Brexit Starts to Go Pear Shaped from UK Side as Businesses Freak Out

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We’ve slacked off a bit in giving regular updates on Brexit. The pace of activity has slowed but events continue to break almost entirely against the UK, as we predicted. For instance, the UK had harrumphed that no how, no way was it going to pay an exit bill, and/or certainly wasn’t going to entertain that discussion unless the EU negotiated a trade deal at the same time. The EU had said from the outset that it wasn’t going to talk about trade until the Article 50 matters had been settled, and then relented a tad and said it would be willing to discuss the general outlines of new trade arrangement, but only after all the exit stuff had been pretty much settled.

The UK capitulated to the EU position on the first day of talks. The only “shape of the table” issue the UK appeared to have won was one week of negotiations per four week period. But that does not really work to the UK’s advantage. With such an insanely compressed timetable for resolving so many matters, the UK would be better served to spend more time negotiating with large support team(s) deployed to investigating and resolving technical details. But the UK is so short staffed that it appears to be unable to do much if anything in parallel.

Similarly, Theresa May made a proposal on citizen’s rights that essentially reiterated an earlier position that the EU had rejected. EU leaders were minimally polite, perhaps out of surprise, when she tried re-inflating a trial balloon that had already been shot down. But in the next few days, EU leader gave more firm negative signals. From the Financial Times on June 23:

Theresa May’s “fair and serious” offer to guarantee the rights of 3m EU citizens living in Britain has been given a cool reception in Brussels, as Brexit was pushed into the margins of an EU summit.

Donald Tusk, European Council president, said the proposals were “below our expectations”, while German chancellor Angela Merkel said they were “not a breakthrough”….

Although the UK proposals are viewed by EU negotiators as the basis for a possible deal, one diplomat said: “The idea that we should be grateful she isn’t going to deport people in 2019 is a bit strange.”

An important point of difference is the EU’s demand that European citizens should be able to uphold their rights in the European Court of Justice after Brexit, a position rejected outright by Mrs May.

Jean-Claude Juncker, European Commission president, said: “I cannot see the ECJ being excluded from the settlement, but that is a matter for negotiations.”

Keep in mind that getting out from under the jurisdiction of the ECJ is seen as fundamental to Brexiteers. But the EU may actually have legal constraints as to how far it can go, even if it were to want to accommodate the UK (and there isn’t much reason to think it does). EU citizens have rights and can sue government bodies if their rights are denied. Access to ECJ courts is arguably one of their rights. EU citizens living in the UK could conceivably sue to block a Brexit deal that traded that right away.

On top of that, May’s unholy alliance with the reactionary DUP has had the perverse positive effect of putting the difficulty of squaring the circle with Ireland in focus. The short version is a Brexit is at odds with an open border between between Northern Ireland and the Republic of Ireland. And a hard border almost certainly means a resumption of the Troubles. I was on an assignment in London in 1984. When you got on a bus, the thought was always in the back of your mind that it could be bombed. The memories of the Blitz were fresh enough in the collective memory that Brits just carried on in their usual Stoic manner. I’m not sure a younger generation will stay as cool in the face of threats to safety.

And quietly, British officials are admitting that all of their glorious Brexit talk was a bunch of blarney. From the Guardian on July 3:

Government insiders report a dramatic change of mood at the Department for Exiting the European Union (DExEU) since the general election, with growing Treasury influence helping force ministers to choose between prioritising economic interests or sovereignty.

This is in stark contrast to the public position of both main political parties, first set out in the Theresa May’s Lancaster House speech in January, in which she echoed Boris Johnson’s boast that Britain can “have its cake and eat it” – enjoying full trade access without conceding over immigration, courts and payments. Labour’s Jeremy Corbyn sacked three shadow ministers on Thursday for departing from a similar position.

Yet UK civil servants are now said to be presenting ministers with a more binary choice: accept political compromises similar to aspects of the European Economic Area (EEA), or settle for a much more limited trade deal such as the recent EU-Canada free trade agreement (Ceta).

“We have a problem in that really there are only two viable options,” one official told the Guardian. “One is a high-access, low-control arrangement which looks a bit like the EEA. The other is a low-access, high-control arrangement where you eventually end up looking like Ceta – a more classic free trade agreement, if you are lucky.

Yet even the idea that the UK really has the EEA option is yet another delusion. As Simon Nixon wrote in the Wall Street Journal on June 21:

A second fantasy is that the U.K. might engineer a “soft” Brexit by joining the European Economic Area alongside Norway, Iceland and Liechtenstein. This has the superficial appeal of keeping the U.K. in the single market, but it could never work as a long-term solution. Not only would it require the U.K. to accept the free movement of people, but would also oblige the country to become a rule-taker rather than rule-maker.

That is bound to be unacceptable. Only this week, Chancellor of the Exchequer Philip Hammond accused some in the EU of advancing “protectionist agendas…disguised as arguments about regulatory competence, financial stability and supervisory oversight.” The idea that the U.K. could sit on the sidelines, as Norway must, when the EU next draws up banking rules is absurd.

