePen is losing in the last polls to Marcon even in round one, in Germany pro-EU SPD is making strides, in Netherlands Wilders burned and crashed in the last few weeks (at least in polls).

        Once scenario I always considered possible was that Brexit will be the straw that will get EU moving towards reforming itself, with the UK ironically sacrificing itself at the altar for a better EU

        1. PlutoniumKun

          One thing that passed largely unnoticed in the Northern Ireland Assembly elections a couple of weeks ago was that the People Before Profit Alliance – a small Trotskyist group who have been growing rapidly in nationalist areas – were pretty much wiped out, losing all but one of their seats (they were predicted to gain seats by most commentators). They advocated what they called ‘Lexit’, a left wing argument for Brexit. It seems that did not go down at all well with left wing working class voters in Belfast and Derry.

          1. vlade

            Given how DUP lost in the regional assembly, I suspect they wouldn’t want an early general elections either, since I’m not sure how they rabid pro-Brexitness can be reconciled with their electorate..

            I suspect now not a few loayalists may be starting to think that being part of Ireland insinde EU may be better than the UK outside EU – although this is just a speculation and I’d like to hear from someone on the ground.

            1. PlutoniumKun

              I think the problem is that while some Unionist business interests – essentially the old establishment OUP and Alliance types – might reconsider when faced with the economic calamity for the North that Brexit is likely to be – the OUP are in chaos after losing out badly and losing their leader, so there is nobody making the argument on a political level. The Irish government and establishment is desperately trying to persuade everyone that there is a ‘sensible moderate’ alliance to be found between the SDLP and OUP, avoiding the issue that most northerners vote DUP and Sinn Fein. May knows full well that she may need DUP votes if things tighten up in Westminster so she will continue to refuse to cultivate an anti-DUP unionist grouping.

              So NI is in the unenviable situation that while the clear majority are Remainers, the only significant political grouping arguing for this is Sinn Fein, which means both London, Dublin, and moderate Unionists will pretend this isn’t the case.

              What may change the calculations are that its quite possible that Sinn Fein will be in government in the Republic before the year is out. It would then be impossible to pretend there isn’t a majority, north and south of the border clearly wishing to prevent a hard border. Add this to demographic changes which means there will probably be a nationalist majority by the mid 2020’s, and you will have a very unstable situation.

              I have no doubt that there is an element of Unionism which would reluctantly accept a constitutional deal of some sort to prevent NI joining Brexit, but there is also a significant element which would do anything, including violence, to prevent it, even at the expense of the economy.

      2. fajensen

        Don’t hold your breath waiting for the funeral of the EU. Wilders, Le Pen, Grillo, AFD – none of them will be stupid enough to follow May into the abyss. They’ll find some way to avoid it.

        The nationalist, anti-immigration party DF (Danish Peoples Party) has gone Very Quiet on DEXIT in the last 4-5 monts, they are now adopting another position that the way to properly fight “Polish Plumbers” is to enforce Danish wages and working conditions, via the EU. And the EU should get it’s asylum policies fixed (before it was “kick as may muzzies out as possible”). Quite a reversal.

        1. Eustache de Saint Pierre

          I do not count on anything except perhaps the unexpected. All I am basically saying is that we are all basically whistling in the wind, unless of course anyone has an infallible crystal ball.

          It will probably be a disaster, in which case I hope the Tories & Ukip get the blame & are discredited enough so that a real progressive alliance or such like can take advantage. It is again probably wishful thinking & in any case there would likely be much hardship…..but, where are we heading anyway ?

          Personally I would prefer short term damage to the death of a thousand cuts that would be EU Neoliberalism, who if you are all correct in your predictions for these elections, this will no doubt result in an effort to tie the Federalist knot, of which I wish the Europeans the best of luck.

          I did not vote in the referendum as I found both sides to be despicable, with the Remainers strengthening this feeling, in their reaction to losing, which was similar to that of the US Liberals to be disgusting in the way that they also spat from a great height on those they consider as deplorable. I also have no time for the English exceptionalists who take sometime to die out, as I am sure you Americans will find out in terms of your own versions.

          I also at one time in favour of ditching the pound for the Euro, but as it turned out at least when the banking crisis hit we did not have the Troika setting up shop, to goodness knows what result & as is the case now, we are still in a position of being able to either to make good or to screw up, which I think is a good thing.

