I had hope to write a bigger picture Brexit piece today, but administrative duties got in the way. However, the latest Brexit stories will hopefully provide readers with more grist for conversation in the meantime.
I got 2/3 of the way through this post and found I was outdone by this tweet, which is both brutal and great fun. I hope you’ll all be sports and listen to the video and carry on with the rest of the piece.
— ARTIST TAXI DRIVER (@chunkymark) July 30, 2018
On the one hand, some reality is starting to penetrate the fog of shoddy Brexit reporting and official ignorance and obfuscation. On the other, even when the media starts taking a more jaundiced look at Brexit, so much disinformation is in the zeitgeist that it’s hard to know how better takes will be interpreted.
Nevertheless, the Irish media, as many readers have pointed out, has run rings around Fleet Street and today’s story from RTE (hat tip Nick A) is yet another proof. The former WTO chief Pascal Lamy warned Ireland to get ready for a crash-out:
Ireland should “prepare for the worst” and may need emergency aid from the European Union if there is a ‘no-deal’ Brexit, the former director general of the World Trade Organisation (WTO) has warned
Lamy also put paid to UK soft border fantasies:
“If it was a benefit then, exiting the internal market has a cost. So there is no way there will be no cost, no way there won’t be a border. If you exit the internal market you have to have a border.”
Asked if there are any borders anywhere in the world where there is no physical infrastructure, he replied: “No. The most open systems of trade which exist are either in South Africa, where there is the South African Customs Union since the early 20th century, and there is a border. And if you look at for instance Norway-Sweden, there is a border.
“So the notion that there would be no border is pie in the sky,” he added.
Colonel Smithers gave us an update last week from an insiders’ conference that was sponsored by City types where the patter seemed a bit too cheery. From his comment last week:
Exactly a fortnight ago, Nicolas Veron, and some EU27 diplomats, addressed a City audience over lunch. Veron, but also the diplomats, thought that the UK can’t afford a hard Brexit and will settle for Norway or Norway Plus. It’s just a matter of when and can be as late as the return from the Christmas holidays. They thought that this was always going to be the case, especially now that May has managed to divide the Brexiteers. It was interesting to hear that although Barnier was negotiating with the UK, the real action was felt to be in the Tory Party and will remain so
Recall that City lobbyists have continued to push “regulatory convergence,” aka the EU agreeing to set up a whole new regulatory and supervisory framework just to keep financiers in London fat and happy. So a large swathe of the City seems to be very much behind the curve, which is consistent with pound not having been repriced to reflect rising and now high crash-out risk.
I made skeptical noises about the EEA option, and Richard Kline gave a more detailed takedown. Note that I agree that the odds are high that “sensible people” may be able to drum up public support for a Norway style option by the mid-late fall, when it is a non-starter. It’s thus an important part of why the UK’s options are far more constrained than all the press and pundit blather would have you believe. From Richard Kline:
One should note the ‘plus’ in Norway Plus; it’s simply a synonym for Bespoke Minus.
Simply the fact that semi-informed/semi-random suits in the City think the EEA is a door in a blank wall indicates how little they understand what the European Economic Area actually is, who its members are, and how they function. The relationship of the very small states in this accord and the EU is HIGHLY symbiotic. The EEA states adopt absolutely everything that the EU decides; they can’t even opt out like some EU Member States. They never rock the boat. They never raise exceptions, other than those already negotiated prior to membership. They are highly aligned with European institutions. They have no say; they toe the line. The ECJ decides if they have done so. The EEA States cannot remotely afford to have a crew of self-dealing boat rocking malcontents outnumbering them 10-to-1 climb on board because that would completely ruin their own deal. The EEA has already politely said that they are not available in marriage.
I get that Home Labour and Soft Brexit types have, for years, harbored a longing to go back to EEA status where they could boss others and threaten to ‘make trouble’ if the EU won’t concede the cherry pies the longers think they merit. But the reality is that the UK is a bad fit for the remaining membership of the EEA and are constitutionally incapable of accepting the role of the Member States of that organization. The attitude seems to be that no negotiation with the existing States is even necessary; just a wink and a not from Bruxelles, the Brits throw their wallet on the EEA table, and say “We’re buying now that we’ve joined your shabby little shop, must spruce up the place.” What could be more arrogant than that, the semi-assumption that the existing states don’t even really have a vote.
Britain has sabotaged every international alternative to the EU it has ever created or joined. Britain created the EEA and its predecessor—only to bolt it for a better deal of full EU membership. The EU may have had to put up with Britain as black sheep relations, but its simply self-defeating for the EEA states to take in the wastrel. It’s not happening on ultra-short notice, and the odds that it would happen at all even with a realistic timeframe are extremely small.
