Brexit: EU-UK Talks Collapse, Disorderly Exit Virtually Certain

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A flurry of deal-making, with all sorts of rumors about an agreement being close, or even having already been sealed in secret, dominated UK reporting last week. It was all for naught. As the Financial Times reported in considerable detail, Brexit Secretary Dominic Raab met for only an hour with Michel Barnier to reject the current draft of the Withdrawal Agreement. No further sessions are scheduled.

This is fatal to the negotiations. Recall the EU had set down a firm timetable at Salzburg: May had to come back with something to be presented at the EU summit set to start this Wednesday, or else a special November session to complete the agreement would be off. The order of battle was that the text had to be presented to the sherpas by Tuesday at the latest so they could review it and brief their bosses. So there is no way for their to be panicked 11th hour regrets and a revival of the negotiations before the October meetings. That time has passed.

Given how disruptive a UK crash out would be to the EU, the Guardian and others speculate the EU will hold an emergency summit in November for planning purposes. That would also give the UK one last chance, were it to try, to make a last-ditch effort at cinching an exit agreement. As the Guardian put it:

The plan is likely to pile further pressure on the British prime minister by illustrating the EU’s seriousness about allowing the UK to crash out if the alternative were a deal that would undermine the integrity of the single market or prove unacceptable to the Republic of Ireland.

But between Salzburg and now this breakdown, the human dynamics are also a big impediment. Despite Barnier being the personification of a calm and professional negotiator, EU leaders have had it with the UK’s arrogance and attempts to bully the EU despite having no leverage. That was what the outbursts at May in Salzburg were about.

The disconcerting thing about the collapse of the talks was that the EU was blindsided. The EU thought the Raab meeting was to sign off on an agreement, not to nix it. This means at best the UK team got way ahead of its principals and was unable to bring them along. At worst, it means bad faith dealing, where the UK team had agreed to things that it had run by No. 10, only to renege. Did the threat by the DUP’s Arlene Foster to blow up the Government carry the day? From Politico:

Indications that a tentative deal at negotiator level was close, began to emerge mid-afternoon Sunday, when the U.K.’s Department for Exiting the EU released a statement that Brexit Secretary Dominic Raab would make an unscheduled trip to Brussels…

Subsequently, EU diplomats said a meeting of EU ambassadors had been scheduled for 6.30 p.m. Sunday evening. Three EU diplomats said the meeting was intended to allow ambassadors early sight of the divorce deal, but after the meeting between Barnier and Raab, an EU official said the EU negotiator would update them on the U.K.’s remaining objections.

Banier tweeted later:

From the Financial Times:

Brexit talks reached a dramatic stand-off in Brussels on Sunday night, after Theresa May warned that a draft treaty to take Britain out of the EU was a “non-starter” and risked tearing her government apart.

Mrs May despatched Dominic Raab, her Brexit secretary, to Brussels to make clear that she could not sign up to the current terms for Britain’s exit at a European Council meeting on Wednesday…

The biggest sticking point remains the so-called Irish backstop, the guarantee by both sides that there will be no hard border in Ireland pending the agreement and ratification of a lasting “frictionless” UK-EU trade deal.

Some Eurosceptic Tory cabinet ministers have threatened to resign unless Brussels agrees to put a firm end date on the “temporary” customs union between the EU and UK which forms part of the backstop.

Separately Northern Ireland’s Democratic Unionist party, which props up Mrs May’s government, has threatened to bring down the prime minister unless she drops a linked proposal to keep the region in the EU’s single market during the backstop period, putting a regulatory border in the Irish Sea…

EU ambassadors were told that Mr Raab’s meeting with Mr Barnier went badly, throwing into doubt several elements of the deal that was expected to take shape.

Aside from Ireland continuing to be the circle that cannot be squared, it is dismaying to see the UK still trying to have its precious cake, um, “frictionless” trade deal. What about leaving the Single Market don’t you understand?

The Times reports that the UK is (finally) about to get serious about crash-out preparation:

The Times has learnt that senior civil servants have warned ministers that whatever happens this week, the government’s contingency plans for Britain crashing out of the EU without a deal agreed must start being put into effect by the end of the month. Rather than wait for the conclusion of talks in Brussels, or the ratification of any deal by MPs, the work of stockpiling medicines and telling businesses to begin registering for new customs processes must begin shortly, ministers have concluded.Those involved in the discussions said that if the government delayed taking action to prepare for a no-deal Brexit beyond this month, it faced being under-prepared by March 29 next year, when Britain officially leaves the EU.

“Underprepared” is the understatement of the month.

Finally, from Richard North:

This looks terminal, not least because a meeting of Sherpas scheduled for today has been cancelled. This means that there is to be no further negotiator interface before Tuesday’s general affairs council – an essential prerequisite to a deal being presented to the European Council.

On that basis, it does not look as if there can be a successful outcome to the October Council – if by success we mean a negotiated deal. For others, this brings us to an outcome which has been the target all along….

Given the behaviour of the “Ultras” this weekend, this comes as no surprise. But we will not be able to judge the full impact of this latest development until we know what the European leaders plan to do.

If, as surmised by Spiegel Online, they decide to allocate the special November meeting to agreeing contingency plans, then we can assume the negotiations are as good as over. But if further face-to-face meetings are planned, we may still be in with a chance…

Officials, however, have moved to dampen speculation that the break-up in negotiations was in fact choreographed. “There’s trouble”, one of those anonymous sources told The Times. “This was not the plan”. A senior EU diplomat added: “This is not good and the backstop remains the problem”.

North also warned:

A “no deal” presents serious challenges for EU Member States, and for the EU institutions. A considerable amount of physical preparation will be needed, together with a substantial number of legislative adaptations before even a minimal cross-border operation can be resumed with the UK. The same applies to the UK, and Ministers have been warned to step up contingency plans here – even if there are severe limitations as to what can be achieved.

Despite the enormous costs that a disorderly Brexit would wreck on the UK and the EU, it is hard to see how it can be stopped. The EU put a huge amount of pressure on May and her coalition to get real. Despite the week-plus of intense talks, it appears the two sides are no closer together on the two main points of contention, the Irish border and what the future relationship should be (and how specifically that should be set forth in the Withdrawal Agreement. It appears to still be true that there is not a deal that May could get through Parliament, with the DUP and the Ultras set to vote anything that smacks of compromise down.

