More Signs Brexit Negotiations Coming Apart

I’m behind on Brexit, and not yet able to write the sort of big picture post I’d like to, probably because it is too ambitious to do properly in a post format. I’d like to identify and discuss the importance of boundary conditions and become more systematic about trying to come up with a decent list. One disincentive is that you don’t have to identify all that many to see that it is very hard to see how the UK even gets to a “hard Brexit,” meaning an formal departure agreement but no trade deal by March 2019 or the longest transition period the EU has apparently said it is willing to offer, until the end of 2020. That means the UK is at a serious risk of what I have been calling a “disorderly Brexit,” or crashing out of the EU with no deal at all.

Since this the EU and UK are in talks this week, an update is overdue. But let me spend a few more minutes on the “disorderly Brexit” issue. The reason it is important isn’t just that it might very well happen, but that the outcomes are so catastrophic that the UK officialdom is literally averting its eyes from it. Yet in yet another bizarre display of Brexit schizophrenia, the UK keeps overplaying its hand in the talks, although some UK leaders seem to be waking up to the fact that Brexit will be a national disaster and they can think of no way to back out, even though the EU reportedly will allow that up to the very drop dead date. Recall that we quoted a press report of Theresa May acting like a broken woman, with a visitor finding her unwilling to speak, resulting in a full ten minutes of silence before the guest withdrew. Our Richard Smith regards the fixation of the sex scandals as a form of official displacement, to keep from looking in the maw of Brexit.

Reader Mark P. recommended the October 25 testimony of Sir Ivan Rogers, the UK’s former Permanent Representative to the EU, along with other experts, to the Treasury Committee. The entire document is important reading. Let me flag this section. It’s a bit lengthy perhaps because Rogers finds it necessary to leave no room for misunderstanding:

To complete my point on no deal, I have looked at all the no deal literature at the moment. I have extensively gone through every argument in favour of no deal that I have been able to examine.

Everybody talking about no deal does not mean no deal. They mean when we get to the wire there would be a succession of mini deals that we would be able to negotiate, and that the other side would be willing to negotiate. They would assure us of very significant continuity in all the areas that we would be most concerned about, ranging, as I say, from electricity interconnectors, to financial services, to data protection, to whatever.

The proposition that you really get from the people advocating no deal is not no deal. No deal does not mean no deal, if I can coin a phrase. No deal equals no deal. I have not seen anybody actually advocate no deal, because they know that jumping into a legal void without any legal provisions in any of these areas is potentially very damaging.

I do not think no deal does not exist. I think it is so dire to contemplate that people, as soon as they talk about no deal, say, “But in practice there would be lots of mini deals.” I am questioning just how valid a proposition that is, and how viable it is. Maybe I could give you a couple of examples. People get very bogged down in this and think “It is so dire it obviously would not happen, and something would happen.” I do not want to be unfair to no dealer rhetoric, but people always come back to say, “Obviously they would not allow that to happen, because they would be damaging themselves either more than us or as much as us.”…

I have been working on this and multiple of other examples in case the Committee is interested. With no agreement in place, our air carriers lose the right to operate EU-UK air services. Any flights between the EU and the UK would cease to operate. UK air carriers that had been operating within the single market pre-Brexit would lose their EU air traffic rights. To keep operating flights within the EU and continue to qualify as EU air carriers, which is the precondition to operate intra-EU air services, those companies would need to relocate their principal place of business into the EU27, i.e. where they oversee those air services’ conduct, maintenance and repairs and maintain their principal financial functions.

This is not theoretical. Air companies were coming and talking to me about that in 2015, 2016. Immediately after the referendum CEOs were coming to talk to me. The UK would fall out of 50 aviation agreements between EU and third countries, including the EU-US Open Skies Agreement, under which UK-US air traffic currently accounts for about 40% of the EU-US air traffic. We need to negotiate new bilateral agreements with third countries in replacement.

Then you say, “Can you not revive the old bilateral air service agreements with the individual member states? Would that not provide a solution?” I defer to my legal colleagues, but my advice is I do not think so, because those are outdated, restrictive and unfit for purpose. Where the EU has exercised competence, which it has in this case, it seems to me very improbable that individual member states would step back.

Keep in mind that even the “tah dah” of lots of mini-deals that keep the UK out of the ditch requires staffing, organizational capacity, and focus that has been sorely wanting on the UK side. Politico points out that today is the midpoint between the date of the Brexit vote and when the UK is set to leave the EU. The Government has largely frittered away this time.

The fact that the UK is simply refusing to consider what a pretty probable worst case scenario also means the UK is too often playing hardball with the EU when it is in no position to do so. (FWIW, I peg the likelihood of a disorderly Brexit at 40%, which is higher than the 20-30% odds I gave to a major financial crisis as of early 2007, and deemed then to be uncomfortably high).

Mind you, there was much more sobering material in Sir Ivan’s remarks. He thought that the UK, meaning both the Government and businesses, were not prepared for being put off again until March for a decision on “future relationship” talks, and you’d see increasing panic among businesses (“panic” is not a Rogers word, but that was the drift of the gist). He also thought the UK was unrealistic as to what kind of trade deal it would get. It expects a special deal, a “Canada plus plus plus” when the EU will say that the sort of relationship the UK wants looks like a “Canada” or even “Canada minus” deal, which the UK pols and press would deem to be insulting (“We are much bigger and closer than Canada. What are you talking about?”). A hostile reaction to what ought to be understood as the logical outcome of the EU’s clearly articulated parameters would be yet another impediment to getting a pact completed. Rogers also pointed out that a trade deal would take until the early to mid 2020s, when the longest transition period the EU is reportedly willing to entertain is to the end of 2020.

Sir Ivan also took note of this subtle but important source of friction:

There are things that are more difficult because we are a diverging partner rather than a converging partner. All trade deals in history are struck between people that are trying to get closer together. This is the first trade deal in history struck between partners who are trying to get further apart….

If you are them, that is quite a worrying trade deal to strike because you are striking a trade deal with a partner who is deliberately taking themselves further out of your regulatory orbit. You can imagine the kinds of things that the other side will be putting on the table as part of the negotiating, and I can imagine some of the political reactions to the things they will put on table.

Jonathan Lis identified another critical impediment to the negotiations in his November 6 tweetstorm, a basic incomprehension by the UK of the EU view of negotiation procedures. And remember, the EU does set the rules. Article 50 stipulated that the EU side would come up with the guidelines, and also stipulates that the European Parliament must give a “qualified majority” approval to an exit pact.

Now finally to the update. Recall that December is a critical month. It is another decision point for the EU, as to whether it will authorize entering into discussions on “the future relationship,” meaning above all, trade. As the tweetstorm above indicated, the UK making a concession on the exit obligations is critical. Other important issues are that the UK is expected to put more meat on the bones of the transition proposal that Theresa May sketched out in her Florence speech and the Northern Irish border conundrum.