  6. PlutoniumKun

    Incidentally, regarding John Brutons quotes – I don’t like him as a politician, and I don’t like his politics (very establishment conservative), but he is smart and extremely well connected within Europe and would have as close links with mainstream UK politicians as any non-UK politician can have. He would be considered someone very sympathetic to the Torys, or at least the more internationalist, ‘wet’ types like John Major. I would read between the lines of those quotes a lot of exasperation with the UK government and that he is reflecting the anger a lot of conservative, generally pro-UK politicians within Europe would have over Brexit and the behaviour of the Conservatives.

  7. Catullus

    After reading this article, I was in the shower thinking how the British could minimize (still bad but some minimization anyway) the carnage from a sudden Brexit in 2019 if nobody can agree to any thing.

    The answer came to me suddenly and I was shocked at it, its crazy. But one thing I have learnt in my life, you have to think of the outrageous and unthinkable. They don’t usually happen but the potential is always there.

    You’ll tell me I’m insane but here goes: The UK, instead of trying to play with a weak hand vs the EU… may choose to become the 51th state of the US or more likely, a protectorate or unincorporated territory (like Puerto Rico)! Yes, it means full or partial loss of sovereignty. That is why I think it is unlikely but it is a possibility that must be considered.

    There are an incestous relationship between Wall Street and the City of London. Donald Trump is President and he has apathy towards the EU. Facing oblivion with a sudden Brexit – collapsing Pound, chaos, being part of the US may seem attractive. The US would gain more power.

    Insane, I know but… 2 years ago if I told you Donald Trump is President, you’ll think I was insane, too. Now, Trump himself… I think he will be an ineffectual President but he does have that one thing that most people don’t have… unpredictability. Anything is possible with Trump. He has no real loyalty to anyone except himself and his family. Not even the Republican Party.

      1. Colonel Smithers

        Thank you, Catullus and Vlade. Not a bad idea! What are we going to do with the German immigrants living in the big council houses on the Mall? I ask because a few years ago someone proposed that the Netherlands join Germany, but a German asked what they would do with the Orangemen.

      2. Catullus

        vlade – I’m glad I’m not the only one who thought the way I did. I did not see your comments last year but maybe I forgot. I expected my thoughts to be dismissed.

        I now think it’s more likely that if the US makes trade deals with the EU, it will demand the UK to be treated a certain way or no deal. Easier to do, probably. It’s up to Trump, tho. No idea what he will do, ultimately. Japan may make demands on behalf of the UK, too so that is another angle to watch.

    1. River

      Worth it just for the historical irony.

      Uncle Sam “Well look who wants to join us “Bloody Colonials”. Not so big now are you?”

      St. George “No, sir, not really sir. Can I have some porridge?”

    2. pmr9

      51st State: novel by Peter Preston (former Guardian editor) published 1998 is based on exactly this scenario

  8. Sally

    “The fact is that the UK is a small open economy.”

    Really? Last time I looked we are the 6th or even 5th largest economy in the world. (Depending how you value it) There are over 150 countries at the UN with smaller economies and who are not in the EU. I greatly look forward to you writing articles about their impending doom in the next few weeks.

    We would prefer a soft BREXIT but the EU elite would rather cut off their noses to spite their face. Punishing us for our disobedience, and a warning to others who might like to leave. A deterrent has to be set. And why if we are so tiny and irelevent are all these EU leaders getting so angry? Perhaps, as the second biggest contributors to the EU funds, they are all going to have to cough up more money when we leave. So a hard BREXIT it will be. But that is the elites choice. And it works both ways. We don’t want a trade war with other countries, but we import far more from Europe than we export. Do all the Euro countries want to punish their own workers? Just to prove a point? How pathetic, and shows they don’t put their people first.

    I’m not saying that it will be a walk in the park, but on balance I believe we are better off long term able to make are own deals with other countries arround the world. These people who are saying it will be bad for us told us ten years ago the sky would fall in if we didn’t join the Euro currency. We didn’t join, and the sky didn’t fall in. We were told by these same people that if we vote BREXIT the economy would collapse straight away. Yet in fact we have had better growth than many country’s in Europe. And now the nay Sayers are beating their negative drum again. Its sad how many of them want the UK to fail.

    As an island we can get back are fishing rights that were so shamefully given away by Mr Edward Heath in 1972. We can have a thriving fishing industry again.