But could the EEA be a short-term solution to the U.K.’s Brexit challenges, operating as a transitional arrangement while the long-term relationship is negotiated? This seems far-fetched too. The EEA doesn’t pertain to the EU customs union, all EU free-trade agreements and agriculture, so it could only be a partial solution and would mean striking many other deals. A push to join the EEA would in any case be complex to negotiate, requiring not only the consent of 27 EU members but also the three other countries in the EEA. And the EU has been clear that any transitional deal must come under the jurisdiction of the European Court of Justice—precluding one under the European Free Trade Agreement court that oversees the EEA.

The truth is there is no soft option for the U.K.: The price of a transitional deal is almost certain to be continued adherence to all EU obligations overseen by the ECJ.

Let us stress that negotiating to join the EEA would likely be nearly as difficult, if not as difficult, as negotiating the supposed end-game arrangements. How much energy are UK and European officials going to have for endless negotiations? And how much appetite will UK and European businesses have for organizing their affairs around interim legal arrangement with they expect to be revised in an uncertain number of years to some to-be-determined arrangement?

Nevertheless, more and more reality is beginning to sink in despite the ongoing cheerleading from Fleet Street’s press barons. As PlutoniumKun put it, “Looks like the British business class are finally waking up to the disaster that is a Brexit run by the Conservatives,” pointing to a new article in the Guardian, UK business leaders to call for indefinite delay in leaving single market. But even though the corporate elite finally has started to take stock of what Brexit might mean for them, their proposals are as unhinged as May’s negotiating position:

Business leaders are to demand that ministers agree an indefinite delay in Britain’s departure from the European single market and customs union to give more time for talks on a long-term trade deal.

In a dramatic escalation of the battle to soften the government’s Brexit strategy, groups representing thousands of UK employers aim to present a united front during a summit at Chevening country house hosted by the Brexit secretary, David Davis.

Do none of these executives have staffers that are capable of reading the news and briefing them adequately? How did they miss that the Article 50 process runs a hard 24 months, the clock has been ticking for a while, and the UK will crash out if it can’t come to an agreement? The only way to stop the process or extend the deadline is if all EU members agree. EU leaders have said they’d be willing to let the UK reverse itself on Brexit and terminate the process, but even if that were to happen, you can bet the Europeans would require the UK to pay a price for having the EU bail them out of the mess they created, like cancelling the reduced EU contributions that Maggie Thatcher negotiated.

Similarly, from the very outset the EU has rejected negotiating a trade deal before the exit terms have been largely settled, and even then they’ve agreed only to discuss general parameters. The very tight timetable operates strongly to the EU’s advantage. Why should they give that up just because the UK has realized it’s going to do itself great economic harm?

If the UK were to go so far as to try to propose this sort of scheme to the EU, it would only sour relations further. The EU spent considerable time developing and getting agreement on its negotiating priorities and the “shape of the table” issues. Having started negotiations, then pushing for the UK businessmen’s plan would be tantamount to reopening the shape of the table issues that had already been settled. In negotiations, one side can return to closed deal points only by offering meaningful concessions. But what the British businessmen want is entirely one-sided.

As we pointed out in 2015, the Greek government did the same sort of thing repeatedly and it poisoned relations between the two sides, leading ultimately to the Troika pulling the plug on the Greek banking system. That in turn did even more damage to the already crippled Greek economy and also led Syriza to swallow the deal on offer, including its destructive labor “reforms” and pension cuts.

And while the Europeans have been more measured than usual in trying to deflate UK wishful thinking, perhaps because they don’t want to be accused of undermining the already wobbly Theresa May, Frans Timmermans of the European Commission, who is leading negotiations for the EU member states, was unable to restrain himself. He compared the UK’s posture to that of the hapless Black Knight:

The most often cited line is “Just a flesh wound” but the later “I’m invincible” seems more apt.

And that’s before you get to the fact that May herself is committed to a hard Brexit. Richard Smith earlier flagged this section of a Politico story in June on the Queen’s Speech:

3. Trade bill

This is the clearest evidence yet that the prime minister still intends to withdraw the U.K. from the single market and customs union.

“The bill will put in place the essential and necessary legislative framework to allow the U.K. to operate its own independent trade policy upon exit from the European Union.”

This is simply not possible within the customs union.

And the Guardian article stresses that she has a good bit of political support:

But the deep and prolonged transition phase proposed by business is likely to enrage Tory eurosceptics who believe it would amount to a betrayal of referendum aims to “bring back control”. It also poses multiple practical challenges for Downing Street, not least how to allow Fox’s trade department to continue negotiating trade deals elsewhere.

A final factor is that the polls have moved against Brexit. The YouGov polls, which have proven to be the most reliable, showed a majority was opposed to Brexit shortly after Theresa May called her disastrous snap election. Even the Torygraph felt compelled to report in early July that a new poll that found that 54% would now vote for Remain. Admittedly, sentiment has bobbed around, but if more polls show that a majority favors Remain and support for Leave falls and stays below 45%, that may open up new political options. Signs that the weak pound is starting to produce inflation and the UK economy is starting to soften could increase the souring public mood and anxiety among businessmen.

It’s doubtful that any decisive measures will occur before the August holiday break in Europe. But more and more people are coming to recognize that the UK has made a big mistake and the Conservatives are managing to make a bad situation worse. Something is likely to give, but whether it improves the situation much is yet to be seen.