This is just delusion-lite in Britain. It is the path that, on the surface, ‘makes the most sense,’ and so insiders have, with a simulacra of realism, handicapped it as the most likely outcome. Until you look at the mechanics. Then, it’s the liberal equivalent in coveralls of Theresa May’s dumpy Brexit in bunting. And yes, I agree with the presenters that I expect an eleventh hour UK ‘offer’ to accept a Norway Plus status, that is a realistic call. And I expect the EU to decline—and the EEA to take to their collective heels.
Now to the latest bit of bad news for the City, that Deustche will move half its Euro-clearing staff to Germany. Recall that the ECB and France had tried to force the clearing of Euro derivatives to take place on the Continent. The UK took the matter to the ECJ and won because the ECJ ruled that the EU could not discriminate against a member state. As we said, that meant you could expect EU regulators to push to get their way.
Now there is a technical question of what exactly has to be in the EU, in terms of people, systems, and account domicile, for clearing to be considered to take place in the EU. Nevertheless, some readers had argued it would be too difficult or too risky to force banks to make the required moves. Apparently Deutsche doesn’t think so. From the Financial Times:
Deutsche Bank has moved almost half its euro clearing activities from London to Frankfurt, in the latest sign of European cities winning financial business from the UK ahead of Brexit.
The move has provided a significant boost to Deutsche Börse’s ambition to steal business from LCH after Britain leaves the EU next March — six months ago, Deutsche Bank’s euro clearing operation was almost entirely done in London.
The clearing of euro-denominated interest rate derivatives has become a key Brexit battleground for regulators, banks and exchanges. In the past, London’s LCH was the undisputed leader for clearing euro-denominated interest rate swaps, processing up to €1tn of notional deals per day.
Germany’s largest lender does not disclose its clearing volumes but it is one of the five largest clearers of interest derivatives….
While only a few hundred jobs are directly linked to derivatives clearing, Mr [Hubertus] Väth [CEO of marketing group Frankfurt Main Finance] said the indirect effects would be substantial, adding that Frankfurt had lost most of its trading rooms to London over the past three decades: “This was the best chance to bring them back.”
London Stock Exchange Group, which owns LCH, has warned that as many as 100,000 jobs could leave the City if London loses its status as the euro clearing hub.
Finally, the press has picked up and run with concerns about the risk of food shortages and disruption in the event of a crash-out. Ian Dunt has an excellent, detailed treatment. A new report, Feeding Britain: Food Security after Brexit by the Food Research Collaboration, was just released, and has not been accessible due to server overload. So we’ll turn to the writeup by the City University of London and perhaps generous readers who do manage to get to the document later can add juicy tidbits in comments:
According to the report, the Government recognises the serious consequences that may ensue because it is making contingency plans to suspend food regulations in the event of a no-deal Brexit.
Co-author Professor Tim Lang, of City, University of London, said: “One could argue that this is sensible emergency planning but it is also risky. Consumers would rightly wonder who was guaranteeing the safety and quality of the imported food they were buying. Criminals would be alerted to opportunities for food fraud. And the move would send negative signals to the EU, at a delicate time in Brexit negotiations. It could make the UK’s third country status more problematic for exports.”…
The authors welcome the fact that the Chequers statement of 6th July and subsequent White Paper recognise the importance of agri-food to Brexit. But they argue the documents have major weaknesses.
Feeding Britain: Food Security after Brexit says that the Government makes a fundamental mistake in proposing close alignment with the EU only for farming and manufacturing, but not for retail or food service.
The authors say this injects a fault-line into the UK food system between production and service sectors, yet food service is by far the largest source of employment in the entire UK food chain and delivers more gross value added (29 per cent) than the other sectors (agriculture 7 per cent, wholesaling 11 per cent, manufacturing 26 per cent, retailing 27 per cent).
The report says that the Government also appears to be ambiguous on the question of migrant workers and how essential they are to the current working of the UK food system.
The Guardian also published a pointed story over the weekend, Brexit provides the perfect ingredients for a national food crisis. And Richard North fulminates that the angst over food is overdone, that the Government needs only to do a few sensible things to sort the matter out…and then volunteers that this Government is probably incapable of that.
So all the Brexit gloomerdom looks to be very well founded, yet there is still a large contingent of very noisy Brexit boosters who either insist the critics are worrywarts or take the tack of agreeing the downside is cataclysmic and therefore won’t happen….even though the Government is doing squat to prevent those outcomes.
And this passes for leadership in the UK.