    1. Yves Smith Post author

      Willem Buiter, former UK central banker and highly regarded macroeconomist, has repeatedly called the UK a “small open economy”. It is as mere 1/6 the size of the US and 1/4 that of China. And it’s going to get smaller as a result of Brexit. Its major trading partners are all bigger than it is. That gives them the better bargaining position. Any cost will be smaller relative to their GDP than relative to the UK’s.

    2. fajensen

      And why if we are so tiny and irelevent are all these EU leaders getting so angry?

      I don’t know, if they are even angry, but, I personally find it rather annoying that the British are demanding special treatment and special consideration above everyone – or else they will do … what?

      “Bad Things! On some remote and unlikely future occasion perhaps but it will still be BAD! So there, Do what we Demand!!”

      It just goes on and on and on like that. What can one say, except: By all means stop pissing around making threats and demands, get a grip, clue, plan, grow up, whatever it takes and get on with it … or don’t.

  9. Oregoncharles

    ““No deal” would mean the UK simply crashing out of the EU overnight, sometime before the end of March 2019. This “no deal” scenario would be an overnight halt to flights, to trade and to commerce. There would be immediate, massive currency instability.”

    Perhaps some stuff has happened that I don’t know about, but this makes no sense to me. All those functions happened, and ran as well as can be expected, long, long before the EU was formed, let alone the WTO or any modern “trade pacts.” Air traffic, for instance, is managed by a separate system that is either independent or under the UN. And as I’ve said repeatedly, trade predates trade agreements by thousands of years. The quote implies that the EU, and all its member countries, would actively ban trade with Britain.

    While the consequences would be MORE severe for Britain, because it’s smaller, they would be considerable on the EU’s side. Many – I’m guessing millions – EU citizens and businesses would be severely inconvenienced and lose a huge amount of business. Britain would have every reason to expel all EU citizens. It would be a nasty mess, the kind of thing that occurs in the leadup to wars. And yes, that’s the nightmare that hangs over any EU crackup. It’s fortunate that Germany has been under-budgeting its military.

    It’s perfectly possible the EU will do a jilted-lover number and cut off its nose to spite its face. But the political consequences would be substantial, especially in the core countries that trade most with Britain – with the expulsion problems worst in Eastern Europe, where they’re hardest to accommodate.

    Again, I suggest that the posturing we see now is, in reality, part of the negotiations that, in theory, haven’t even started.

    1. Oregoncharles

      Afterthought: that quote is from the Irish PM. Ireland has special problems – and it’s part of the EU, one with a shaky economy. That’s why he sounds a little panicked. According to a recent article (here? I don’t remember), Ireland has been treating the EU as a form of re-unification – especially economically. Brexit poses them a nasty dilemma, which is one reason N. Ireland voted against it. The EU has already sacrificed Ireland once, after the Great Financial Collapse; if there’s the kind of “hard Brexit” Bruton describes, Ireland would need its own survival strategy. That’s just one of the difficulties the EU could face.

      1. pmr9

        A hard Brexit in which the EU attempts to impose a blockade on trade with the UK will be an opportunity for Ireland to earn money by breaking that blockade. It’s impossible for the EU or anyone else to seal the border between Northern Ireland and the Republic. During the 1980s, border officials who were too enthusiastic about checking vehicles would find themselves having a friendly chat with the paramilitaries. UK goods and services that are traded with continental Europe can easily be rebadged as Irish. The UK is big enough to backstop the Irish banking system, limiting the ECB’s power to impose its will on Ireland by threatening to pull the plug (as it did in 2010 when the Irish government tried to impose a haircut on Anglo-Irish’s creditors).

        1. PlutoniumKun

          That simply won’t happen. The agriculture and food industry is far too important to Ireland to allow leakage over the border. If Irish foodstuffs cannot be labled as ‘EU’ origin this would destroy the dairy and beef industry as Ireland is one of the most important sources for base dairy products (including the vast trade in baby formula to Asia). Ireland would have far more to lose than to gain than to do what you suggest. The border cannot be 100% sealed, but it certainly can be sealed for the type of large scale smuggling that would make a real difference.

        2. Marina Bart

          Are you actually suggesting that ALL of British trade destined for the EU would literally be shipped to Northern Ireland, and then smuggled to the Republic, which would then voluntarily help the English while endangering its own relationship with the EU by falsifying labeling and other paperwork and identifying information? And then all the stuff the English need to survive would likewise get funneled through the Republic? The EU wouldn’t notice this MASSIVE increase in both production and consumption on the part of the Republic? I mean, I know England is not a big country, but I don’t see how the discrepancy wouldn’t be noticed.