I would really rather be wrong about this situation. A crash out will precipitate a new financial crisis, not overnight, but it will send boulders downhill that will create an avalanche. The world is already so binged-out on private debt that, as the IMF and the World Bank and the BIS have recently warned, the risk of a meltdown is already high. A “no deal” Brexit will produce the scenario that former UK central banker Willem Buiter warned about in 2008 in his post, Reykjavik on the Thames. He explained how the UK had the same profile that Iceland had, a small open economy with an outsized banking sector. He saw the UK as vulnerable to a triple crisis: a currency crisis which would then kick off a banking and a sovereign debt crisis.

The EU is also vulnerable to a banking crisis, both via contagion from a UK financial train wreck and on its own. It is already having a slow-motion Italian banking crisis. A disorderly Brexit is sure to damage the EU economy. How will its wobbly banks make out in the year after Brexit if the EU economy shrinks by 2% or 3%? And remember, the EU has mechanisms in place that look designed to create bank runs, like nation-state deposit guarantees than in many cases are very much underfunded, to bail-in schemes that would make any sane depositor move their money to another bank if things got ugly.

When Margarite Yourcenar wrote her classic Memoirs of Hadrian, the one sentence she kept from a discarded first draft was “I begin to discern the profile of my death.” Brexit will be a death, not just of an ordered way of living in the UK, but of entire geopolitical structures. We can’t yet know how far the breakage will extend, but this had the potential to be the beginning of the end of much larger systems, just the way the Great War was the closing chapter of the era of monarchies and rule by landed aristocrats and the beginning of the end of the gold standard.

Perhaps the key actors will steer away from the abyss. Maybe the October shock will force a referendum, and maybe the EU will relent and extend the Brexit deadline. But that would require a lot of parties to make radical departures from their current stances. Happy endings are a lot more prevalent in movies than in real life.

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79 comments

  1. dcrane

    OK, this is probably a dumb question since I’m not an economist or politician, but what is the latest possible date that one or both sides could suddenly reverse tactics, accept a dramatic compromise or admit defeat, and thereby avert a crash-out? Rules and deadlines can be bent and broken to extreme degrees sometimes, but eventually practical realities will force the end. Could it still be that one or both sides is playing a game of maximum threat with an ultimate plan to accept something deemed “unacceptable” if absolutely necessary?

    Reply
    1. vlade

      That depends on what the last “compromise” would be. For example, various players in the EU indicated that the UK could drop A50 till the last moment.

      The real problem though is that there’s no good solution anymore. No happy ending.

      Stopping Brexit may prevent an economic catastrophe. But it may well create a political one, as w/o the impact of what the “no deal Brexit” actually means, a lot of people may well feel betrayed. We all know how the “we weren’t defeated, we were betrayed” played in Weimar Germany. Tony Robinson for PM?

      Norway deal may be actually the best (as in least unhappy) place – but it would still cause a lot of “the “people” were betrayed” as well as “it’s bad, but you know, if we went full no-deal brexit it would have been better!” stuff. So again, not a happy place, plus still allowing blame to be directed away from homegrown idiots to the EU.

      Ain’t no happy endings here. Grimdark.

      Reply
      1. Which is worse - bankers or terrorists

        Question to the commentariat: what happens if Theresa declares another election? Might be the only way to reshuffle the deck now that she is out of chess moves.

        The alternative may be trying to negotiate this following a Tory collapse and negotiating without a government. That will certainly be a little tricky.

        This is relevant to the “latest date” comment above.

        Reply
        1. vlade

          Tory-Labour is neck to neck in polls. Labour fears that if they came out decisively off their Brexit fence one way or another, they would lose too many voters. In a snap election though it would be all about Brexit, so not coming off the fence would lose votes too IMO.

          If Tories would win, it would still mean nothing, as while it may be able to drop DUP, the objections to unlimited backstop would still likely scupper the Tory plan. That said, if Tories would win, Corbyn would be toast, so maybe Tories could get some Labour MPs to support them.

          If Corbyn would win, he said he would ask for A50 extension. That would be unlikely to be granted unless a clear plan of where it would lead would come with it, with relatively short timeframes – since EU has no idea of what Corbyn would want (the official Labour “plan” is as idotic as Chequers, maybe more so).

          That said, I’m doubtful that Labour would win, because it is extremely unlikely to get enough Scottish seats to do so. It would likely need SNP or another coalition/support.

          So the election result well may be hung parliament unable to do anything, and no-one even able to ask for A50 delay.

          Reply
        2. Clive

          As vlade says, it changes nothing insofar as it puts no new magic options on the table. If anything, it’ll only harden anti-EU sentiment. Just wait until the swivel-eyed loon arm of the UK press gets through with all this. And regardless of the fairness or piousness or legality of the EU’s position (all of which it has on its side) the optics are terrible; it merely seems to confirm the worst suspicions of the Ultras that the EU is a Roach Motel from which escape is impossible on the EU’s terms without hacking off a piece of your territory in the process.

          And as the post points out, while the short term implications are nasty but fairly easy to identify, the real corrosivity is in the longer-term shift in the entire settlement, if I may call it that, of post-war Europe. The list of collateral damage is long. Take Scottish independence, as the first thing that pops into my head. The SNPs policy of an independent Scotland within the EU sounded great, but — on the current positioning of the UK’s exit vis-à-vis NI — it’ll require a hard border between England and Scotland. Braveheart idealism and anti-London sentiment are fine and will get Scottish independence campaigners a long way but will look pretty tedious in the face of having to stop at a border check, fill in customs declarations and face limitations on what you can do without a passport or a visa in terms of lengths of stay (which’ll be the default position, unless Scotland and the UK agree some sort of CTA-style informal arrangement as per NI and the Republic — a fudge which the EU would never allow as a greenfield solution and only got the nod because it was grandfather’ed in during the Brexit talks) when visiting family or friends cross-border.

          Then you have the end of the suspension (or the toning down of it, anyway) of inter-European country rivalry. The EU papered over a whole lot of cracks. Those will, assuming a crash-out, be exposed in all their awfulness. Even though this too is in the obvious-as-the-dog’s-bollocks category, I’ll throw in the UK as the US’s European outpost 12 miles off the French coast (and no doubt, having been “forced” to pick a side, be even more amenable than it is already to doing its level best to project US power and US interests into Europe, even if that means being antagonistic to the EU such as through degraded environmental protections and gung-ho financial services dodgy dealings). I won’t even go there in terms of eastern Europe and Russia. There’s lots more where these came from, readers merely have to use their imaginations.

          Labour, to restate the position for those who just came in, the official opposition, is not an anti-Brexit party. So no hope there of anything especially promising. And, if the reporting is to be believed, most “businesses” (sorry, I hate that term, not only does it lack agency, it’s sloppy identity politicking but I’ll have to settle for it here due to lack of a better naming convention) are of the opinion that Corbyn’s Labour would be worse than a crash-out. So once the Daily Mail gets through with lambasting the EU, it’ll turn its guns on Labour.