At first blush, the Financial Times and Politico differ sharply on the state of play. Yesterday, the Financial Times stated that the Tories were coming around to recognizing the need to commit more to the so-called divorce bill. From the pink paper:

Theresa May is ready to increase Britain’s offer to the EU over the Brexit divorce bill, after signs that the hard Eurosceptics in her party will tolerate paying more money to break the deadlock in negotiations.

Mrs May has said that Britain “will honour commitments we have made during the period of our membership” and her team are working on different scenarios that would see her considerably increase the €20bn she has already put on the table.

No big breakthroughs on money were made in the sixth round of Brexit talks, which conclude on Friday in Brussels.

But the two sides touched on the delicate choreography of a possible December deal, where a UK financial pledge would be tied to an agreement in principle on a transition period after Brexit.

However, if you read this carefully, I am skeptical that this is consistent with the EU’s repeateldy stated position, which is that the UK must show sufficient progress on three issues, the exit bill, the treatment of EU and UK citizens, and the Irish border issue, before any other issues are up for consideration. And the EU has also said it regards May’s Florence sketch as promising but it needs more detail to know what to make of it. To demand a transition commitment in parallel with considerably narrowing the differences after money, as opposed to afterwards, and when that transition idea is still a pig in the poke as far as the EU is concerned, sound like another UK face-saving scheme that won’t get very far.

Politico is far more downbeat:

Brexit negotiators sat face to face in Brussels Thursday for the first time in nearly a month — but officials close to the talks said there was no progress on the key stumbling block, the U.K.’s financial settlement.

“No major breakthroughs,” was the straightforward assessment of one senior U.K. figure close to the talks. A senior EU official agreed. If the U.K. is planning on making a great leap forward soon, they haven’t told the EU…

According to a senior EU official involved in the Brexit process, there had been no substantive discussions on the money question up to this round of Brussels talks since Theresa May’s Florence speech on September 22….

EU leaders welcomed May’s pledge in the Florence speech that the U.K. would continue making EU budget payments until the end of the current budget round in 2020 and “honor commitments” during its four decades as an EU member. But the U.K. has refused to be more specific on the latter component — something that the EU27 leaders say they need for the talks to progress…

The EU is looking for a commitment from the U.K. not just to keep the EU budget whole, but to cover its share of ongoing EU programs such as regional and overseas aid (known as the reste à liquider or RAL), plus pension obligations accrued during Britain’s four decades as an EU member.

The Northern Ireland front isn’t going well either. The Telegraph reports that the Irish border issue was being deferred until the “future relationship” negotiations were underway. I do try to keep on top of these things, and I don’t recall the EU agreeing to that, which is why the tone of outrage in this article seems surprising:

British hopes of opening Brexit trade and transition talks this December were thrown into renewed doubt as it emerged that Ireland is making fresh demands over the Northern Ireland border question, the Telegraph can reveal.

The toughened Irish stance, reflected in a leaked European Commission document obtained by The Telegraph, blindsided British officials at Brexit negotiations in Brussels on Thursday as Ireland piled on pressure in the talks.

British officials had believed that question of how to avoid creating a hard Irish border when the UK quits the EU single market and customs union had been ‘parked’ until the EU opened talks over trade and the future relationship.

However the leaked talking points paper entitled ‘Dialogue on Ireland/Northern Ireland’ shows Ireland is now pushing hard for concrete reassurance on the Irish border question ahead of the crucial EU leaders’ summit in December.

Of course, the reason the Government had been hoping to deal with this hot potato later is that there does not seem to be any solution other than a hard border, which among other things would fatally undermine May’s shaky coalition.

And that’s before we get to the wee problem that May’s government looks like it won’t last till Christmas thanks to the exodus of randy ministers and that the Great Repeal Bill is also going pear shaped.

As Sir Ivan stated:

We cannot expect simple continuity, whether it is in energy, telecoms, financial services or multiple other things. The British cannot simply expect the world to carry on broadly as is. They cannot suspend free movement of people because that is no longer applicable to them, live outside the jurisdiction of the Court of Justice, but still have everything that they liked about the levels of market access when they were inside the venture.

Translation: assume the brace position.

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  1. Colonel Smithers

    Thank you, Yves.

    I know one of Sir Ivan’s former colleagues at the UK mission to the EU. He’s a former Treasury official and, like me, the son of Mauritian immigrants, so one of the rare polyglot civil servants, ideal to find out what’s going on from the likes of France and Belgium. The bad news from him is that things are worse than even well informed NC readers imagine. The good news is that he has a ring side seat and will be able to dine on that when he returns to Cambridge to teach history.

    A colleague attended an event, Sikhs For Labour, as a guest a couple of days ago and had his picture taken with Corbyn. He was staggered by the sycophancy from Sikh attendees and Corbyn’s entourage. Attendees were told not to mention Brexit as it’s too negative. Labour appears to want to avoid the issue like the plague, at least in public. That may be understandable, but one hopes they are thinking about it. The party appears to be on a war footing.

    1. PlutoniumKun

      Thanks for the inside line, CS. I assume Labour are anticipating a complete government collapse any time soon and want to be ready for it. Personally I think this is maybe the worst possible moment for someone to take power, the Tories should be made deal with their own mess.

      1. Colonel Smithers

        Thank you, PK.

        We did wonder that when our colleague came in the next day.

        Out of the six staffers on our bank of desks, five are looking for work overseas, including the two fathers of school age children, none above 15. Only the young woman, the only one, isn’t. Two of those looking overseas have Irish passports.

      2. hemeantwell

        Personally I think this is maybe the worst possible moment for someone to take power

        Yes. This very screwed up situation reminds me of an even worse situation the German left walked into at the end of World War I when, facing military defeat and revolution, the right abdicated, threw the mess into the hands of the Social Democrats and then prepared to blame them for the ensuing surrender, ranting about stabs in the back. This strategic option likely greatly contributes to the apparent rampant denialism Yves notes. “Things were tough, but nowhere near as bad as when Labour took over.” Corbyn is going to be very hard pressed to handle the blame, and this will certainly undercut his ability to move on his social proposals. I hope thorough analyses of the sort NC is trying to pull together can back him up.

        1. vlade

          This is the reason why I don’t understand Tories trying to cling to the govt no matter what, when the chances of any sucess are close to nil, and failure has a high likelyhood of wiping them out of the political map for decades (and likely split th party too).

          IF we were 100 years ago, I’d say that Tories are spoiling for a war with Europe. We’re not, and British army is a joke (unless they want to nuke the EU), so I just can’t see any rational reason.

          Which tells me they do run on emotions, and that’s scary. It’s scarier to me than Trump, as there’s a a good chance of Trump facing hostile House in 12 months time (well, he already is, in fact), and in three years time could be well gone. Short of starting a nuclear war with someone, Brexit will have much more lasting impact that Trump.

          1. Colonel Smithers

            Thank you and well said, Vlade

            Your last sentence is particularly spot on. I don’t get the feeling that most people in the UK grasp how dire the situation is.