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  1. divadab

    I had turned eighteen a few months before the 1975 EU accession referendum in the UK and was one of the overwhelming majority of more than two-thirds who voted Yes. It was an optimistic time, strangely enough, considering the “troubles” and the hyper-inflation that the oil shock combined with the unilateral US termination of Bretton Woods caused. However, It was a good time to be young in the UK – work always available, living expenses and travel cheap (you could take a bus to India for 40 quid and hitch-hiking within the UK was reliable if you weren’t too grotty).

    I look at the mess that Thatcherism followed by Thatcherism lite (New Labor) has wrought in the UK and have some understanding of why people voted for Brexit – their lives are worse by most measures than they had been 40 years before, their government no longer working for them, and massive immigration from eastern EU countries (Poland – 2 million+!, Romania – Romany, etc.). Fellow-feeling is in short supply in a society damaged deliberately (“There’s no such thing as society” As Thatcher declared sociopathically) by privatisations of the commons and floods of immigrants.

    The USA has similar problems but is so much wealthier in land and resources, and relatively under-populated compared to the UK, which has not fed itself for over 150 years.

    The dynamics of Brexit do not favor the UK, nor does the May government appear to be remotely competent. Perhaps, as in Greece, the coming austerity will begin a massive social reform away from neo-liberalism and into a sustainable carbon-neutral future – by necessity, as peoples’ material living standards may drop by 50% before the rolling adjustment is complete. (Consider the return to their home villages and return to farming by many Greek young people). Certainly the pressure of immigration will drop like a stone when the UK’s economy drops below Portugal’s – and it will, and soon. A complicating factor is the coming (When? we shall see…) recession……….

    1. Anonymous2

      @ divadab

      I am interested that you say that 2 million+ Poles have migrated to the UK. The official figures of course show about 900K.Poles resident in the UK. Is your figure for those currently resident or a total for all who have come to the UK before netting or those who have then left? Or are you saying that there are more currently here than the official figures show?

      I ask in a spirit of enquiry, not in an adversarial way.

      One of the strange features of the Brexit debate is that, contrary to some of the rhetoric, the official figures do not show the UK as having been very much more affected by freedom of movement than any other European country. As a percentage of residents, the UK in 2016 shows as having only the eighth largest proportion of residents (5%) who were born in other EU countries, so 8th out of 28. Add Switzerland, Norway, Liechtenstein and Iceland to the mix and the UK ranking falls to 12th out of 32.

      Of course the official figures could,be wrong. On the other hand, say, if Angela Merkel believes them, I can imagine her being unsympathetic to the UK seeking special treatment (again!) as the figures show proportionally more EU citizens resident in Germany (5.3%). than the UK

    2. Euro1

      As a European, I would be glad to return the equally impressive numbers of UK residents, mostly slackers without funds, who came to such examples as Berlin, sponged off the economy and better health care services than UK, but focused on contributing nothing. At best, they would take a job, at worse, just hang out in the “creative” culture, i.e. slackers and non-profitable start-ups. I’m sure Spain would be equally happy without the “cultural” contributions of the UK residents. As for those who bought apartments to rent out, these are not contributors, but people who only see the benefits of raising the rents as high as possible. Of course now they all want special citizenship privilege to stay.

  2. PlutoniumKun

    Do none of these executives have staffers that are capable of reading the news and briefing them adequately? How did they miss that the Article 50 process runs a hard 24 months, the clock has been ticking for a while, and the UK will crash out if it can’t come to an agreement? The only way to stop the process or extend the deadline is if all EU members agree.


    When the Brexit vote came out, I assumed that the pragmatic and sensible thing for the British government to do was to keep coming up with excuses before launching Article 50. Obviously, the ideological Brexiteers would have kicked up a fuss, but I assumed the pragmatic business and finance backers of the Conservatives would have been whispering away in the background that 2 years was just too short a time, better to drag things out, then say that its better that everyone waits until after the next election, etc. That would give time to prepare the ground (or back away from it). There is no reason whatever why they couldn’t have dragged everything out for a few years.

    The fact that it seems nobody in the business classes, who we all sort of assume really run the UK thought to do this shows how very deep the denial is, even within the largest and most best resourced companies. There is palpable panic starting to build up now (as that Guardian article points out), but I suspect it won’t be until we get to 2018 before they really start to freak – and freak out they will when they realise what a mess it will be.

    1. Anonymous2

      Yes. I think matters are likely to become increasingly fraught in the UK. The most likely short-term scenario I foresee is for May (‘dead woman walking) to wrap herself ever more firmly in the Union Jack, proclaiming that the UK will not be bullied into any concessions. She will be encouraged to do this by the usual suspects in the newspapers and with contenders to replace her competing to sound each more robust than the other. The Conservative Party conference in the autumn is likely to be an orgy of ‘patriotism’ with denunciations of EU tyranny (probably some references to the Battle of Britain and Dunkirk, El Alamein etc.). After that, who knows?

      How long will the DUP want to hang in there with them? There will presumably come a point when, notwithstanding their detestation of Corbyn, the price of being tied to the Tories in this s***storm makes them question whether they are doing the right thing? Do they come back for more money? The fact they got £1bn out of May when the rest of the UK is being told to embrace austerity is going to cost the Tories badly the more this sort of thing goes on.