          It’s the middle of the night here and I have a migraine, so maybe I’m missing something.

          I’m an American, and I realize that I don’t understand a lot about the current relationship between the Republic and Britain. But in addition to the problems mentioned above, and Kun’s point about the border (by the way, I believe it is now actual criminal gangs they’d be dealing with at the border, to some degree descended from paramilitary groups, but not the same), there’s the power issue. As someone of Irish descent steeped in the history of English oppression of the Irish, I kind of love the idea of Ireland gripping England by the, er, trade agreement. But I can’t imagine the English willingly handing all that power to the Republic.

          Wouldn’t it be easier to just smuggle from the English coast to France? There are probably still families that have an institutional memory of how to do it. (That won’t work either, but it seems no less feasible that your idea, and is at least simpler.)

    2. jaywee

      Just today in the Guardian:
      Brexit, airlines’ worst fear, has become their preoccupation

      “The worst-case scenario of planes unable to fly between Britain and Europe is one that few foresee. But the legal framework underpinning international flights, wrapped up in EU membership, is set to disappear.”

      About 85% of Britain’s international air traffic is currently governed by EU-wide agreements…

    3. Eustache de Saint Pierre

      I suspect that you are right – rocking such a complex unstable system would probably be very unwise & the Irish would be lost at sea without their trade to the UK.

      Still, honouring the result of a referendum & not ignoring it or taking it again until you get the desired result, is apparently now a crime in the EU & must be punished.

  10. JustAnObserver

    The UK is currently in the position of Wile E. Coyote having run off the cliff chasing the Roadrunner but just before the he looks down, realizes, and starts to plummet. Meanwhile RR stands on the edge of the cliff, goes Beep Beep, and runs away laughing.

    1. Eustache de Saint Pierre

      Wile E. Coyote never gives up & the last time I saw him in a cartoon created by the makers of ‘ Family Guy ‘, he actually did catch the roadrunner, but with a big downside – in as much as he became some kind of born again christian.

      I guess we will just have to take the rough with the smooth.

  11. Dead Dog

    Brexit would never have gotten any traction if the UK was on the Euro instead of the Pound note

    I hope that history proves the exit option was the better one for the UK. Better to die on your feet anyways

    And, I also hope that Scotland (who voted to remain) finally gets out of the UK and becomes its own sovereign nation again.

    Great reading today, thanks to all who have penned a comment

  12. Gman

    My favourite Yogi Berrism is, ‘if you see a fork in the road, take it.’

    A not untypical hatchet job on Brexit there Yves, or maybe you were just playing Devil’s advocate to get everyone in a froth?

    Some minor points, the decision to leave the EU was decided by a majority decision after a democratic referendum formally endorsed by a substantial cross party parliamentary majority, not by the Conservatives per se, nor by Mrs May, who incidentally was a known remainer.

    Nor is Euroscepticism in the UK a new phenomenon that suddenly got legs as soon as a referendum was called as you seek to suggest. Both Blair and Brown had pledged to hold a referendum on EU membership, but needless to say they didn’t materialise. Euro scepticism has been around for decades in the UK, although it was originally the near exclusive preserve of the Left who as good as predicted the EU would become the neoliberals’ wet dream it has indeed become.

    Nor can decades of Euro scepticism be exclusively and simplistically characerised by a couple of divisive characters like Johnson or Farage, or reduced to a fallacious pledge on the side of a bus, unless you’re playing to a gallery of course.

    In terms of trade the UK is the EU’s biggest single export market in goods if you treat the UK as being outside the EU.

    In terms of article 50 I am increasingly coming round to the idea that it should not be triggered before negotiations have begun and there is no legal (or commonsense) basis for demanding that the UK do so.

    Additionally if for any reason the UK’s politicians renege on the referendum result and the country is forced to go go cap in hand, with its tail between its legs back to the EU, the terms under which it would be forced to return, not least the inevitable adoption of the Euro, would condemn this country to little more than a glorified county council of the EU and then, I would argue, all would indeed be lost.

    1. JustAnObserver

      I think this:

      “In terms of article 50 I am increasingly coming round to the idea that it should not be triggered before negotiations have begun and there is no legal (or commonsense) basis for demanding that the UK do so.”

      is actually false and that according to treaty no negotiations can start until A50 is triggered. However it does seem to be a primary component of soft-Brexit LaLa land.
      [IIRC Yves has commented on this before]

      Maybe informal ones could start but with who ? with Johnson as Foreign Secretary !??!