          2. PlutoniumKun

            Yes, I’ve been idly wondering if some Conservatives aren’t thinking there could be an advantage to handing over the poisoned chalice to Labour – I’d think if it was anyone but Corbyn in charge they’d be engineering precisely that.

            This is of course the big disadvantage of the UK electoral system – a party which won 45% of a 70% turnout has absolute power, there is very little to stop them screwing up.

            1. vlade

              Which is a point I was making for a long time. If the UK electorate really wanted to take back control, the first thing would be to change the election system. The current system is NOT will-of-people system, it’s an elder-statesman model (muahahahaha).

          3. Sid_finster


            1. a Corbyn led Labour might enact real reforms, terrible reforms, the kind that prevent the rich from further lining their pockets as fast as their hot little hands can shovel; and

            2. A Corbyn led Labour might not have the appropriately servile posture towards the Deep State or the Special Relationship.

            These horrors must be prevented at any cost.

            1. vlade

              Corbyn in current parliament would not have votes to enact anything (w/o at least some Tories crossing over for some votes). It’s more than likely that he would end up with not an entirely dissimilar bickering cabinet/backbenchers that Tories suffer from now, because both parties suffer the leave/remain split, it’s just way more visible with the Tories, as they are in the government. Indeed, even the scandals that hit Tory party last week – you could find the same in Labour (the ‘laddish’ O’Mara’s behaviour was IMO way worse and more recent than what Fallon was sacked for, and I have some small insight into Westminster and the problems surfaced cut across all the parties there equally).

              All Corbyn could, with the current parliament, realistically do was to oversee a Brexit disaster, which the Tories would try very hard to pin on him. That is, unless he wanted to attach confidence vote to just about everything, play to lose it, and run another election, which would be still a toss up. Due to seat distributions Labour in general needs to out-poll Tories by a more than a few points to get a majority, and I very much doubt Labour would be able to do the reforms they want with LD or even SNP execept for some very serious concessions elsewhere. Not to mention that the UK public is very sick of going to polls now. And I’m entirely ignoring what another GE would do to the EU negotiations.

              Tories handing it over to Corbyn in summer would avoid being wiped out (for generations to come), as they could (after the brexit diaster) put the likes of Davies, Johnson, Fox, Moggie etc. to the wall and shoot them very publicly while blaming all the evil on them – after all, Labour survived Blair, Mandelson and Brown.. And any Brexit sucess would only serve to strenghten them.

              As for the second point, I point you to Lamberts general comments on Deep State. On the Special Relationship with Trump, well, this is a family blog..

      3. makedoanmend

        “…the Tories should be made to deal with their own mess.”

        Key point. We can lament that UK Labour and Corbyn are not doing enough to counter Brexit but it also seems that some people are grasping for a “get out jail free” card that just isn’t there. The fact remains that the majority of voters in the referendum voted for Brexit and, as linked to below, there doesn’t seem to be any great surge against the Tory’s dismal performance to date.

        As of 24/10/2017, both Labour and the Tories polled 42%.

        One, I suppose, could argue that a strong anti-Brexit message from UK Labour might create a surge of support, or conversely it might just provoke a backlash by died-in-the-wool Brexiteers and non-aligned who will demand that a democratic decision be seen to be respected.

        I suspect the powers-that-be would rather keep the lid on things for the moment.

        If the populace were really, really worried, I suspect we would be seeing some large, intense and prolonged protestations. Where are they?

      4. larry

        You are right, PK. Otherwise, the Tories will blame Labour for the mess that they alone created. They have done it before, so no reason to think they won’t do it again.

        I do worry about Labour’s mindset.

    2. vlade

      None of what you say comes to me as a surprise (including the last para). Personally, ‘brace position’ is the absolutely least you can do. I’d say ‘jump the ship’ (if you can).

      There’s an article in today’s Guardian from Denmark’s SD party leader basically saying “sick of Britain? Come to Denmark, we’ll welcome you with open arms!”.

      I was very pessimistic to start with – the belief that the UK pols won’t be able to cope with it was my primary reason for voting remain, and I believe I commented here at NC after the referendum that no progress would be made until spring next year, when UK might wake up only to find out EU went out for summer hols, and then there will be panicked Norway deal at the last moment.

      Right now I consider that an optimistic option, and my baseline is hard, chaotic Brexit.

      Labour is pathetic on this, as it seems to have the (political) cake and eat the cake, and we all know how that tends to end. It’s excerbated by the Messiah projection that a non-trivial part of Labour seems to suffer now from, and Corbyn does little to nothing (that I can see) to dispel. If May gov’t collapsed (which I’d say is 50-50 before Xmas the way things are going), and Labour did get to power, they may find themselves at the helm of steering the sinking Titanic, yet as far as I can tell all they think is how they can get the power from Tories, and what great things they could do with it, w/o realising that if they do get to power a LOT of time will have to be spent on basic managerial tasks – to go back to my metaphor, to man the pumps and try to fix the holes. Very unglorious, but I very much doubt that British public would be willing, in the name of revolution, to undergo another Depression.

      Ideology seems to be winning on both sides of the spectrum, and common sense is absent.

      1. Colonel Smithers

        Thank you, Vlade.

        That was the impression the colleague got when he attended that evening of Labour pandering to communalism.

        Speaking of which, Labour hosted another religious group at the Commons last week. The liberals hosted the same group at the Commons this week. Neither will host a Brexit event.

      2. Darn

        The thing is that while I expect hard / no deal Brexit to cause a recession, we need fiscal stimulus anyway to finish the recovery from the last one! That makes it essential to have Labour in power and not the Tories, however Brexit goes before then. And if May is “over by Christmas” it gives Labour a year to negotiate a transitional deal if possible. That’s better than continuing down the current road. (But why would the govt collapse? The DUP’s voters are much more scared of Corbyn, and calling an election needs a Commons vote. The Tories would have to agree to defenestrate May and/or at least some Tory MPs to vote for an election)

        1. vlade

          The problem is trade. The UK is not autarchy, it MUST trade. To get trade in order after a no-deal hard brexit catastrophe, it will require a lot of that management time I was talking about (because UK will be in position where it HAS TO deal, so everyone and their dog will take a bite).

          No MMT, no peoples QE will solve the problem that if the UK can’t trade, the pound will collapse, the food imports will freeze, people will lose their jobs etc. Given the imports needed, any fiscal stimuls would just mean weakening of the pound and be inflationary.

          Stimulus is NOT inflationary only if there’s enough real resources to support it. UK, especially manufacturing paradise UK that Corbyn is talking about these days, doesn’t have that resouces – it must buy it on the international markets. FFS, even if the stimulus was to go say to building industry (which is probably about the most domestic-value-chain possible in the UK), it still imports a quarter of materials needed (including bricks and timber)- and by value, it’s actually > 40% when you look at the whole supply chain.