      Does anybody have a long-term plan? Or is it all just charlatans competing for a few brief moments in Number 10 before their successor ejects them?

      One interesting event of the last few days was an announcement by Gove that he was cancelling a 1960s (i.e. pre UK EEC membership) fishing agreement. As he seems to be little more than a tool of Rupert Murdoch (who reportedly ordered him to knife Johnson’s leadership campaign last summer), I suspect Gove was acting on instructions from his boss (who is not May, by the way). Is Murdoch out to make as much mischief as possible?

      One of the extraordinary facts about this situation is that the candidates for the Tory leadership are already manoeuvring for advantage quite heedless of party unity. So at least for now HMG policy is apparently being formed to appeal above all to the Conservative constituency party members who are perhaps 130,000 in number, or 0.2% of the population, who think that unless there is an election they will get to choose the next Prime Minister.

      No way to run a country.

      1. vlade

        UK is (to put it politely) fucked up.

        Now that Labour civil war is done, Tories one is coming to the fore, and while having a civil war in opposition may not be good for the country, a civil war in the governent is a suicide note.

        That said, I don’t think the Labour CW is really done yet, although the next one will be fought along different ones I believe – namely EU. Corbyn is anti-EU, so he’s happy for Tories to break things up for him to take up the pieces. He should be careful what he wishes for, as I don’t believe he understands what a hard brexit really means – both short and medium term. No-one does, but the bad outcomes swamp the probability space, because to get the good ones, a lot of things has to fall in line.

        1. Darn

          I don’t think he’s so anti-EU. He campaigned for Remain, and Labour’s 2015 voters voted for it by the same margin as the SNP’s. The manifesto says Labour wants to retain the benefits of the single market, implying they may stay in the single market to retain them.

        2. jabawocky

          Labour’s policy is to pay for single market access. Their policy is to make the necessary concessions. It will become clear (to the fools that voted for brexit) that this is the only reasonable course of action, other than forgetting the whole thing. I agree with Yves though, it will all come at a cost, whatever the endgame is.

          1. bold'un

            It does not seem too difficult to imagine a deal where the UK continues to pay an increased annual EU budget contribution for as many years as needed for the FTA in exchange for a post-Brexit transitional trading arrangement.
            I also don’t believe that the UK needs to ‘join’ the EEA, since it is already a member. The EEA agreement specifically states that there is a 12-month notice to quit, implying that this is a separate decision from the Article 50 withdrawal; nor is their any EEA process of expulsion of a member.
            If the UK crashes out of the EU with no deal, they can at least save something on the Brexit bill. If the EU indulges in brinkmanship, the final irony may be that the ECJ saves Britain’s bacon if the UK goes to the court and makes the case that there is no ‘break fee’ in EU treaties…

            1. Yves Smith Post author

              This is a handwave. You appear not to have noticed that multilateral agreements take years to negotiate even at the best of times. The UK is internally divided as to what to do and what passes for its leaders are on an badly informed inertial path, with not even remotely enough staffing and preparation to execute that adequately.

              Why would the EU agree to that? The UK first has to get the EU to agree to stop the Article 50 process. That alone is a discrete action that would have to occur in order for any other steps to take place. That takes the agreement of all 27 remaining EU members, and they will extract a price for that ALONE.

              Having gone through the wrangling to do that, why in God’s name should they agree to an extra-legal exit process? The ONLY exit process from the EU is Article 50. They aren’t going to re-do their treaties to set the precedent of another way out.

              And you don’t even understand what the “exit bill” is about. These aren’t arbitrary charges. These are settling up obligations that the UK has as a member of the EU. We’ve posted extensively on it.

              1. Odysseus

                You appear not to have noticed that multilateral agreements take years to negotiate even at the best of times.

                Which is itself utterly ridiculous.

                1. Yves Smith Post author

                  Now you are just doubling down on your show of ignorance.

                  No, it’s because multi-lateral deals are very difficult to agree (tell me how often then happen in the private sector among parties with similar levels of power?) and unlike commercial contracts, which can be fixed with waivers (which sometime also entail one party ponying up more) in the event of mistakes or unanticipated consequences, treaties are rigid and immune to change, except by entering into a new treaty.

      2. TheCatSaid

        A friend who just returned from two weeks in Iceland said the Coast Guard is preparing for more attempts by British trawlers to fish illegally in Iceland’s territorial waters. The last time this happened the Icelandic fleet closed ranks and eventually rammed and destroyed a British frigate with many UK lives lost. IIRC he said this was in the 1970s.

        1. Vatch

          Many ship rammings occurred during the cod wars, but Wikipedia says that there was only one death.

          There is only one confirmed death during the Cod Wars: an Icelandic engineer accidentally killed in the Second Cod War while repairing damage on an Icelandic gunboat.

          Of course, the Wikipedia article may be incomplete or incorrect. Another source may have additional information.

          1. TheCatSaid

            My friend was told in Iceland there were numerous deaths on the British frigate, which was rammed in the middle and tipped onto its side. It was towed back to Scotland’s Firth of Forth still on its side.