          Even if one was to suspend disbelief and presume that a new House of Commons was elected, stuffed to the rafters with Remain MPs who immediately rescinded Article 50, where would this put the UK in respect of the EU27? Are we all suddenly going to have a mass forgive-and-forget and become one, big happy superstate again? Half of the UK simply does not like what the EU is selling. It’s not like they’re going to be any more enamoured of it, just because leaving the EU is such a world of pain.

          Sorry for this tale of woe, but I have no other to tell. There’s a reason (well, lots of reasons, actually) why we are where we are. You won’t get very further forward without addressing those. Tough on Euroscepticism, tough on the causes of Euroscepticism, to coin a phrase (and abuse it, somewhat).

          Reply
        3. PlutoniumKun

          I can’t add more detail than Vlade or Clive above, I’d just say that the only way an election would provide a possible clarification is if Labour (as the main alternative) were to campaign on a specific unambiguous Brexit policy – e.g. ‘if elected, we will urgently request an 18 month transition period based on the backstop, and we will negotiate for membership of the EEA and EFTA to ensure a soft transition, with a binding referendum at the end of this period giving people a clear choice on this, a hard Brexit, or withdrawing A.50’.

          Then, people would know what they were voting for. But I don’t see this happening, not least because of the difficulties in getting an internal concensus within Labour on a clear message.

          Reply
    2. PlutoniumKun

      I don’t think there is a clear answer to this because of the legal ambiguities. In theory, A.50 could be suspended up to the last day, but what happens if someone challenges this in court (ECJ or London) and wins? What happens if the UK government agrees something and then collapses in February and is replaced by hard Brexiters? What happens if one of the EU27 decides to dig its heels in over a fudged agreement? November really does seem to be the very last month when any type of legally and administratively watertight deal could be made.

      Reply
  2. Eoin

    > Maybe the October shock will force a referendum,

    Sorry, but haven’t we been reading here for some months that — for technical, political and whatever other logistical and organisational reasons — another Brexit referendum that might have effect before 29 March is simply IMPOSSIBLE?

    Reply
    1. Yves Smith Post author

      Please reread the entire sentence. Your comment is a case example of taking something out of context. The Disney “everything works out” scenario is referendum + EU extension of Article 50 (oh, and of course, with the referendum reversing Brexit, but there are plenty of historical examples where news has shifted public opinion in very short order, and six weeks of realistic depictions of what a crash out would mean, like shuttering or greatly reduced hours in auto and aircraft parts makers, could focus a lot of minds). I think the odds of that happening are zero, but I have to allow for that happening, since if nothing else the press will bray for it.

      We could very well see an rerun of Greece, a referendum on a question that is moot. The July 2015 Greece referendum was on a bailout that had expired on June 30.

      Reply
  3. PlutoniumKun

    I would really rather be wrong about this situation. A crash out will precipitate a new financial crisis, not overnight, but it will send boulders downhill that will create an avalanche. The world is already so binged-out on private debt that, as the IMF and the World Bank and the BIS have recently warned, the risk of a meltdown is already high. A “no deal” Brexit will produce the scenario that former UK central banker Willem Buiter warned about in 2008 in his post, Reykjavik on the Thames. He explained how the UK had the same profile that Iceland had, a small open economy with an outsized banking sector. He saw the UK as vulnerable to a triple crisis: a currency crisis which would then kick off a banking and a sovereign debt crisis.

    The EU is also vulnerable to a banking crisis, both via contagion from a UK financial train wreck and on its own. It is already having a slow-motion Italian banking crisis. A disorderly Brexit is sure to damage the EU economy. How will its wobbly banks make out in the year after Brexit if the EU economy shrinks by 2% or 3%? And remember, the EU has mechanisms in place that look designed to create bank runs, like nation-state deposit guarantees than in many cases are very much underfunded, to bail-in schemes that would make any sane depositor move their money to another bank if things got ugly.

    This. I think everyone (by which I mean the mainstream press and commentariat) has been avoiding this topic for the past two years. But given that the austerity mindset is still in power in the UK and in Brussels, the possibility of a systemic catastrophe in Europe (at least) must be very high. And given the delicate situation the world is in, another 2007 is likely to lead to much more profound political changes. This is at least a 1989 moment, and maybe even more damaging.

    Reply
    1. Redlife2017

      When I take a detached view of the society that I have immigrated into, it is fascinating. So used to not connecting with each other (as Maggie Thatcher and her ilk wanted with THERE IS NO SOCIETY, JUST PEOPLE), we sleepwalk into the dead-end of the path we set out on 40 years ago. It is a tired society or maybe a tired and thereby ill-equipped elite to deal with the required changes.

      It feels a bit like the Year of Living Dangerously…but the shapes of what are to come are so fuzzy as to seemingly be in flux. Add in catastrophic climate change and what the Club of Rome (in it’s Business As Usual extrapolation) predicted may well look rosy. I am working on getting myself psychologically and physically ready…

      Reply
    2. JamieGriff

      OTOH, given that private debt is on the rise, and that there’s no sign of any appetite for reducing it, isn’t it better that the crisis comes sooner, rather than later?

      Reply
    3. John Zelnicker

      @PlutoniumKun
      October 15, 2018 at 6:47 am
      ——-

      Excellent point!

      A bunch of economists, especially some heterodox ones, have begun to realize that this “recovery” is getting quite long in the tooth, and are predicting a near-term reversal of varying degrees, from mild recession to total economic collapse. Some of them have pointed to private debt levels and the over-valuation of equities as major risks. Others, including Yves, have questioned how the derivatives market will survive a crash-out Brexit.

      This is starting to look like a perfect storm. Add in the austerity mindset (about which PlutoniumKun, you are absolutely correct, in that it is rarely mentioned, and critically important) and total economic collapse begins to look like the more likely outcome.

      I’m not sure which part of history this current situation rhymes with, but we are certainly on a precipice and when, not if, we go over it, there will be no one left unscathed.

      Reply
  4. Anonymous2

    Thank you Yves. Intelligent as usual.

    Ivan Rogers in an interview last week seemed to think that a deal could still be done over the next six to eight weeks. He is an intelligent man with relevant expertise so merits a careful listening. The scenario he seemed to envisage was the UK folding to accept a ‘vassal state’ deal. I guess it depends on the extent to which pressure is now put on English politicians by business. Does Nissan announce that it has had a change of mind about keeping its English factories going.