          R. North (a brexiter)’s estimated a cost of a true no-deal Brexit 400bln GBP. That’s almost 20% of GDP. In year one. I am not THAT pessimistic yet, but the hit would be massive (my estimate is well north of 5% GDP in a year one), and there would be no way out that wouldn’t take years. I have my doubts that the UK public would be willing to deal with it.

          The UK standards of living would, on no-deal Brexit, drop very significantly. They would drop most for the middle classes (probably most for the middle classes reliant on financial services in SE, where they are likely to drop regardless of the form of brexit), but the food prices going up by tens of percents would hit the poorest too.

          I say that the UK would, under no-deal chaotic Brexit suffer war-like conditions except it would get probably zero sympathy from the world, given it would be all self-inflicted and the stance the UK took since then (i.e. the world just falls over to deal with us).

          Re May – if it becomes clear to the non hard brexit Tories that it’s impossible to control to vocal hard-brexit Tories minority (because it is still a minority, most of the Tory MPs are fence sitters), they might, just might, decide to put the country in front of the party. All it may take is a week where you’d get a all the non-UK financial institutions (again, this is not just the banks – it’s also the insurance companies and asset managers) and a few large non-UK manufactures saying that they are all quitting (or close to) the UK due to the risk of no-deal hard Brexit. Which I suspect we might not get concentrated into a week, but will start seeing come Jan 2018. But a common “we’re off” statement from them all (say via a trade body) would be probably impossible for May to survive.

          Tories miss a real soft-Brexit leadership figure (I could see Ruth Davidson as being one, but she’s not in th Commons, which is fatal. Amber Rudd is one, but she barely scraped in as an MP, which weakens her quite a bit), while unfortunately they have too maney people who can easily coalesce the hard line core.

          1. JTFaraday

            Yeah, basically, it’s the Caribbean Islands without the sun and a legacy currency that doesn’t reflect that (yet). So, you know, count your blessings?

            It seems to me that, for a Caribbean Island, Britain had the best of all possible worlds (in an imperfect world), being in the trade union but not the highly dysfunctional currency union. This is evidenced by the fact that they keep trying to put it back.

            I honestly don’t see what Britain gains here, so the whole thing seems inexplicable except as neoliberal shock therapy. Somebody is bored? i’m almost reminded of George Soros’ bet against the pound. Someone is betting against the power of Britain in the real world and wants to cut it down to size. Then shock therapy will be the only recourse. All the neoliberal ideologues are happy now.

            Talk about being your own worst enemy. OTOH, Soros got even more rich betting against the pound so maybe you will too! I don’t know what you’re going to do when the place becomes unlivable like Greece (probably not Venezuela), but worry about that later! That’s about how much sense this makes.

  2. Foppe

    This just in:

    Theresa May has outlined plans to set the UK’s departure date and time from the EU in law, warning she will not “tolerate” any attempt to block Brexit.

    She said the EU Withdrawal Bill would be amended to formally commit to Brexit at 23:00 GMT on Friday 29 March 2019.

    1. jCandlish

      What TINA and no-deal Brexit have in common: As a local Maxima, like a hill in a surrounding valley, it is far away from the mountains of alternative solutions that form the valley of the local Maxima hill.

      This is a hard problem. Analogous to other AI classification problems popular on NC recently.

      The chaotic shift to the next best solution is troublesome.

    2. Frenchguy

      This looks suicidal. Wasn’t the best (the only?) hope for a transition period to extend article 50 ? It seems that this door is now closing.

      And it’s obvious (is there a better explanation?) May has just decided that to shore up her position after ousting Priti Patel… This mess is horrifyingly fascinating.

      In other news, Ree-Mogg is now (in one poll) the favourite to replace May. As Yves said, brace yourself, this is only getting started…

            1. PlutoniumKun

              Some people have compared the UK’s negotiating style to someone pointing a gun to their head and saying ‘do what I want or I’ll destroy your carpet with my blood and brains!’

              It looks like they’ve just cocked the trigger without noticing that the carpets are already covered in plastic.

              1. vlade

                The UK: I move for no man. Well, maybe Trump. And maybe Xi. And maybe.. But not you, you EU pansy!
                EU: So be it!
                [they fight until UK’s services industry relocates to EU]
                EU: Now, stand aside, worthy adversary!
                The UK: ‘Tis but a scratch!
                EU: A scratch? Your [financial] arm’s off!
                The UK: No, it isn’t!
                EU: Well, what’s that then?
                EU: I’ve had worse.
                EU: You liar!
                The UK: Come on, you pansy!
                [they fight again. car industry relocates to EU]
                EU: Victory is mine!
                [kneels to pray]
                EU: We thank thee, Lord, that in thy mercy –
                [cut off by the UK kicking it]
                The UK: Come on, then.
                EU: What?
                The UK: Have at you!
                EU: You are indeed brave, Sir Knight, but the fight is mine!
                The UK: Oh, had enough, eh?
                EU: Look, you stupid bastard. You’ve got nothing revenue generating left!
                the UK: Yes I have.
                EU: Look!
                the UK: Just a flesh wound. [Continues to kick and taunt EU]
                EU: Stop that!
                the UK: Chicken! Chicken!
                EU: Look, I’ll have your leg. [Recieves a very sharp kick] Right! [EU openly invites any remaining UK industry and any skilled UK workers to move]
                the UK: Right! I’ll do you for that!
                EU: You’ll what?
                the UK: Come here!
                EU: What are you going to do, bleed on me?!
                the UK: I’m invincible!
                EU: You’re a looney.
                the UK: The UK always triumphs! Have at you! Come on then.
                [EU drops any current and negotiations with the UK until a sensible government comes to the power]
                The UK: All right, we’ll call it a draw.
                EU: [Preparing to leave] Come, Patsy.
                [EU and Patsy ride off]
                The UK: [calling after EU] Oh, oh, I see! Running away, eh? You yellow bastards! Come back here and take what’s coming to you! I’ll bite your legs off!

  3. David

    The most important part of Rogers’s statement is the following:

    “All trade deals in history are struck between people that are trying to get closer together. This is the first trade deal in history struck between partners who are trying to get further apart”

    You can actually remove the word “trade” – negative negotiations of all types are infinitely complicated compared to positive ones. Very roughly it’s the difference between agreeing to get married and having children, and negotiating a divorce settlement and custody agreements. If the two sides have a common vision of the future it’s not impossible, but not only is that not the case here, the UK doesn’t really seem to have a negotiating position as such. I increasingly think that the Brexit process (going well beyond the negotiations themselves) is now out of control, and devouring everyone and everything in its past like some ravening monster.

    1. PlutoniumKun

      I’ve posted it here before, but it does bear repeating in the light of the continuing incomprehension that seems to have gripped the London establishment. A while back a Chinese friend showed me a joke circulating on Chinese social media about Brexit. Roughly translated:

      ‘The UK is like a man who has texted his wife ‘I’ve met another woman and I want a divorce and I want it now. By the way, I still want you to cook for me and I want to *family blog* you every night’.