            1. Vatch

              I’m not disagreeing, but I can’t find corroboration about the deaths on the rammed frigate. I did find a web site that says that there were two deaths:


              All in all, both the British and Icelandic sides experienced one casualty each. A British fisherman was killed when a heavy rope was cut and recoiled into his body, and an Icelandic Coast Guard engineer was electrocuted when his welding equipment was flooded with seawater.

              1. TheCatSaid

                I’ll be interested to find out more next time I see this friend. It wouldn’t be the first time that the official record bore little relation to actual events. The discrepancy itself is intriguing.

                1. philnc

                  Something to think about: how poorly reported important events away from major world capitals have always been. Especially in the 70’s when newsrooms in the US (and the UK?) were bursting at the seams (or was even that an illusion?). Little of the (by now crumbling) news copy generated during that time has been digitized, even less of it freely available. Maybe a book or two remains, or microfilm/microfiche.

                  How little we know of the “true facts” of even recent history!

      3. Synoia

        Is Murdoch out to make as much mischief as possible?

        He probably hates the English.

        An Australian in the UK in the early 50s, would have had a very difficult time at Oxford.

        1. Anonymous2

          I imagine so too. Reportedly his best friend there was a brilliant South African who went insane.

    2. David

      I have to agree. It can’t be just advancing age that makes me see a kind of slap-happy amateurism on display today that was never visible when I was involved in these kinds of negotiations.
      As PK says, this is a classic case for playing it long. Given that May was a Remainer, I confidently expected her to say things like, “Um, very difficult, need to prepare properly, canvass views of all stakeholders, don’t rush into anything etc. etc.” It would have been easy to delay triggering A50, and if the EU had been told privately what the plan was, I don’t think there would have been much of a push from their side. But this is just incompetent – rushing to throw yourself off a cliff when there’s no need to. So why, apart from the mournful but obvious point that the UK public service has been so eviscerated that it would have trouble today negotiating a package holiday?
      First, Europe is, and always has been, an essentially domestic issue for the Tory party. The real world consequences “over there” have always remained “over there” and the issue is largely one through which different factions of the party display their ideological differences and savage each other in the media. Even now, I think most Tory MPs probably see the issue primlarily as one of party and personal advantage, to one group or the other.
      Second, age. If you’re an executive in your late forties, for example, then the post-1991 EU is all you have ever known throughout your professional life. The very idea that the UK might leave seems inconceivable – thus the denial of reality. It brings to mind the mentality of those who in 1989 simply could not accept that the Soviet Union was falling apart, because their world view (not to mention their career) would thereby be completely overturned. Some things are just to big and disturbing to accept.

      1. Darn

        I don’t think it was a domestic issue originally though of course the UK was relatively late in joining. Heath would have seen it as far more than a domestic issue. And Thatcher and co thought the consequences for the UK of the Exchange Rate Mechanism were very important

        1. David

          True. I was thinking of the post-1979 (or at least post-75) era. But the rank and file view (not to mention the 1979 intake of MPs) thought about Europe in a much more visceral way than their predecessors. The Tories, of course, had been all for EEC membership because of the advantages to business.

      2. Mike

        “If you’re an executive in your late forties, for example, then the post-1991 EU is all you have ever known throughout your professional life. The very idea that the UK might leave seems inconceivable..”

        And, of course, conversely, if you’re in your 60s you can remember a time before the UK was part of the EU. Those memories aren’t that bad, and the idea that the UK might leave again seems far from inconceivable. You will also have memories of Heath’s totally disingenuous but insistent assurance to the UK electorate that the UK was only entering into a trading agreement, and that this would involve no loss of autonomy and sovereignty. So, “inconceivable” for those in their late 40s, but, perhaps, “chickens coming home to roost” for those those who are old enough to remember. The problem is that those original chickens are long dead, and the ones coming home to roost now will be very different ones – the world has changed beyond recognition in 50 years.

    3. Richard Wyndbourne Kline

      It has been barely three months since Article 50 was triggered, and already the Brexiters’ wedding cake castle in the sand concept is in ruins. Britain has entirely lost control of the negotiation process to the EU, as was certain to happen, since the EU has all the leverage, all the competence, and as much to gain as to lose by Britain’s currently ticking decision to sulk off and immolate its economy in a Beltane bonfire. Neither May nor the British negotiating ‘team’ have yet to propose a single policy point on even the separation issues to which the EU has expressed agreement. The absolute impossibility of Britain securing a remotely favorable post-separation economic and trade context with Europe will be too clear to be publicly ignored after the Autumn negotiations; by early next year at the latest. It will be at that point that the negotiation process as managed within Britain begins to fall apart. Because everything in the Leave process has been a promise that every Briton will get to live in splendid isolation like a little king or queen, and that is just not going to be on anywhere but hate-right telly programming. Polls have turned against Exit in just a few months of actual facts on the ground rather than fantasies in hot air, and the gap there will only gape the wider the more the egregious cost of departure becomes plain.

      I don’t expect total failure to change the delusional process within the current Tory government in the least. The Hitlerites were still issuing directives and ordering executions by messenger from the bunker after shellfire had cut the cables; humans are not the rational actors which smooth thieves would have us believe of ourselves. We live on dreams and running in place, falling into success as much as making it of our deeds. I doubt that the implosion of negotiations for Exit will by itself cause the Tories to fall. More likely, they will be pushed out over immediately domestic failures, which they seem inordinately gifted at delivering.