      My fear is that even those EU officials or nations retaining at least some goodwill towards the UK are finding it hard to take the current posturing from the UK side seriously enough to consider even talks-about-talks.

      Remember Rodricks trilemma of National Sovereignty vs. Economic Integration vs. Democratic politics. You can only ever have 2 out of these 3. So if Brexit implies the choice of Sovereignty has already been made then there only remains the choice between:

      (a) Economic integration.

      (b) Democratic politics.

      Hands up anyone out there who believes Theresa May’s Conservatives would willingly choose (b) over (a) ? Would Murdoch & Co. even let them ?

      1. Gman

        The current, democratically elected UK government has received instruction from its own people, by virtue of a majority decision via a referendum called for and supported by a substantial parliamentary majority in 2015. 

        It is not a coincidence that the first time a formal EU exit mechanism was belatedly introduced, after so many decades without one, was in the 2007 Lisbon Treaty as it became increasingly apparent to various dissenting voices that the EU’s ultimate barely disguised goal was a European federalised ‘super’ state.

        The ‘conditions’ for leaving, in which we now know as Article 50, stated:

        1. Any member state may decide to withdraw from the Union in accordance with its own constitutional requirements.

        2. A member state which decides to withdraw shall notify the European Council of its intention. In the light of the guidelines provided by the European Council, the Union shall negotiate and conclude an agreement with that state, setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the Union. That agreement shall be negotiated in accordance with Article 218(3) of the Treaty on the Functioning of the European Union. It shall be concluded on behalf of the Union by the Council, acting by a qualified majority, after obtaining the consent of the European Parliament.

        3. The treaties shall cease to apply to the state in question from the date of entry into force of the withdrawal agreement or, failing that, two years after the notification referred to in paragraph 2, unless the European Council, in agreement with the member state concerned, unanimously decides to extend this period.

        4. For the purposes of paragraphs 2 and 3, the member of the European Council or of the Council representing the withdrawing member state shall not participate in the discussions of the European Council or Council or in decisions concerning it.
        A qualified majority shall be defined in accordance with Article 238(3)(b) of the Treaty on the Functioning of the European Union.

        5. If a state which has withdrawn from the Union asks to rejoin, its request shall be subject to the procedure referred to in Article 49.

        Now the UK doesn’t have a written constitution and nor are we mercifully hampered by uncoupling ourselves from the horrors of the single currency. We can signal our intentions to leave, but need not trigger article 50 in order to do so and in not doing so, negotiations need not be precluded.

        Additionally a signalled withdrawal without triggering article 50 marks acceptance on behalf of the UK to continue with its obligations, legal, financial etc to the EU until such time as it is triggered and possibly beyond, subject to the satisfaction of ‘both’ parties.

        Triggering article 50 effectively ensures the UK is still bound by ALL its onerous obligations, and turns the hourglass over, immediately giving the EU a dominant, possibly unassailable negotiating advantage should it wish to deliberately choose to spin out negotiations without a satisfactory, definitive conclusion within that arbitrary two year time frame, and possibly (deliberately…did I say that?) leaving the UK twisting in the wind.‎

  13. Schofield

    In truth for decades the British electorate have lacked economic and monetary system knowledge to elect competent governments. Whilst the country is not quite a basket case it’s heading there fast with Brexit a major accelerant.

    1. Gman

      Basket case I can accept, but unless you’re from Switzerland (and even then) I defy you to name pretty much any electorate anywhere in the world that possesses the ‘competence’ or access to the ‘ monetary system knowledge’ that would inform their votes in the manner you’re alluding to.

      Most people vote for, or against, a status quo that they believe serves, or doesn’t serve, their interests, or will occasionally (out of desperation) take a punt on a debatable credible dreamer who more likely than not turns out to be a snake oil salesman.

      Either way please spare us all that patronising BS.

  14. susan the other

    This might be the UK’s last chance to get out of the EU and preserve it’s own financial sovereignty. And this sense of loss of sovereignty is the achilles heel of the EU. The EU needs a mechanism for forgiving debt. Which is a sovereign prerogative the EU does not have. It’s like the emergency room – you go there when you need immediate treatment, not to listen to a bunch of bureaucrats deliberating how they will get their money back from you and your misfortune. The whole world knows growth is no longer able to keep up with debt, so that old assumption of paying back the money is out of whack and will not be very useful… why nobody sees this as the basic issue is probably that it threatens national identities too much. Or stg.