      1. Anonymous2

        A virtuoso performance from Sir Ivan IMO. It was interesting to see the difference between a former top British official well in command of his subject and the trite, empty contributions to the Brexit debate normally provided by the UK politicians. In many ways this encapsulates the heart of the problem: a dysfunctional political system and caste. There are still sensible, competent people in the UK: they are just not in the positions of power.

        For those who have not time to get into the detail, it was amusing to see Malthouse try to persuade viewers/listeners/readers that Sir Ivan had misled the committee re pharmaceuticals and the WTO. In truth, if you check the text, you can see Malthouse misquoted Sir Ivan in order to try to trip him up. In my reckoning, Sir Ivan saw him off.

  4. BillK

    Re Brexit – The EU is determined to punish the UK as much as possible so as to deter any other EU region from considering leaving. e.g. Spain, Italy, Greece, etc. This gives the UK the problem of having to consider whether the costs of leaving imposed by the EU are worse than the costs of a ‘no deal’ exit. Maybe both options are a disaster for the UK (as the EU intends). But it will also be a disaster for the EU as they will lose all the charges they are trying to impose on the UK.
    But, emotionally (which is what drives humanity) the point of Brexit was to escape from EU regulations and receiving orders from Brussels bureaucrats. The Brexit negotiations are Brussels continuing to give orders to the UK, telling them what they can and cannot do. This will lead to a breakdown in negotiations. Emotions rule – not logic.

    1. makedoanmend

      I most humbly suggest your read a few (maybe more than a few) of the archived articles here on NC about the background and dynamics of the Brexit negotiations to date. Also it is well worth reading Ivan Rogers’ testimony in full. The “punish” dynamics you describe don’t seem to crop up during his testimony nor from the questions of MPs.

      Also reviewing complete history of the EU, warts an all, might also disabuse of some or your contentions.

      best of luck

      1. BillK

        That almost sounds as though you believe what politicians say? Look at what they do, not what they say. Especially when they are making up face-saving excuses for their actions.
        As Juncker said “When it becomes serious, you have to lie”.
        Humans are rarely rational. They do what they “feel” they must then make up nice-sounding reasons after the fact.
        Obviously no EU politician will publicly threaten the UK with “punishment” – but that’s what they feel they have to do to protect the EU project.
        There is no way out for the UK. No proposal will be sufficient to meet EU demands. Offers made will always need to be improved. Brussels orders must be obeyed.

        The UK has to get their people to emotionally support their gallant underdog fight against the totally unreasonable demands of the EU juggernaut. Then the plucky Brits wartime spirit will enable the country to muddle through the chaos.
        The EU has the big disadvantage that their member nations don’t ’emotionally’ support the EU bureaucracy. Most are reluctant go-along grumblers for financial reasons.

        1. Darthbobber

          The Brits may or may not be “plucky”, but the “wartime spirit” required a wee bit of help from
          a. The “plucky little Empire” which exists no longer,
          b. A German decision to invade the Soviet Union, and
          c. A Japanese decision to bomb Pearl Harbor, followed by an unforced decision by the Germans to declare war on the United States.

          I suspect that no equivalent of these events will be forthcoming this time.

    2. Darn

      While there are costs to the EU (business disruption, loss of some trade, and loss of budget contributions), the loss to the UK is larger, proportionately. The UK’s trade with the EU is bigger as a share of the UK’s total trade than the EU’s trade with the UK is as a share of the EU’s total trade. I don’t think trade matters much in the very long term. However, in the short to medium term the risk of recession and lost growth is worse for the UK than for the continent. Because the shock of disrupting business is bigger on the UK side. And we don’t know how big that downside is, whereas handing over a cheque for billions to the EU to get a deal is a known quantity. The EU can afford to wait for the UK to blink.

    3. Mark P.

      Bill K wrote: The EU is determined to punish the UK as much as possible so as to deter any other EU region from considering leaving.

      Actually, the EU could have played a hand as punitive as the one they played against Greece. They haven’t, because players on the EU side have worked out that they don’t want an an island of sixty-million desperate, pissed-off people off the coast of Europe if a full monty Hard Brexit goes through.

      That said, it’s now clear that the EU is institutionally inflexible and the UK functionally — well, dysfunctionally — so. To the extent that while it might clearly be better for all parties if a Norway-type option were pursued, hard monty Brexit — and that island of hostile people — may still be what happens. The historians will have a field day.

  5. PlutoniumKun

    Thanks for this summation Yves, hard to argue with any of it. I find myself reading many press reports on Brexit with a sense of disbelief, there seem to be very few journalists with a real grasp of what is going on. And not just journalists – there was a somewhat revealing article in the Irish Times this week (behind paywall) which said that Irish PM Varadkar is confident that the EU will agree to move on to detailed talks in December, but it broadly hinted that his advisors are less convinced this will happen. The notion that ‘somehow or another, a deal will be cobbled together at the last minute’ is very deeply ingrained. The ‘optimist’ assessment seems to be now that the UK will agree to a figure of 50 billion euro and the EU will agree a 2 year transitional period which will be extended indefinitely, maybe forever. So everyone can just pretend they won. But for all sorts of reasons even that sort of fudge will be incredibly hard to engineer.

    In Ireland, its been reported that a leaked internal EU paper has said that a ‘hard border’ in Ireland is inevitable unless Northern Ireland stays within the Customs Union and Single Market, which of course is not likely to happen. It sounds to me like this was leaked to give notice to the Irish government to prepare for a hard border, or to try to push the UK into some sort of special transitional deal for NI (which I think at this stage is impossible).

    Of course, the reason the Government had been hoping to deal with this hot potato later is that there does not seem to be any solution other than a hard border, which among other things would fatally undermine May’s shaky coalition.

    On this point, I think its clear that the UK thinks its ‘smart border’ idea is practical, while everyone else thinks its idiotic. I suspect the Irish government is starting to panic a little now it realises what its negotiating with.

    On the issue of May’s coalition, the DUP will very shortly be faced with a decision on what it prefers – an economic wipeout which will hurt many of its own constituents (especially farmers) particularly hard, or a special deal for NI over the border. The DUP will fight anything that even suggests giving the Republic a say, or that in any way (even symbolically) weakens its ties to London – but with many of its grassroots facing economic calamity they could well face serious internal splits. But I don’t doubt they’ll stick with the Tories, they have no other real choice.

    1. Clive

      Another more disconcerting (but worryingly not completely incredible) possibility is that the U.K. government (DUP propping-up notwithstanding) thinks that NI is, to put it bluntly, not really worth worrying about in the big scheme of things. (Pg. 43 chart refers).

      1. PlutoniumKun

        Wow, thats even smaller than I would have guessed. For such a tiny place, NI does tend to shout very loudly. Never in history has an area fought so long and hard to be united with a country that doesn’t really want them (I’m referring to both countries).