      The question will become, what will a Labor government do when they inherit a collapsed negotiating process with under a year to work with and a hard Brexit looming that will be manifestly plain to have all the charm of the pound hitting the pavement at terminal velocity from penthouse suite, with businesses by then stampeding to get out of Britain onto the Continent while they still can? The EU cannot stop the exit process, though from a position of strength is likely, as presently expressed, to let this madness pass, perhaps with an offer of EU-UK ‘restructuring negotiations’ of scope deliberately left vague should Article 50 be revoked. But Britain can push the reset button. I fully expect that we will see a Rescind referendum in the latter part of 2018. If if comes to that, Repent will win solidly over Be Damned.

  3. Jeff

    On top of that, May’s unholy alliance with the reactionary DUP has had the perverse positive effect of putting the difficulty of squaring the circle with Ireland in focus. The short version is a Brexit is at odds with an open border between between Northern Ireland and the Republic of Ireland.

    This is an easy one. My twitter TL is now showing calls for Ireland to leave EU as well (IREXIT).
    So yes, our British friends are clueless.

    1. Yves Smith Post author

      Northern Ireland can’t. It’s a total basket case economically, dependent on the UK for considerable subsidies. And the Irish commentators can pipe up, but I believe as a result the Republic of Ireland does not want it.

      1. Ahimsa

        Yes, Yves is right:

        Northern Ireland can’t. It’s a total basket case economically, dependent on the UK for considerable subsidies.

        In theory, most south of the border would welcome reunification. In practice, however, all are aware of how heavily Great Britain actually subsidizes Northern Ireland (think West and East Germany, but Ireland not being an industrial juggernaut able to absorb the costs. Incidentally, I now live in the Germany, and the consequences of reunification are still playing out – not all pleasantly e.g unemployment in the east and witness the rise of the AfD).

        Of course, not all north of the border would welcome a united Ireland. And neither north nor south wants to return to the days of paramilitary violence.

        This is all apart from the fact that there is not enough time to negogiate an exit for Northern Ireland even if the citizenry wanted it and the EU were willing to subsidize it!

  4. TheCatSaid

    Friends who own a well-established carpet and flooring business in England told us last week that the day after the Brext vote, not a single person came into their store all day–unheard of for their business. Since then their business is down by 80%.

  5. Darn

    I think the threat of business uncertainty making investment dry up is very real and could cause a recession, justifying a Remain vote by itself since we’ve been through so much since 2008 whatever you might think of the EU.

    “a hard border almost certainly means a resumption of the Troubles” is no good though, I live in Northern Ireland. There is 0% chance the Provisional IRA would come back over that, because it would destroy Sinn Féin’s electoral rise in NI and the Republic, and the dissident republicans could try something (they already try attacks all the time) but they will not become popular. Republicans are eurosceptics.

    There is the question of what a “hard” border or “open” border as used in this article mean. Ppl in NI are bandying these terms about on social media. I’m satisfied that the explanation on The Irish Economy blog is true, that if the UK leaves the EU customs union then customs checks must exist at the border. They could be made less intrusive with separate lanes for lorries like in Switzerland but they must exist. So what? And freedom of movement of people across the border predates EEC membership so it can be maintained.

    There has been irresponsible talk in the southern press about a threat to the peace process from the border, but they have a vested interest in preventing Brexit because of the harm it would do to the Republic’s economy. And the range of opinion is mixed even then.

    As for bombs in London, hardly anyone in England was killed in the Troubles, I’ll post figures later when I get home; and of course the population of London is several times larger than Northern Ireland itself. No one in Northern Ireland was scared their bus would be bombed.

    1. Yves Smith Post author

      The IRA was good at picking high profile targets like Harrods. And deaths don’t tell the whole story. With the 1983 Harrods car bombing, right before Christmas, 6 were killed and 90 injured. We don’t know how many were relatively superficial injuries v. losing limbs or internal organ damage that required hospitalization. And the Brighton Hotel bombing nearly got Maggie Thatcher.

      Also it does not take many unhappy individuals to do a lot of damage, particularly since infrastructure may be easier to target than people.

      1. TheCatSaid

        Much of the purpose was to create fear. This effect was unrelated to the actual statistical risk of death or serious injury. This is true for false flags (common recently) as well–the purpose is to create fear, to generate emotional responses and insecurity. Any perceived increase in security risk–whether real, imagined or deliberately contrived–will create inconvenience and will increase profits and employment in certain sectors.

        1. Yves Smith Post author

          Look, I don’t disagree. But the IRA kept up a sustained campaign, while despite all the fear in the US of terrorists, in fact what we had was 9/11 and then we’ve had isolated individuals engaging in rampages, some of whom are just disaffected individuals (see Mark Ames’ Going Postal) and some of whom have sympathies connected with terrorist organizations but as far as I can tell, they haven’t been operatives. And I’ve also repeatedly said the Brits didn’t get all bent out of shape about it despite keeping awareness of the risks high (posters on busses and the Underground about watching for abandoned packages, for instance). You don’t see anything here dimly like the warning you’d get in the UK (I think the signs were way more effective in making an impression than the occasional “if you see a suspicious activity, don’t keep it to yourself. Report it to the police” announcements on the subway). Instead we get more TSA security theater.