    I would be relieved if Rogers were proved correct but have now booked airplane tickets to enable us to get out of the UK mid March if needs be. Talk of a possible breakdown of civil order is not reassuring. Fortunately one of our daughters lives abroad so we can stay with her if need be.

    Reply
    1. PlutoniumKun

      I was wondering if part of the EU negotiating strategy was to see if they could force the UK government into a desperate last minute acceptance of whatever was on the table. However, this is only politically feasible for May in the face of a genuine, undeniable crisis (such as a collapse in sterling). Its possible of course that a cohort of CEO’s could walk up to No.10 with the message that ‘either sign something, or we all relocate’, but it seems that this simply won’t happen. I’ve been writing this for some time, but to repeat, that I think the worst thing that has happened in the negotiations has been the silence of the CEO class and the relative stability of the markets. A crisis of some sort was and is necessary for the political logjam in Westminster to clear.

      Sadly I think you are right to have some sort of personal backup. Everyone has focused on the possibilty of violence on the Irish border, but I think its actually more likely on the streets of England.

      Reply
      1. vlade

        One (of many) thing I cannot understand here is, as you call it, “silence of the CEO class”. Apart from the Japanese, which in and of itself is an alarm light.

        It’s one thing that has killed my original Brexit timetable ;)

        Reply
        1. PlutoniumKun

          In a way it does undermine the assumption that big business decides what it wants at Bilderburg, clicks its fingers, and the politicians do what they are told. The big beasts of british business seem as confused and uncertain as everyone else over how to respond to Brexit.

          Reply
          1. jsn

            Everything is like Calpers!

            Apparently competence was an unseen casualty of the 2008 kludges across the Anglosphere world.

            Reply
            1. Conrad

              Indeed. Thinking of my personal and professional dealings with people I find quiet competence the exception rather than the rule in all walks of life.

              Reply
            2. Mark Pontin

              Apparently competence was an unseen casualty of the 2008 kludges across the Anglosphere world.

              The facade of competence was the casualty..

              Neoliberalism as a substitute for principled, thoughtful governance was eliminating clear competence in anything but what facilitated looting well before 2008.

              But yes, the kludges done then by the elites to maintain the existing wealth structure — and terrible things were and are being done by governments to their people because of that, and not just in the anglophophone world (e.g. what the EU did to Greece) — are the underlying cause of Brexit, Trump, Italy, and everything happening now.

              Reply
      2. orange cats

        I think the silence of the CEOs is responsible for the relative stability of the markets? From the Irish Times: “So why aren’t more executives going public? Those I have spoken to all point to the same set of reasons: no one wants to alarm shareholders and employees, nor alienate customers who voted to leave the EU. Many think the public mistrusts business so much that complaints will be impotent or counter-productive. There is also a surprisingly widespread belief that companies depending on government contracts or regulation risk retaliation”

        Reply
        1. Yves Smith Post author

          Yes, this makes perfect sense. Thanks for the quote. And I agree, Mr. Market assumes CEOs would squeal like stuck pigs if they thought a crashout was even somewhat probable and would hurt them. Look at how Jamie Dimon makes noise about mere perceived slights.

          Reply
      3. fajensen

        silence of the CEO class and the relative stability of the markets

        Well:

        It could well be the case that everyone knows that the first to put their head above the parapet will get it chewed clean off by the rabid press – and – that any person of influence publicly taking any position at all on something will get to be blamed for any disasters to come later*?

        Or:

        They will basically say: “Please only complain to me about something that I can actually do something about”!

        Many of the leaders that I know will very deliberately not spend even one, single, calorie of mental energy on: 1) Things that have not actually happened yet (even though they are quite likely), 2) Things they cannot control the outcome of, and 3) Things without resourced proposals for solutions included with the briefing.

        …Their People are probably working on the “3’s”, the contingencies and Bayesian logic, keeping mum about it so they are not the ones Betraying Britain (and getting front-runned on office leases in the EU)!

        *) We have this in Sweden – every authority here are simply paralysed and more or less incapable of performing their normal functions from Fear of being The Despicable One, The Original Sinner, The One, who is solely responsible for bringing “Sverigesdemokraterne” to power and therefore the one who must be destroyed for the world to become normal again.

        Reply
  5. Alex Morfesis

    Not to infuse the Liveries with more power than they might actually be able to conjure…but didn’t the EU and ecb insist Greek bonds (and apparently everyone else’s since) all fall under English law provisions ?? Yes, the Germans were able to magically have isda rules changed to protect their landesbank collapse from being seen, but an unfriendly and unhappy square mile will not bode well for restructurings which are in fact a part of normal economic cyclical activities… Which is perhaps why methinks and has always thought beyond just trading and market making capacities of “the houses”, the search for “efficiency” has left the EU with a rather interesting dilemma…

    Bond holders historically have always panicked when confronted with an unknown and unknowable… How goes it when the solicitors grind the paperwork to a stop and the English system does an “Areios pagos” and spends most of its time looking out at the buses passing in front of Veneti’s, dreaming and scheming for the next chance to take another break and grab a metrio and a pastry…

    In his haste to punish the Greeks for having had the audacity on October 28th, 1940 to say “nicht” and causing the beginning of the end of the great march to Moscow, Herr Schaeuble imagined having English law as a back stop would keep the little people from the little countries in check…

    Perhaps mister panos was right all along…perhaps the Greeks were playing a trick on the germans after all…

    Beware of Greeks who act like they surrendered…

    And never bet on the Germans… They always find a way to lose…

    Reply
    1. Yves Smith Post author

      No, the Greeks had done financings that were English law securities, such as the post crisis refinancings. They only had a pretty small % of Greek law bonds as a % of their debt left (this is a guesstimate, but ~25%) by 2015.

      Reply
      1. Alex morfesis

        Sorry Queen Bee…obviously rambled too much…I concur…but if English law is the basis post crash for most bonds…then how does one deal with the next crisis if the liveries and company are permanently annoyed and put the work slow down in place in a crisis moment…English law is mush if you can’t get an opening in a courts calendar to have that emergency hearing…

        Reply
        1. Yves Smith Post author

          Nothing like that happened in the 2008 crisis. And you don’t have to to go to a UK court to enforce a contract written under English law. In the US, contracts are governed by state law and cases are often pleaded in a state different than the governing law of the contract. However, even though a judge in a different jurisdiction can and should be able to determine what aspects of the governing law of the agreement apply to case at issue, you run the very real risk that he gets it wrong.