        When the DUP did their arrangement with the government I thought the one good thing would be that many English would finally realise the sort of oddball bigots they share their nation with. Its often amused me to hear chuckles about gun totting god fearing bible bashers in Appalachia by people who were seemingly unaware that quite a few of their spiritual brethern sit in the Commons.

        I’ve often thought that if ever Ireland is reunited the scenario would not be a desire by the two halves of Ireland, but it would be precipitated by someone powerful in London going ‘hey, do you realise how much easier our lives would be if we just gave those annoying buggers away for free?’

    2. Darn

      I think by choice between economic wipeout and border deal for NI you mean we in NI would be spared a wipeout if there was such a deal? A border in the Irish Sea with GB would be far more of a wipeout. Sales to GB are 4 times bigger than exports to the Republic. Agri-food alone is still 3.5 times more exports to GB than to the Republic. So it is a choice of two economic calamities, one of which is four times worse. And Varadkar knows this (making me think a lot of the hysteria over the border from the southern press has been feigned, to try and apply maximum negotiating pressure on the UK).

      There is a third option of course, for the DUP to threaten to pull out of the coalition unless May either stops Brexit or agrees to a transitional deal pronto (which will require handing over a cheque for a huge sum to the EU). May and Foster can use the threat of Corbyn to try and get their members to accept this.

      Here’s Varadkar: “I know the issue of NI and Border issues are extremely important but from the point of view of Irish business and agriculture, the trade between Ireland and Britain is much greater than the trade between Ireland and NI …. particularly for the agri-food sector so we are determined to secure a customs union partnership and a free trade agreement or area between Britain and Ireland post-Brexit”

      I really advise everyone reading about Brexit on NC to read the following article, because the border issue has really really blotted out this aspect. What Brexit means for the north and south can’t be understood without it.

      1. PlutoniumKun

        You are forgetting that the customs barriers are not two way (unless the UK chooses it), they are one way. When a customs barrier goes up on the Irish border, thats it for NI food – they are cut completely out of supply chains outside the UK, because its not just about excise duties, its about food quality standards. Most milk processing on the island is in the Republic which in turn goes all over the world.

        Since Britain would still need NI milk, there would be minimal disruption in sales to Britain, even in the event of a chaotic Brexit. If NI could constitutionally opt out of Brexit NI producers would still be tied in to British supermarket and processing supply chains, unless the London government decided for whatever reason to stop it, and since Britain is not self sufficient, it would be stupid to do that.

    3. makedoanmend

      “On this point, I think its clear that the UK thinks its ‘smart border’ idea is practical, while everyone else thinks its idiotic. I suspect the Irish government is starting to panic a little now it realises what its negotiating with.”

      Current economic developments in Ireland:

      From the now famous Richard North blog, we can see that the dynamics are already changing with regard to the economic infrastructure in Ireland:

      “By way of an example, we see the ferry company CLdN SA deploy the newly-built ro-ro ferry to the port of Dublin. This 234m giant, with the capacity of 8,000 lane metres (equivalent to nearly 500 articulated trucks), was originally intended to serve the UK-Belgian route but has now been pressed into service on the Dublin-Zeegrugge route, by-passing the UK route to the continent via Holyhead.

      With additional ferries also planned, to exploit the major expansion of Dublin port, we thus see practical steps being taken to reduce the Irish dependence on the UK and to forge increased direct links with EU Member States.”

      If the best we can hope for is a Canadian style deal some time the future with the UK, a hard border is inevitable. In this scenario, the amount of trade, in € terms, between Ireland and the six counties becomes a very second order concern. (The long term political fall out is another matter altogether!)

      It seems Varadkar would like a nice easy solution, but there doesn’t appear to be any. I wonder at some point, especially if the negotiations this December come to naught, if the Irish government doesn’t just opt for a band-aide PR solution (Varadkar’s favourite solution to every problem). After all, the economic deficits in the six counties will land squarely on the UK’s plate, and many Irish governments in the past have been thankful for that situation.

      1. PlutoniumKun

        I didn’t know about the ferry proposal. Thats pretty significant.

        The Republic is quite poorly served for freight – a high percentage of international trade comes via Larne in Northern Ireland (the biggest freight terminal and the one most favoured by big vessels). Dublin Port is and always has been very space constrained. Cork can’t take the biggest vessels and Limerick is not so well connected.

        Ironically enough, much of the constraints come from EU Directives, specifically the Habitats Directive, rare birds have an annoying habit of spending the winter chilling out in Irish estuaries and bays.

        1. M Quinlan

          The development has yet to start but I can see this being fast tracked in light of a hard border.
          Having trouble with the link but if you google Ringaskiddy Port redevelopment you’ll find the planning for a new 360 metre container berth in Cork harbour.

          1. PlutoniumKun

            Yes, the Port of Cork is in effect moving out to a larger facility at Ringaskiddy. The problem with Ringaskiddy though is the very poor road connections. There is a public hearing on at the moment for the necessary upgrades, although it will be a few years before it will be built, if ever.

  6. Ronald

    I don’t agree with the emotional angle. EU regulations have been hugely beneficial to this country. The UK has played a major part in drafting many of them. Brussels bureaucrats? not again…remember the European Commission doesn’t make laws. It only makes proposals, which are then debated, amended and passed (or rejected) by elected national governments and directly-elected MEPs (including Nigel Farage). Taking the emotions out and looking at the facts would help.

    1. vlade

      sorry – the whole thing was done on emotions, and is likely to run on emotions till the bitter end. It’s way to late to try to reason.

      The only real question that remains, IMO, is whether after the catastrophic exit the the emotions will be directed to the UK political idiots, or EU. I’ll leave you guess who I suspect..

    2. DJG

      Ronald and vlade: Yes, so much of this political disaster has involved emotion, as vlade writes, and deep-seated ideas of an “exceptional nation” (Rule, Britannia,…). Underlying the political disaster is a sclerotic class structure and poor distribution of income, that rising Gini quotient. [And the reason that I extend these causes to that Anglo-American world is that the same blindness has caused forty years of misery in the US of A, with Trump as an outbreak of political chicken pox rather than the dawn of fascism, U.S. style.]

      Just as the English ask, Why is the U S of A so violent? Why so many guns? Why the endless racism?, an American response would be, Why the doddering class system? Why the sneering attitude toward the Celtic neighbors who share the island? Why the delusion that you, the English, did not benefit from being part of a larger European entity? {At least, Lincoln solved that question for us Yankees.}

      Throw in years and years of horrible economic ideas of laissez-faire coming out of the universities of the elites, and you get…

    3. Yves Smith Post author

      I thought about including this tweet in the post, but the piece was already a bit long. Be sure to click through and read the entire tweetstorm:

      1. Mark P.

        verging on hostility … as if the search for practical steps to make it work is a trap

        Yes. That’s accurate.

  7. Moz

    Minor technical point; British knights are usually referred to by their first name. In this case “Sir Ivan” or “Sir Ivan Rogers” would be correct. The reference “Sir Rogers” is not used on the east side of the pond.