      2. jabawocky

        To be fair, it never crossed my mind I might be bombed in the 1980s. I think this is paranioa.

        1. makedoanmend

          And one might ask how the ordinary inhabitants of “nationalists” in the six counties areas fared both mentally and physically with the constant harassment and “surveillance” of the british army and their local constabulary – not to mention the deaths handed out by said members and their allies in the loyalist paramilitaries.

          28 shot of which 14 killed in Derry in 1972 by the Britsh army.

          Dublin & Monaghan bombings where 33 people were killed and 300+ wounded in 1974.

          ” There are allegations taken seriously by inquiries that elements of the British state security forces helped the UVF carry out the bombings, including members of the Glenanne gang.”

          Seems the story is a bit more complicated than some would like to portray.

      1. Darn

        Yes, hardly anyone was killed. The definitive book is “Lost Lives”, 71 civilians were killed in England. This is out of a total of 2074, which is 3.4% of civilian deaths. (7 civilians were killed on the continent and 66 in the Republic, the rest were in Northern Ireland.) Not to be competitive here but people in England (as in NI too) in govt buildings or on buses had far more important things to worry about such as fires, crashes, stabbings, etc.

          1. Molly Goggins

            Compared with deaths on the road/trains/airplanes/smoking/drinking/tower-block fire-related deaths it is indeed “hardly anyone”. But like tower-block fires it is the shock of one collective incident which makes it newsworthy and memorable. By way of comparison:
            Lockerbie: 270
            British Airtours Flight 28M: 55
            Hillsborough: 96
            Drink-drive deaths (1979): 1,640
            Moorgate tube crash (1975): 43
            Kings Cross Fire (1987): 31
            etc etc
            “Between 1971 and 2001, there were 430 terrorist-related deaths in Great Britain. Of these, 125 deaths were linked to the Northern Ireland conflict,[8] and 305 deaths were linked to other causes[9] – most of the latter deaths occurred in the Lockerbie bombing.[9] Since 2001, there have been almost 100 terrorist-related deaths in Great Britain, the vast majority linked to Islamic jihad and religious extremism”

        1. TheCatSaid

          The impact on daily life was greater than deaths and injuries. People organized their daily life taking into consideration the most likely times and places for bomb threats or carjacking or border unpleasantness. It created a background level of stress and watchfulness that became normal at the time. Times have changed since then. A friend who was recently in Belfast where there was a suspicious package event had to remind the local police officer that he should be evacuating people. Protocols that used to be second nature have been forgotten or just not learned by the younger generation. Maybe that’s a good thing. No one wants to go backwards.

          1. Yves Smith Post author

            Yes, the reason I had the risk in the back of my head was (aside from signs on every bus reminding you that there was a risk) was I was taking the bus through Picadilly, which would make for a nice target. I didn’t give a thought on busses out of high profile/high density areas. Conversely, I’ve never given terrorism a thought in NYC post the weeks while 9/11 was dominating the psyche of the city or at least not personally (on occasion, when I hear a ton of sirens, way more that for a normal fire, it does trigger 9/11 memories).

        1. Darn

          You may like to know that one of the convicted Old Bailey bombers Gerry Kelly became a government junior minister in Northern Ireland.

  6. none

    Corbyn obviously has a lot of charisma; can anyone say if he’s also regarded as a skillful political operator the way that, say, Sanders is? Thanks.

    1. TheCatSaid

      He was clever enough to bring over a couple of Sanders’ experienced campaign staff. Their impact was immediate, coinciding with the sudden & steady rising of Corbyn’s polling numbers up until the election.

      1. none

        Well, that’s as a campaigner, and good on him for that. Sanders though has been good at legislative maneuvering and that sort of thing, besides his campaigning. I’m wondering if Corbyn is also like that, or is more of a gadfly.

        1. Darn

          British lawmaking is much more polarised along party lines so there is less scope to be “the amendment king” like Sanders. Party discipline also means it doesn’t matter as much to a PM, and Corbyn has ditched his positions that the parliamentary Labour party would reject such as NATO withdrawal. In Sanders’s case his ability to compromise and get stuff passed bodes well. Yves and/or Lambert has often said on this site that Carter was rubbish at dealing with Congress.

  7. Dan

    Yves, while I will always love your Brexit articles I am still longing for one about the paradise of EU after the UK will be terminated!

    1. Synoia

      The Greeks have written that review. The problem with its publication is the German approval process, and an argument about who pays for the printing expense.

    2. Yves Smith Post author

      The UK is shooting itself in the head. The Europeans already expect that the bullet will exit and hit them too. It’s the UK that is (largely) in denial as to what the damage to them will be, and the contradiction between their bizarre confidence (which even in its somewhat diminished state is still way too confident) versus almost certain outcomes is riveting, particularly with so much at stake. The European resignation that they will be hurt too is hardly as interesting.

      1. Oregoncharles

        Actually, the specifics of harm to EU interests could be extremely important, because they affect the EU’s negotiating positions and, especially, how hard-nosed they’re prepared to be.

        EG: how powerful are the interests that benefit and are hurt, respectively? How great is the harm – is it enough to motivate major concessions?