          Reply
  6. John Beech

    May you live in interesting times. Brexit certainly qualifies, eh? Me? I believe the EU has been negotiating in bad faith. Moreover, anyone laboring under the impression the UK is doing a terrible job of negotiating forgets they have a deep bench and centuries of experience.

    When history is finally written, I believe hindsight will score Angela Merkel’s open borders policy as the proximate cause. Why? It’s because Article 50 would have never been triggered absent her opening the flood gates to a veritable horde of fighting age young me. After all, did/does anyone in their right mind expect them to integrate? Anyway, with the certain knowledge the free movement principal ensured many would end up in England, it’s entirely predictable the UK would recoil at the prospects. My main point being without the visual on every television of this 5th column, the far right would have never gained traction and thus, remained on the fringes throughout both the UK and Europe.

    However, it’s the EU’s subsequent – and rather clumsy – attempt at punishing the UK, which have pushed Britannia into this corner. Especially because the EU further misjudged the situation by considering the Irish question as settled, when it’s obviously still a raw wound. If this part of the deal ends badly it’s also on Germany’s arrogance.

    However, strike three may well be Italy’s prostrate economy. She was an economic powerhouse in the late 80s but with the Euro’s introduction the slide has been nearly non-stop to where she is now. Small wonder they (Italian citizens) no longer care for Brussels bombast and economic dictates. All this during a time when the world economy is otherwise recovering nicely from 2009. If I were an Italian citizen facing the prospects of becoming like Greece, I too would say, let’s roll the dice and look for another outcome. I predict Italy’s banking crisis will be the straw that breaks the camel’s back with respect to the European project and it’s really too bad.

    I’ve come full circle from admiring Angela Merkel to where I am now, basically wondering how on Earth she could have engineered this downfall so adroitly. How very sad.

    Reply
    1. vlade

      With “friends” like you, who needs enemies?

      I really suggest you read Sir Ivan Rogers speech. It encompasses the experience you speak about. But if you can’t be bothered to read and undestand it, I’ll point a few facts.

      Depth of bench? Muahahahah. Dept of Trade, Dept of leaving EU and FO are all losing people left right and centre, and having trouble to recruit.

      Centuries of experience. Do you really assume that say Churchill’s ghost is whispering advice to May? Oh, maybe you’re talking about one N. Chamberlain saying “we got a peace in our time”, instead, right?

      Merkel’s stance on immigration may, or may not have done the damage to remain cause. But few of those ever came to the UK. At the same time, with one Mrs. May at the helm, entirely managed to lose the ability to control non-EU immigration. Which was largely unskilled, and where HO had all the tools it could wish for. I guess unskilled Bangladeshi integrate worse than skilled Polish plumber. Ah well, wasn’t the first time the UK f-ked Poles who came over.

      The EU’s attempt to punish the UK? Ah, I see. A wife whose husband filed for divorce coz he wants to chase younger girls, who tells him “no, I won’t sleep with you anymore”, is punishing him. Right.

      Italy was clearly forced to join the EUR. Right. Coz, like, you know, the nasty Germans told them to! (although Germans really really wanted to keep their DM, but you know, they are like that). And they don’t care about the economic dictates. Except when it comes to leaving the EUR, they sort of like it. So much that both of the government parties quietly dropped their goals to leave it.

      Reply
      1. Yves Smith Post author

        The EU has been clear and completely consistent from the outset about what the UK’s choices were. The UK has refused to listen, refused to make choices, and behaved poorly and with extreme ignorance, included of how trade negotiations go. The idea that the EU has operated in bad faith is laughable.

        Reply
        1. gallam

          The EU will shortly be one of two parties that have failed to negotiate a reasonable settlement involving 100bn / year of trade and a 40bn contribution to the EU’s budget.

          You can argue about bad faith etc etc, but the EU will have failed, as has the UK. It seems unlikely to me that there will be any accountability for this failure anywhere in the EU administration. The UK individuals may not be so lucky.

          Reply
    2. HotFlash

      It’s because Article 50 would have never been triggered absent her opening the flood gates to a veritable horde of fighting age young me[n].

      (or perhaps a Freudian slip?)

      Well now, perhaps NATO countries shouldn’t have been sooo enthusiastic about supporting the US’s wars in the ME and elsewhere? Why are these ‘fighting age’ young men, not ‘family-starting age’ young men?

      Reply
    3. TheGulfWarDidNotTakePlace

      Calling refugees of NATO imperialism “hordes, fifth column, unable to integrate” strikes me as deeply racist. Then to further blame them and the one decent thing Merkel ever did for the rise of the right wing…how about neoliberal austerity and deindustrialization? British xenophobia isn’t a backlash against recent refugees, it’s a long and proud tradition that’s never been bothered by material reality.

      Reply
  7. JW

    Just looking at a box of Twinings of London tea. Made and packaged in Poland of imported ingredients.

    How did anyone ever think Brexit could come off smoothly?

    Reply
    1. Frithiof Andreas Jensen

      Yeah, and Chicory is to a large extent grown in France making the production of Ersatz-coffee harder!

      Reply
  8. Clive

    Not yet in Hansard so can’t provide a link to the U.K. Prime Minister’s statement in the Commons just now, but May seems to have just intImated that the EU does accept the Backstop will need to be time-limited.

    We’ll see.

    Reply
      1. Pavel

        The Grauniad has it here:
        https://www.theguardian.com/politics/blog/live/2018/oct/15/brexit-uk-accuses-eu-of-trying-to-impose-backstop-to-the-backstop-politics-live

        May’s statement doesn’t seem to be getting very good reviews from any side of the House.

        If there is a hard exit as Yves (and others) are now forecasting, I give the Northern Irish a year or two before they organise a vote to reunite with the Republic of Ireland and it will be approved. The DUP will thus have sown what they reap.

        Reply
        1. Which is worse - bankers or terrorists

          I would really like to be a fly on the wall of Arlene Foster’s office the day that this happens.

          Reply
        2. PlutoniumKun

          A friend of mine who lives in the border areas says he knows for certain of at least two strong republicans who voted for Brexit, precisely because they forsaw this happening.

          Good to hear at least some people think strategically.

          Reply
          1. JW

            In all seriousness, the Republic and the EU would take Northern Ireland on that quickly? They wouldn’t find a fudge to delay reunification?

            In South Korea people pretty much openly say that they wouldn’t actually open the borders on day 1 if the North asked to join.

            Reply
            1. PlutoniumKun

              By ‘Republicans’ I mean northern Ireland strong nationalists. I don’t mean the government. The Irish government (and most of the Republics population) would be horrified to face the prospect of a united Ireland and would do everything they possibly could to make sure it happens ‘soon, but not tomorrow’.