  8. jabawocky

    This is a useful summary and very worrying for this Brit. Another key point is whether brexit can be reversed. The EU and Lord Kerr, the drafter of the legislation, repeatedly suggest that article 50 can be legally withdrawn because it is just an ‘intention to leave’. The guardian has been reporting that the government has secret legal advice that confirms this view. Hence the significance of the brexiteers getting Teresa May to agree to putting the brexit date into UK law in the Great Repeal Bill:

    This is more than Teresa May trying to shore up her support from the right wing press. I read it that this is mainly about making withdrawal of the article 50 letter illegal under UK law. This is a cunning political ruse because it basically forces any MP who would like to keep the option open of withdrawing article 50 to show their hand. The backdrop is that the UK parliament has been promised a vote on the deal negotiated on exit arranegements and whether to accept the deal. If this vote takes place in the context that article 50 can be withdrawn, then the vote is very different to a vote between a poor deal and complete chaos.

    If a chaotic exit looks on the cards I worry that public order will be threatened. Think Arab Spring in magnitude. Much will dependent on the DUP who are shoring up the Conservative majority. They are on record as saying that a hard Irish border is not acceptable. A key dynamic is how flexible they are and how far will they go. If this is a true red line for the DUP then the EU can bring down the government by refusing to negotiate a border arrangement. This seems likely because as is correctly stated above, nobody can envisage a sensible open border arrangement if the UK leaves the customs union.

    1. Colonel Smithers

      Thank you.

      As Labour and the Liberals supped with Indian
      sub-continent communalists two evenings ago, the Mays dined with the Daily Heil editor Paul Dacre.

  9. begob

    If there is to be disorderly Brexit, I reckon the casus belli will be the Irish border. News today that the EU is “demanding” that Northern Ireland “may” need to remain inside the CU&SM, which lights up the issue of sovereignty in terms that are comfortable for hard unionists.

    There will probably be an opportunity to force May into an Out! Out! Out! moment. The Thatcher precedent is in search of a second coming, and I wonder if Gove will be the resurrectionist – here’s a short account of it from the Irish side on release of cabinet papers from 1984, with details of the British negotiating style:

    Agreement was reached then. The prospect now is of reversing the effect of all Anglo-Irish agreements since the ’70s, while quitting the continent in a blaze of glory. A Tory 2’fer.

  10. el_tel

    Thanks. I don’t generally disagree. But there’s one rather large fly in the ointment – following the turmoil in Greece and worries about terrorism in the “new” destinations (Turkey etc) Spanish tourism has experienced a massive resuscitation. Spaniards like high spending Brits over cautious Germans.

    I do wonder whether the euro open skies “problem” is one that will go away rather quickly when the Spaniards go mad. After all they only need to agree airspace with France (as all of us Brits who “did” Spain as kids with associated air traffic control issues know well)

    1. Yves Smith Post author

      I don’t think you’ve dealt with highly regulated industries. They don’t do rule-making on a rushed or improvised basis. In the US crisis, all the emergency programs were within the Fed’s statutory powers. The one exception was AIG, and a big reason for that was that AIG was not a bank. It would have been able to have its way with AIG much more readily otherwise. Even then the courts didn’t impose any fines or damages.

      1. Nameful

        The British side of this unfortunate event seems caught in a classic defensive pattern. Staring at an impending chaos is something to be avoided at all costs, so one has to persuade oneself that the stability of the present will somehow magically be preserved. This in turn requires some magical creatures (good gremlins?) that will “take care of things” – ensure that either “the deal” or “the small deals” happen, perform the necessary due diligence on the aforementioned, come up with actual strategies, hard details, necessary law changes, etc. to avert what is essentially a hurricane devastation in the making. Ah, and of course persuade the EU to grant all the necessary wishes that are required in order to maintain the statu quo in the UK.

        What makes this pattern a problem is the situation where every Brexiteer is looking at everyone else to be said good gremlins. And since the incompetence of the UK Gov’s approach vis-a-vis … basically everything Brexit-related makes it rather obvious that those gremlins are not to be found among the British side in anything remotely approaching the required numbers (and many of those that are to be found there appear to be throwing their hands in the air in despair and leaving), there clearly must be some gremlins to be found on the continent to pick up the slack. The German carmakers. The Spanish tourist industry. The list will undoubtedly go on as Brexit approaches. Wouldn’t it be grand if Mr. Barnier said say something like “Dave old chap, I’ll do you a solid and go and negotiate with the rest of the EU on your behalf. You just give me a list of what you upstanding Brits want out of this Brexit thing and I’ll make it happen. After all, Christmas is almost upon us, so a little gift giving is in order.”

        Joking aside, it is rather shocking to behold how more or less the entirety of the Brexiting side of the UK expects things to turn out splendidly without them lifting a finger. But maybe it shouldn’t be so surprising – UK is one of the hallowed birthplaces of state propaganda. Keep calm and carry on, even if the emperor has no clothes.

      2. vlade

        Not to mention that should pound drop another 20% (easy after chaotic hard brexit, on referendum it dropped 10% on the day and it wasn’t chaotic), the british won’t be free spending anymore – they’ll be lucky to get any uk tourists.

        1. Troutwaxer

          “…they’ll be lucky to get any uk tourists.”

          That’s not true. We’ll go to the UK and trade food for sex. The locals love that, because they get to eat!

          Just in case it isn’t obvious, I think the UK is digging its own grave, (and paying very little attention to the Russian contribution to it’s troubles.)

    2. PlutoniumKun

      I agree that its rather odd how quiet the Spanish have been, given how very important tourism and food exports to Spain. The only explanation I can give is that the Spanish government has been otherwise occupied, and the areas most likely to be affected – mostly the south, places like Andalusia – are relatively politically powerless and so haven’t made their voice heard in Madrid. It might also not help that the English aren’t, it must be said, the most popular of tourists. The Spanish people I know just seem completely perplexed by Brexit, they just can’t understand why the British would, as they see it, commit economic suicide.

      1. el_tel

        Thanks. Agree entirely that us brits are not popular tourists. BUT we are pretty price insensitive and I would guess that a 25% collapse in the £ would *still* make us more of a money spinner than the typical German tourist (who – as I’ve noted before – typically eats in and complains to tour reps a lot more about shoddy service for a given price).

        Also agree the Spanish probably have a lot of other stuff on their plate at the moment!

        1. PlutoniumKun

          Yes, well its hard to find any tourists in some parts of Spain who behave well! I think it should be said though that so far as I can tell the Spanish quite like English retirees and find them friendlier than their German equivalents. There is also an often overlooked phenomenon of what I’d term young Anglo-Spanish types – usually the children or grand-children of English expats who lived part of the year in Spain and so consider themselves at least partly Spanish. I know one woman who falls into that category (she lives in Ibiza) and she was particularly upset by Brexit as you would imagine.