        It’s possible that the harm to EU interests would be prohibitive, even though the harm to the UK is greater. In that case, the EU would talk tough for a while, then look for face-saving compromises. The next question would be whether the UK negotiators would be smart enough to meet them halfway.

        Unlike the UK, the EU isn’t under a political gun – there was no referendum. There is, however, the need for unanimity in support of an agreement (that could work both ways – as in, whose interests will be hurt? Which countries depend on trade with Britain?). At this point, I think we understand the dynamics in Britain much better than those in the EU.

        The least harm, for both sides, is to go back to the Common Market model. (Personally, I suspect that trying for unification was a mistake, but for bigger-picture reasons.) The EU is claiming that certain provisions are irrevocably tied together (free trade with free movement – precisely the Race to the Bottom scenario), but that isn’t true, though it might mean the difficult step of changing the treaties.

        1. Oregoncharles

          (2nd thoughts) OTOH, it may be that the most-affected interests in the EU are relatively powerless: eg, agricultural exports. (EU banks stand to gain.) That might explain the EU’s so-far “Oh, well” attitude about it.

          The biggest loser country is likely to be Poland, which has been exporting its surplus work force to Britain, along with other eastern and southern countries. Again, an outsider in the EU, and a potential sacrifice (but the reason they’re being sticky about free movement.)

  8. Adi

    I’m sitting on the sidelines with my fingers crossed that Brexit brings the UK to its knees. Only then will there be a realization of the total stupidity of the Brexit bigots and the public be freed from their persistent ‘British Empire’ mentality so the UK can start again at year zero on a healthier basis. We’ll need to cut off the heads off a few media barons and assorted fifth-column Russian collaborators first though.

    1. Darn

      That sounds a little like praying for the Depression in order to get the chance to expand the welfare state; why not do it, if more slowly, without hurting so many innocents first? As for British Empire mentality, politicians in all countries use appeals to patriotism, in this case right-wing market fundamentalists who want less EU regulation and/or find immigration a convenient and simple scapegoat for poverty.

      A Brexit recession won’t make the underlying issue go away, which is Thatcherism and not xenophobic arrogance. The UK did, after all, join the EEC in the first place, ratify Maastricht and other treaties, and is not the only country to avoid the euro. And while leaving the EU will hurt, the long term benefit or harm from being in the EU is unclear. That means an eventual withdrawal or loosening of the relationship could be beneficial, without being xenophobic, but if done very slowly.

    1. Anonymous2

      I spoke to a Professor at Athens University yesterday. Her take on the Greek situation is that yes there is hardship (some of it hidden) but Greek public opinion still wants to stay in the Euro and the EU. The Greeks have more faith in the people in Brussels than they have in Greek politicians. If she is right, then I think one can expect the situation in Greece to stay pretty much as it is for a long time to come.

      The way the UK politicians are behaving, I wonder how long before some people in the UK start to think that they too would be better served by the people in Brussels than by the people in Westminster (not that the English newspapers will be encouraging such a view).

    2. Yves Smith Post author

      I wrote exhaustively about the Greek-Troika negotiations in 2015. The Greeks, like the UK, refused to believe their counterparties held all the cards. They thought they were negotiating as equals when that was never the case.

      It was certainly worth it for the new Greek government (which took power in late January) to try nevertheless to persuade the Troika to give debt relief, since there was no way Greece could every repay the outstanding debt. But even though the Greek side had the much better economic (and moral) case, they never understood the politics of the European countries, collectively who were far and away the biggest lenders to Greece, way more important than the IMF. First, debt relief would mean that the losses would need to be recognized on the budgets immediately, which would require most governments to raise taxes. That alone made it impossible. Second, some countries (Latvia, Spain) had gone through austerity, and it would be politically unacceptable at home for the more profligate Greece to get a break.

      We said on Feb 11 that there was no bargaining overlap between the two sides, meaning they would not come to a deal. That is what happened, with the ECB pulling the plug on the Greek banks in July (we had also said repeatedly that the ECB could destroy the Greek economy by cutting the advances on a facility called the ELA, which was set up to provide short-term liquidity support to solvent banks, and had been stretched way beyond its supposed purpose to shore up the Greek banks).

      ByFebruary, the Troika had made clear that Greece was going to have to conform with the existing bailout framework.

      I don’t mean to sound unsympathetic, but the Greek government was in complete denial (save a few members of Parliament like Costas Lapavitas) that it was game over as of then. The angry tone and use of words like “humiliation” reflect the misunderstanding that Greece (and other members of the Eurozone) had conceded considerable amounts of national sovereignity, explicitly, by treaty, when they joined. Greece was put on an even tighter leash via the fact that its banks were bust and on the ECB drip-feed.

  9. Tony Wright

    Sorry for the belated entry into this article. I think, like most, that Brexit is an insane decision by the British, but if they are going to depart the EU, why should they pay massive fees to do so when they are no longer going to receive the benefits of remaining? It all sounds a bit like the reparations demanded of Germany by the victors of WW1, and we all know where that eventually led.
    Another analogy for what is being apparently proposed would be that of being “half pregnant”.
    If the UK really wants to leave, surely TIFI is the appropriate attitude to adopt to the demands of the jilted EU.

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