              Reply
              1. vlade

                That would be fun to watch – as I believe the unification would require two referenda – a NI one, and an Irish one, with both going aye.

                If say the UK tried to stall for time,it could say “they should be run at the same time, as to make them truly independent and representative”, and then happily continue to blame Ireland for not running their referendum, if Irish dragged their feet (which it sounds they would).

                Reply
                1. JW

                  I guess the Constitutional amendments due to the Good Friday agreement mean that the Republic’s citizens now get a referendum before having to take in the North, unlike before. No fudge required. I wasn’t aware of that.

                  Soon but not tomorrow is sound policy. Look at what happened to the former GDR.

                  Reply
    1. vlade

      She explicitly refused to say it would end by Dec 2021. Doesn’t seem to me like the EU rolled over on this (nor from the other coverage).

      She also just explicitly refused to commit to a specific date, while saying it must be temoporary (“temporary” presence of Soviet army in former Czechoslovakia was 20 years…. But at the same time “forever”, as in “with Soviet union forever and never otherwise” lasted 40 years. So in other words, temporary is half of eternity )

      Reply
      1. Clive

        I knew I’d not imagined it. Hansard has just been updated with May’s Statement. Here’s the key section (same link as I used above):

        I do not believe that the UK and the EU are far apart. We both agree that article 50 cannot provide the legal base for a permanent relationship, and we both agree that the backstop must be temporary, so we must now work together to give effect to that agreement.

        Of course, May could not really put a date in the sand, to mix my metaphors, and either be her self or make the EU a hostage to that fortune. But, if May’s statement is to be believed — and it was a statement to the House — the EU seemingly accepted it has to have some form of time-binding.

        The devil, how many times have we said this, is in that detail.

        Reply
        1. HougDa

          The devil, how many times have we said this, is in that detail.

          My understanding is how that end point is measured. The lunatics want it to be a set date.

          “Any arrangements under the backstop will terminate at midnight on December 31st, 2022”

          The people who understand what a backstop is want it to be event-triggered.

          “Any arrangements under the backstop will terminate as soon as CJEU have adjudicated that the proposed solutions obviate the need for it”

          Both temporary, but one is temporary in the same way that the Mesazoic era was temporary. Still lasted nearly 200 million years mind…

          Reply
    2. Yves Smith Post author

      She would say that, now wouldn’t she? May must make it look like the breakdown in talks is the EU’s fault.

      Policio has a story up as of two minutes ago that has Tusk saying a crash out is more likely than ever.

      The sober tone of Tusk’s note reflected deepening unease among EU officials over May’s opposition to the EU’s demand of an all-weather “backstop” that would prevent the recreation of hard border between Northern Ireland and Ireland.

      The EU’s proposed backstop would effectively keep Northern Ireland inside of the bloc’s customs union as a way of drastically minimizing the need for checks on goods, including livestock and agricultural products, traveling between the U.K. and Ireland. London has objected, saying the EU’s plan would undermine the constitutional integrity of the U.K. by treating Northern Ireland differently and essentially creating an imaginary internal border in the Irish Sea.

      Brussels insists that its proposed backstop is nothing more than a safeguard that is never intended to be used, but would protect the Good Friday peace agreement in the event that negotiations on the future EU-U.K. relationship last longer than expected, or perhaps break down.

      In Brussels, May’s refusal to accept the EU version of the backstop is viewed not merely as a principled stand in defense of British sovereignty but also as a reflection of her continuing political weakness.

      https://www.politico.eu/article/brexit-no-deal-donald-tusk-more-likely-than-ever/

      Reply
  9. James E Keenan

    When the Brexit referendum took place two years ago, the my British colleagues and British expats whom I know in New York were solidly of the “What were they thinking? This will be horrible” school. I shared their opinion, largely because most of the Brexit advocacy I read was rooted in xenophobia. That skepticism of Brexit has been reinforced by reading NC’s commentary over the last year-and-a-half.

    However, when I attended the recent Modern Monetary Theory conference at the New School, several participants described themselves as having become “reluctant” Brexit supporters. They pointed out that the EU was an unelected, undemocratic body which, by design, enabled national governments to pass the buck for neoliberal policies intended to redistribute income and wealth upwards. As Mitchell and Fazi write in Reclaiming the State (p. 165):

    [T]he EU’s economic and political constitution … is structured to produce the results that we are seeing — the erosion of popular sovereignty, the massive transfer of wealth from the middle and lower classes to the upper classes, the weakening of labour, and more generally the roolback of the democratic and social/economic gains that had previously been achieved by subordinate classes ….

    Yves and other commentators in this forum have well described the costs of Brexit. But perhaps we should consider as well the benefits of saying No to one of the pillars of neoliberalism.

    Reply
    1. Synoia

      You seem to believe the UK’s upper class, the ruling class, do not want:

      “the erosion of popular sovereignty, the massive transfer of wealth from the middle and lower classes to the upper classes, the weakening of labour, and more generally the roolback of the democratic and social/economic gains that had previously been achieved by subordinate classes ….”

      You might want to reflect on the School Boris Johnson, and many other Tories attended, Eton.

      Reply
      1. JW

        The EU was effectively a triumvirate of Germany, France and the UK. If the EU is neoliberal, the UK deserves most of the blame.

        Reply
  10. Ignacio

    It is interesting that the two of the countries that have probably pushed the hardest for globalization in the recent past (US and UK I believe) are precisely the ones that take the lead on anti-globalization.

    Reply
    1. PlutoniumKun

      I think the problem they both have with globilization is that it is no longer on their terms. The core Brexiteers are extreme Libertarians, they dream of a day when you could sail a 20 gun frigate up an estuary and force the locals to buy everything you have to sell. No doubt Trump dreams of the same.

      Reply
        1. vlade

          TBH, I’m pretty damn sure that BJ would be happy to take Putins or Martians or anyone’s help to become the PM. Just don’t rely on him (BJ) to keep any promises to anyone once he’s there.

          Reply
  11. Mirdif

    I feel this is theatrics and May is attempting to generate an event or events that allow a capitulation. To this end we have the statements from Ford and Astra Zeneca as well as the statement about pay negotiations by Nissan. The visit by Midair last night was most likely to explain the situation in London to Barnier. It is dependent very much on Mr Market and how he responds but the later he responds the more complete and absolute the capitulation and humiliation for the government.

    The absolute latest is probably January when signing exactly what is offered by the EU can lead to the cliff edge being avoided. I feel this is the most likely way things will play out, but this is not stopping me from planning for contingencies. Even if the cliff edge is avoided the country is screwed and a new cliff edge will emerge in 2020.