    1. Yves Smith Post author


      The UK is financially sovereign. It has its own currency. But it is nevertheless integrated into the EU to a significant degree via trade (including not being remotely self-sufficient in food) and services, particularly banking.

      1. Marina Bart

        Would it be more accurate to say that the UK is monetarily sovereign but financially integrated in the EU? Currency is money, but banking is finance, isn’t it?

        1. Yves Smith Post author

          The UK has its own central bank and its own national budget which it funds through its own fiscal and monetary operations so it is not “financially integrated”.

          London can lose market share as a banking center via firms of all nationalities moving operations to the EU because it will become more cumbersome and costly (if not outright impossible) to do certain types of business post Brexit depending on the agreement. For instance, it is just about certain that Euroclearing, which the ECB wanted to get out of London and into the Eurozone, will relocate because the reason the ECB lost its case in the European Court of Justice was that the ECB could not discriminate against a member of the EU that way.

          1. skippy

            Amends…. I think the drama is over equities and VoM…

            The city being a huge financial center and the FX effects with regards to VoM…

            disheveled…. what is going to create demand signals in lieu of thingy…. under the current paradigm…

          2. Marina Bart

            Thanks for the explanation. So that means it doesn’t have to deal with the EU’s budget rules at all?

            I still don’t really understand what Euroclearing is. I’ve read your explanations before, but it doesn’t seem to stick in my head. I don’t know if it’s a function of always reading about it at 3:00 a.m., or what.

            It’s not literally the thing I did at Bear Stearns one summer in high school sorting stacks of paper from trades executed that day, is it? It seems like it should be more exciting than that.

    2. skippy

      Susan the other….

      Were not on a bimetallism standard, there is no paying back thingy…. see Warren on paying back the past in current production…

      disheveled…. views on money can create glitches in perceptions imo….

      1. Susan the other

        I got the impression from watching Cameron struggle to get certain concessions from the EU so he could convince (I assumed) the UK banking industry to agree to stay (in the UK? or the EU?) that what was at stake was the imposition of stricter EU regulations on UK banking practices (which they had so far avoided) which would serve to put the UK in the same position as Italy or Greece in terms of monetary sovereignty. That even though finance has become a flexible thing and is no longer pegged to gold, it’s regulations do cause austerity if a country does not have sufficient sovereign control. No? Otherwise, I definitely can’t see why the UK would even consider for a moment leaving the EU.

        1. skippy

          The UK is a monetary soverign, albeit huge quantities of financial stuff is only denoted in the Pound – as flows….

          disheveled… as its been noted… the UK is resource poor and not much Mgf to speak of… friction in access to such a huge market w/ concerns over the Pounds value has nasty potential. Throwing ones toys out of the play pen does not work well with others that don’t get emotionaly sucked in thingy….

  15. Dan

    I am looking forward for an article on how well off is Greece or how great is Italy doing inside EU and what dangers those countries will be facing if they will ever think about getting out of such an exclusivist highly-profitable club that EU is and will ever be!

  16. Synoia

    A question, because while the Tories have a specific behaviour, they are not stupid,

    Given the success of the PIIGS in the EU, under the kind and gentle Germans, why remain?

    It appears the choice between leaving or remaining in the EU is a Hobson’s Choice..dammed of you do and dammed it you don’t.

    Yves needs to to consider both sides.

    1. Anonymous2

      Commenters, please distinguish between the EU and the Euro zone. The UK is in the first but not the second. The distinction is very important.

      1. Gman

        If we’d been in the second ‘distinction’ the British people (and I mean British, not just English) would have voted for Brexit in their droves….assuming it wasn’t too late.

      2. Susan the other

        So was the UK actually facing a decision to join fully and become a member of the Euro zone – giving up the Pound and financial sovereignty for EU membership? Had their time run out?

        1. Gman

          The UK opt out was not ‘good forever’.

          It was actually one of the rare moments of political nous that John Major (the PM at the time) had.

          Negotiating the opt out that potentially saved the UK from financial oblivion (or a fate worse than Greece’s) in 2008.

          The stated aim, agreed not legislated for, of the EU is that all members old and new, will be in the single currency by 2025.

          Additionally the UK’s hotly contested ‘rebate’ would have been up for renegotiation in 2020.