          But yes, even if by some miracle a relatively sane deal is reached on A.50, the fall in sterling alone will have a very significant impact on large parts of Spain and Portugal.

          1. el_tel

            Thanks. Yeah and whilst I agree with various posts highlighted on here that people shouldn’t get their hopes up regarding a Catalunyan independence and “EU fracturing” I can’t help wondering as a thought experiment if another “voting surprise” put a lot more balls into the air than just BREXIT. Just idle speculation of course and currently not supported by data but does make me wonder….

  11. Darthbobber

    One of many amazing things about this is that this far into the negotiations, on something as foundational as the “divorce bill”, Britain still doesn’t even have an OPENING bargaining position, as conventionally understood. The EU opened with a figure, and the UK responded, not with a clear-cut lower figure, but with having Davis quibble the EU figure without bothering to come up with one of his own. (Because for the British government, ALL definite commitments imply throwing some key group of Leavers under the bus. May’s ill-fated election was intended to pad the majority enough before things started to become clear that they could afford that, but it didn’t precisely work out as she intended.)

    Vague and nebulous statements by May that could be interpreted as a “commitment” of sorts to around 20 billion don’t really qualify even as an opening position by the UK, much less as serious movement. Hard to bargain when only one side has a position at all. The Brits seem to think that they’re the Israelis “negotiating” with the Palestinians, when the reverse is closer to the truth.

    1. Yves Smith Post author

      This is a key point. We see the same behavior with the vague transition proposal. There have been press reports that the EU is working on a transition plan, apparently as a result of the lack of willingness on the UK side to…do the work? Put something forward that will lead to yet more hissy fits from hard Brexiters?

      Letting the other side take the lead is just about never to your advantage. One of the old sayings of negotiating is “He who controls the documents controls the deal.”

    2. gallam

      OK, so in the event of a total disagreement we have to fall back to the treaties. What do the various treaties say about the financial obligations that fall upon a country leaving the EU?

      You are very much mistaken to draw an analogy between the Palestinians negotiating with the Israelis, and the UK negotiating with the EU. My personal view is that this negotiation is between one huge whale, that cannot be swallowed, and an even bigger whale, that also cannot be swallowed. Perhaps the whales agree to cooperate, perhaps they don’t.

  12. MichaelSF

    Pardon a slight divergence, but in the event of a Brexit catastrophe (which is sounding ever more likely from the preceding comments) what effect might that have on the US?

    For 2016 that shows about $55B in exports to the UK and $54B in imports to the US. Are the 2020 US elections going to be dealing with a recession as the UK drags down our bit of shared economy? I have concerns about the way the 2018 elections will lay out and I have trouble seeing zero effect in 2020 of a major global economic catastrophe.


    1. PlutoniumKun

      I doubt if the impact on trade would be significant enough to have macro impacts (I could stand corrected on this). If anything, I would have thought the US might benefit as NY would strengthen its position over London in world banking. And no doubt Trump is licking his lips at the thought of forcing a bilateral trade deal on a desperate British government, leading to a whole new market for chlorinated chickens.

      1. MichaelSF

        Thanks, I have nearly zero econ knowledge (introductory macro/micro classes 45 years ago) so I have trouble figuring out if some of these situations are likely to be “dire” or “DIRE!!”. Perhaps the pain will be mostly confined to the UK and not spill over too much onto everyone else. But then the US might have its own home-grown economic pain not related to Brexit.

  13. VietnamVet

    Donald Trump and Brexit chaos are predictable with sovereign governments superseded with rule by oligarchs and corporate controlled supranational institutions like NAFTA and the EU. Jeff Bezos, Bill Gates and Warren Buffet have more wealth than half of America. When given a chance, the plebs will vote against autocratic rule. Our host is the perfect person to lead this discussion. There will be no compromise with the oligarchs other than continued exploitation. See Greece for an example. The 25th amendment counter-coup against Donald Trump, Tax Reform, or Brexit are hardwired to benefit the rich. The Western Middle Class will be improvised even more than they were by the 2008 Great Recession.

    1. Yves Smith Post author

      While you are correct about the power of oligarchs, this isn’t really the model for what is going on between the UK and EU. Europe is much less reverential towards capitalism that the US and UK. You have powerful bureaucrats in Brussels who have little to no democratic accountability. You have an elite in France that is a product of its Grand Ecoles. The interests that are powerful in Europe are more big corporate interests (the large banks and corporations) than particular oligarchs. One reason is that tax rates in Europe have remained high enough so as to inhibit US-style inequality. Another is that they don’t allow what amounts to unlimited corporate funded political ad spending and “speech” they way we do.

      And the UK is not virtuous compared to the EU. This is the biggest thing that most Americans misread. What ails the ordinary worker in the UK is vastly more the result of Thatcherism than anything the EU has done. Non-EU immigration is much larger than EU immigration. May as Home Secretary refused to use the not-trivial latitude a member state has to put curbs on immigration. The EU has much tougher labor and environmental laws than the UK will post Brexit (one of the big Tory/UKIP goals is to weaken them). The Tories successfully made the EU the scapegoat for the erosion of economic security and safety nets that was a deliberate goal of Thatcherism.

  14. Johann B

    Thank you very much for all the insightfull comments and special thanks to Yves for the in-depths and no-nonsense reporting she has given us ever since the vote to leave took place.
    What happend to Great Britain? The place I used to love to disagree with ( ) as a convinced European…

    1. Foppe

      Briefly put, Thatcherism happened — 35 years of spending cuts and ignoring the people who have no alternative but to make use of govt services, while all attention (and tax breaks) went to the City (which made the pound much more expensive, and UK exports much less competitive). Then a referendum was held in which people finally got a chance to give the status quo the finger; and then the nationalist Tory elite managed to hijack the party, by supporting a complete tool‘s bid for leadership. And the rest is history.

  15. NT

    I disagree with most of Yves comments. Negotiations were always going to go badly.
    Ofcourse the UK have been hopeless negotiators but if they were really good negotiators it would make no difference.The EU idea of negotiations is they set the rules and the UK say yes. Look at the negotiations at the greek crisis. This is a non-negotiation.
    I don;t believe the UK will say yes to all the negotiating rules set by the EU so it going to go right to the wire.
    It will disorderly exit unless at the last minute the EU decide to “relax” their negotiating rules.
    There are hints of this when the German economists recently have said to Merkle that they think the date April 2019 is too tight and that a few extra years need to be allowed for.
    Ofcourse for the 5 to 10 years after leaving the EU it will be worse than staying, But how about 20 or 30 years time? that is the real question. what will happen if the Euro collapse in the EU sometime in the next 30 years?

  16. Schofield

    Given that the EU negotiating team are clearly pissed off with the truculent UK negotiating team can we look forward on the aviation negotiations front or lack thereof to the stupid Tory government threatening to go to war with the EU because the EU allows passenger and cargo planes from the UK to land in the 27 EU remaining member countries but promptly arrests the plane’s pilots and crew for illegal entry?

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