    Reply
    1. Mirdif

      I’d just like to add James Rothwell of the Barclay brothers rag has just tweeted that Midair walking out last night was not a surprise to the EU side. They understand it as part of theatrics and the atmosphere at home is still too hot to accept the deal that Olly Robbins has negotiated.

      The EU side also believe that the DUP is bluffing and they can be bought off.

      Add to this the statement by Donald Tusk and I think we’re witnessing what Jean Baudrillard called the third order of Simulacra, i.e Simulation. The current events have a kind of an unreal feeling to them. I can’t quite place it but it feels contrived.

      I know a lot of people have thought the worst since last night but I’m quite relaxed as I feel the capitulation is close at hand. I’m also keeping in mind the post by Colonel Smithers from the Nicolas Veron seminar over the summer where the feeling was that the May will capitulate as late as January.

      Reply
      1. Mark Pontin

        The EU side also believe that the DUP is bluffing and they can be bought off.

        If the EU believes that, they are wrong, essentially. Though of course much would depend on a price.

        I’m quite relaxed as I feel the capitulation is close at hand

        From the people I know in contact with elements of the UK Oxbridge Tory inner circle, yes, the plan there is apparently to try in January to swing another referendum/GE/ whatever to bring on ‘capitulation.’

        But that inner circle have been spectacularly arrogant and incompetent about everything heretofore — Cameron in calling the referendum and losing it, May in calling the GE to put herself in a clear position of power and then losing a majority and having to bring in the DUP, and so on. Why would you expect them to get it right now?

        Reply
      2. PlutoniumKun

        I doubt very much the EU believes that the DUP is bluffing – the Irish government has plenty of experience with them and would have advised the EU otherwise. They may, however, believe that they are not an insuperable obstacle as in theory May could keep a government going without them if she could do a deal elsewhere. Well, she could if she and her staff were competent, but thats clearly not the case.

        I don’t agree that the breakdown of the talks is contrived. The reporting here is very much that the EU negotiators thought they were on the threshold of a deal when the UK backed out. If people are gambling on a last minute capitulation by London then I think there may be a rude awakening – the government is simply too weak to engineer one, I don’t see how they could get the numbers in Parliament for agreement. And there is a very real danger of rioting on the streets from Brexiters if it happened.

        Reply
        1. Mirdif

          I get the impression, reading between the lines, they may believe the DUP might compromise if money is pumped in to Northern Ireland. I’m speculating and don’t know how that would work but I guess Mrs. Foster might have a number in mind.

          As for a capitulation, I’m quite sure there will never be a UK-wide referendum. The establishment has learned its lesson. Instead, they are attempting to move Mr. Market. At some point Mr. Market is going move when reality begins to dawn and as usual Mr. Market will likely overreact and at that point the capitulation will happen and Britain will enter a vassalage.

          I also get the feeling that people are at the point where they have had enough of this story and wish it would go away but it will go away only when reality has intruded. In the longer run the country is still screwed. Spending has been based on growth projections which ain’t going to materialize and so tax rises are going to mean an exodus of higher rate taxpayers in any case.

          Reply
          1. Yves Smith Post author

            I don’t know if you are in the UK, but my other UK contacts disagree that the DUP has a number, but the Tories may believe that.

            Foster’s father was nearly killed in the Troubles. She was on a bus that was bombed as a child and saw a schoolmate badly injured. The DUP stands for its principles, as much as we may not like them. They’re willing to lose power to make a stand.

            Reply
          2. PlutoniumKun

            Its often forgotten that the DUP are not a ‘political’ party in the conventional sense. They are a theocratic movement, with over 75% of its membership part of the tiny Free Presbyterian fundamentalist sect and an even greater number active in Orange Order freemasonry. They like money (several of the individual DUP members are undoubtely corrupt, but that does not drive them. They are religious and political fundamentalists, in the true sense of that word. They would happily see towns go up in flames rather than ‘surrender’ to Papists (ardens sed virens (burning but flourishing) is the FP motto).

            This of course is rarely if ever discussed in the polite UK media, as it deeply undermines the self notion of the UK establishment that it is a modern, secular society. The UK is in fact probably the only advanced western nationwith its government dependent on what amounts to a fundamentalist theocratic sect.

            Reply
            1. Mirdif

              Well my speculation about Mrs Foster having a number in mind is very much with “Cash for Ash” in mind.

              Perhaps I should not allow my view that all people in politics are scumbags until proven otherwise influence my thinking so much.

              Reply
  12. Tom Stone

    I have seen little or no commentary on how a hard Brexit will affect the US economy and I’m just beginning to see commentary about the potential effects on the world economy.
    Are people assuming the effects will be contained to the UK and the EU?

    Luckily “Suzanne” is still doing research for C21 where I hang my license, I’ll ask her about it and get back to you.
    As an aside, is Lehman still a “Screaming Buy”?

    Reply
  13. Ignacio

    One of the things I was questioning myself is what consequences will brexit have on the independentist push in Catalonia.

    Years ago, Catalonian independentists felt reinforced by the result of brexit referendum. They said: “see, it is posible to secess”.

    Although they do not admit it openly, independentists realise that their vision of an independent Catalonia within the EU is almost impossible so they must be dreaming of an independent Catalonia trading on WTO rules with the rest of the world (although without publicly aknowledging this). Given how the ‘proces’ has been thougth to proceed –unilaterally– they should also recognise that it would inevitably get muddled in ever-lasting conflicts with the rest of Spain on all matters (human rigths, finance, territory, water, commerce, energy… everything) that matter. Barring violence, Catalonia migth get independence but at a cost that nobody could predict.

    So i wonder if brexit could bring catalonian independentists to their senses or the contrary.

    Reply
  14. James E Keenan

    When the Brexit referendum took place two years ago, the my British colleagues and British expats whom I know in New York were solidly of the “What were they thinking? This will be horrible” school. I shared their opinion, largely because most of the Brexit advocacy I read was rooted in xenophobia. That skepticism of Brexit has been reinforced by reading NC’s commentary over the last year-and-a-half.

    However, when I attended the recent Modern Monetary Theory conference at the New School, several participants described themselves as having become “reluctant” Brexit supporters. They pointed out that the EU was an unelected, undemocratic body which, by design, enabled national governments to pass the buck for neoliberal policies intended to redistribute income and wealth upwards. As Mitchell and Fazi write in Reclaiming the State (p. 165):

    [T]he EU’s economic and political constitution … is structured to produce the results that we are seeing — the erosion of popular sovereignty, the massive transfer of wealth from the middle and lower classes to the upper classes, the weakening of labour, and more generally the roolback of the democratic and social/economic gains that had previously been achieved by subordinate classes ….