          Eurosceptism’s understandably a hard sell to the rest of the world sometimes as the EU is peddled as some big, happy, harmonious albeit imperfect European club that you’d be mad, selfish or racist not to want to join.

          Simplistic, I know, but imagine if you’re Canadian or American how you would have felt if NAFTA hadn’t just been serious about reorganising your terms of trade, but also your internal politics too.

  17. George Phillies

    Of course, if as proposed on hard Brexit there are no flights (and therefore no tunnel or ferry), there is no more easy immigration from the EU to the UK.

    These discussions of the financial effects are entirely sound, but ignore the issue that there are other things in the world besides money.

    Once again, not a major economic contribution, Englishmen will be able to make fruit wines and sell classic varieties of English cucumbers. With a bit more global warming, expect also the manufacture of English champagne and English tokay wines.

  18. RBHoughton

    The important thing is hinted at in your quote from Martin Wolf – the conservative party will collapse once the facts of Brexit become known to the people. The London Editors will not be able to obscure the reality.

    The media and Tories have been spending their time trying to destroy the socialist Corbyn when it looks as though they will have their hands full saving some slight shadow of themselves (that are forever England).

  19. Eustache de Saint Pierre

    It might all go horribly wrong & I imagine there will be lots of pain, but it might well lead to us getting our act together, but even if it does not, at least it will be our fault.

    Personally I would rather it be that way than to become nothing more than a province in a Greater Germania, which appears to be the plan under Federalism, which would leave these states with even less control of their so called countries.

    The EU has already given plenty of evidence of how Democracy can be swept aside in favour of financial interests & as Mark Blythe said, they are using coalitions as blocking mechanisms to prevent any alternative & if that fails, as was the case with Greece, they then use financial blackmail to get what they want. If in the light of rising inflation & neoliberal business as usual, in the next few years ( assuming there isn’t another financial crisis ) populations become even more disillusioned….do you think that they will just sit back & allow a Democratic mandate to undo all their good work ? given their record so far, I for one am not sure.

    Somebody mentioned that the EU might reform, therefore I assume turning into a place of milk & honey, which I suppose would be the ultimate ” Up yours “, to the Brits or English, stuck shivering on their small rock. I do not however see that happening, but if it did I would actually be glad, as despite the worst will in the world this would inevitably rub off on us & I bear no ill will to anyone in Europe, except for those who I consider to have destroyed something that could have been special, in particular the likes of Barossa, & Olli Rehn, who have been rewarded for their efforts among other things, for their pillage of Greece with nice cushy bank positions.

    As for the Remainer fanatics, please just leave, unless you want to put a shoulder to the wheel.

  20. Brexitologist

    Good analysis. Decades if not centuries of English self-mythologising are coming home to roost in the space of two years. Brexit will plunge the country into darkness for a long time. I would seriously dispute this, however:

    Similarly, as various experts have already warned, the UK is almost certain not to see a reduction in immigration post Brexit.

    Jonathan Portes predicted the opposite last August, and I think his analysis is proving correct. EU net migration has possibly peaked and various sectors are already reporting labour shortages.

    There are more reasons to expect immigration to fall. Hate crimes spiked after the referendum. The value of remittances collapsed with the pound, and they will only fall further.

    Life for EU migrants is being made more difficult and their rights are under threat. This of course was the aim of “business leaders” like Tim Martin and James Dyson who supported Brexit. Fewer rights = less bargaining power.

    The IFS reports wages will not recover to pre-crisis levels until 2022. There will be no economic case for staying in the UK and they aren’t there for the weather.

    Austerity will continue. We know from Latvia and Greece that mass emigration and brain drain is the result. Exactly the same will happen to the UK as the economy declines. EU states will be happy to capitalise.

    Finally, the Home Office is deliberately intimidating EU migrants with threatening letters and paperwork. A quarter of EU citizens’ permanent residency applications are rejected.

    The UK is already making life very difficult for EU citizens. Theresa May consistently failed to meet net migration targets as Home Secretary. As PM, she has a large chip on her shoulder about it.

    EU migrants are younger, better skilled, better educated and pay more taxes than they take out. Yes, there is also a small impact on wages but losing their tax revenues will have a greater impact.

    The British people can expect a vicious cycle. Declining growth -> falling immigration -> reduced tax take -> public sector cuts -> public backlash -> toxic politics. Still, better than being French, eh?

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