    Yves and other commentators in this forum have well described the costs of Brexit. But perhaps we should consider as well the benefits of saying No to one of the pillars of neoliberalism.

    Reply
    1. Yves Smith Post author

      Bill Mitchell hates the EU. He’s influenced others among the MMT folks. He also gave seriously wrong-headed commentary about Greece’s ability to start a new currency.

      Varoufakis was vocally opposed to a Grexit because it would damage the EU and blow back to Greece, among other reasons. He didn’t see Greece as coming out net ahead.

      The idea that the UK would escape neolibearlism is a bizarre fantasy. The UK was one of the propagators of neoliberalism and its pols believe in it deeply. The UK would have implemented austerity all on its own. And the UK has its own currency, meaning it could defy or circumvent EU sanctions for breaking Maastrict rules if it wanted to.

      And a small open economy like the UK will always have limited sovereignity. It must accept the rules of other countries to sell products to them. Many commmentators, including pro-Brexit Richard North, have stressed the UK would have more influence as a member (he advocates via the EEA/EFTA) than where the UK’s red lines put it, in a simple free trade deal (as in “Canada”).

      It’s easy to advocate revolutions when you aren’t the one bearing the costs.

      Reply
      1. Mark Pontin

        BANQUO. It will rain tonight.

        FIRST MURDERER. Let it come down.

        Neoliberalism first came to power in the UK, in that Thatcher’s election preceded Reagan’s by eighteen months or so. It wouldn’t be unreasonable to expect neoliberalism to end there first, too, Yves.

        Yves wrote: The idea that the UK would escape neoliberalism is a bizarre fantasy. The UK was one of the propagators or neoliberalism and its pols believe in it deeply.

        Maybe. Yet we’ve seen plenty of what the good and the great reckoned were ‘bizarre fantasies’ enacted in the real world recently, haven’t we? Neoliberalism is ending and has to end. Those current ‘UK pols who believe in it deeply’ sooner or later will be swept away.

        It’s easy to advocate revolutions when you aren’t the one bearing the costs.

        Of course. But global socioeconomic regimes seem to last about 35-40 years. I remember the end of the Bretton Woods/Keynesian regime in the 1970s and the social turbulence then. It was always a given that the end of the neoliberal regime would be a far harsher experience, given that it’s allowed so much unrestrained looting by elites that they’d fight to the end to not have it taken away. And nevertheless what can’t continue, won’t continue.

        No guarantee exists that what will come next will be better. Neoliberalism was worse than the Bretton Woods order that it replaced but it provided a way forward when that preceding order had become unsustainable. What comes next may be worse than neoliberalism. And nevertheless the tectonic plates are shifting.

        Best to accept and say: Let it come down.

        Reply
    2. PlutoniumKun

      Much as I admire Bill Mitchells work on MMT, he goes seriously awry on his commentary on the EU. He buys a lot of what amounts to propaganda about how the EU works – most seriously he seems to be under some sort of delusion that its the EU that has forced austerity on the UK. In reality, the UK has been one of the major drivers of the neoliberal consensus within Europe, and frankly a lot of progressives in Europe are glad they are going. In particular, Mitchell repeatedly repeats the false claim that EU Directives prevent nationalised ownership of infrastructure and services. This is simply not the case.

      He also – and I think this is a common weakness in the MMT community, (based as it is mostly in the US) has not seriously grappled with the differences between small open economies and larger economies*. As Yves says, the benefits of MMT are significantly reduced for a small open economy. To get the best of MMT in Europe it would really have to be applied at EU level – ironically, an argument for the Euro and closer integration, not the opposite (arguably, a Jobs Guarantee based on local government would be the best way to prevent the sort of internal migration which has raised the hackles of so many English people seeing East Europeans flood into their towns for work)

      *I could stand corrected on this, but most of my what I’ve read on MMT makes assumptions that in my opinion largely only apply to countries with an element of autarky. I’m not suggesting MMT would not work in a small open economy, but it is clear that the room for manoeuvre is much more limited, especially if that country has borrowings in foreign currencies.

      Reply
      1. vlade

        my views on Mitchell are widely known so I wont repeat them here.

        But you are absolutely right on your * point. MMT is limited by inflation. Small open economies are more open to inflation by import prices than domestic wages – a point a lot of economists of all bends tend to ignore. In fact, for import dependent economy MMT can trigger the infamous money printing inflation hellhole pretty quick.

        While there’s no such thing as confidence fairy, the externam market loss of confidence demon is all too real for small open economies.

        Reply
        1. Ignacio

          I agree. I always thougth that without some kind of controls on capital flows or broad tariffs, a small open economy applying keynesian measures would see inflation and a big chunk of the benefits flying abroad.

          Reply
          1. PlutoniumKun

            The proof of that particular thesis was Ireland in the 1970’s and early 1980’s. There was a theory going around that the reason Ireland had such long term pervasive unemployment/emigration problem was that it was ‘stuck’ in a sort of permanent Keynesian recession. The ‘solution’ was to be a once off huge fiscal boost in 1977. The result was predictable – a massive increase in public debt, current account deficit and inflation, with only the most short term of employment boosts. After 2 years the economy was in a worse state than when it started. Small open economies simply operate on a very different macro basis than larger ones, many standard economic approaches don’t work. This is one reason in particular I believe that direct interventions in the micro economy (you might call this the Asian Tiger economic model) are far more effective for growth in small countries than playing around with fiscal or monetary measures.

            Reply
  15. ChrisPacific

    I think part of the problem is that crash-out Brexit is sufficiently without precedent in a modern economy that anybody who accurately describes the consequences risks being seen as alarmist and written off. So we get euphemisms like “underprepared,” which is inevitable in a crash-out scenario at this point even if the UK does nothing but prepare 24/7 from now on. I confess I am no longer seeing much humour in the situation, even though there is plenty of raw material there. Lots of people are going to get hurt, over an extended period of time. Remainers will be angry and blame Brexiters. Brexiters will be angry because what’s happening will bear little or no resemblance to what they thought they had voted for.

    I’m still not getting the sense that politicians have any idea what they are letting themselves (or the country) in for. There are glimmerings of awareness, but no more. Maybe I’m wrong and we’ll see a sudden interest in bulletproof fashion items, or they’ll all coincidentally have long vacations booked for late March in places like Bermuda or the Caymans.

    Reply

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