Brexit Stress Rises: Pound Weakens on S&P Crashout Warning, Norway Nixes “Norway,” Migrant Status at Risk

The UK press has more than a few stories tonight on how things will come unglued in the event of a disorderly Brexit. S&P gave a warning that is frankly mild in light of the disruption of crash out as May’s efforts to open up the “Norway” option predictably failed and the Home Office looked utterly at sea regarding a disorderly Brexit. More on that shortly.

One positive development is the EU has apparently decided that being bloody-minded about forcing derivatives entered into by EU nationals needed to come to EU clearinghouses in the event of a crash out might cause enough problems in the short term so as to undermine the long-term commercial benefits. But the EU is is cooperating only to the degree absolutely necessary. From the Financial Times:

Brussels has responded to financial industry calls for continued access to London’s capital markets by providing reassurance that EU groups will temporarily be able to use crucial derivatives clearing services in the UK even after a no-deal Brexit…

Mr [Valdis] Dombrovskis, who is responsible for financial regulation, told the Financial Times that the relief, which would allow EU banks and companies to continue using UK-based clearing houses to process derivatives trades if Brexit negotiations fail, would be strictly short term…

“Should we need to act, we would only do so to the extent necessary to address financial stability risks arising from an exit without a deal, under strict conditionality and with limited duration,” he said.

S&P warns of crash out risk. The big news on the Brexit front, as far as Mr. Market was concerned, was S&P clearing its throat about a disorderly Brexit. From the Guardian:

The S&P report said:

  • Unemployment would rise from current all-time low of 4% to 7.4% by 2020 – a rate last seen in the aftermath of the financial crisis;
  • house prices would likely fall by 10% over two years;
  • household incomes would be £2,700 lower a year after leaving without a deal;
  • inflation would rise, peaking at 4.7% in mid-2019;
  • London office prices could fall by 20% over two to three years, similar to the decline following the 2008 financial crash….

S&P said leaving the EU without a deal would make matters much worse, pushing the UK into a moderate recession lasting between a year and 15 months, with GDP contracting by 1.2% in 2019 and 1.5% in 2020. After that, the economy would return to growth, it said, though the pace of growth would be moderate.

The pound weakened to 1.27 dollars. The GDP contraction estimate sounds light, given the disruption to food supplies and the greatly reduced production from UK plants that are part of international manufacturing supply chains. Richard North agrees, elaborating on his website:

…this brings another day closer to a “no deal” Brexit, which the credit rating agency Standard & Poor’s is now predicting could tip the UK into recession.

Why this is even news is only to be imagined. I was pointing out on this blog 18 months ago that this could be the outcome, suggesting that a botched Brexit could rival the Great Depression in its effects on the UK economy….

In my opinion, it makes sense to take a pessimistic view and then to double down on that to expect far worse than the high-level pundits are predicting. And the reason for this is that the trading infrastructure of the UK is far more fragile than we are led to believe, and far less capable of withstanding the shocks of a “no deal” Brexit than is generally assumed.

Some clues to this come in a report which has received no media attention from Felixstowe-base hauliers James Kemball, brought to my attention by one of the blog’s readers.

Headed “UK Container Transport Crisis 2018”, this points to a UK container transport industry currently at crisis point, evidenced in recent weeks with major disruption to supply chains during this year’s peak season period.

Heightened by congestion at the UK’s major container ports, it tells us, the UK container transport sector has been overrun and struggled desperately to cope with the demand due to changes in the shipping industry over the past decade.

Hampered by driver shortages, poor infrastructure, legislation, escalating costs, decreasing revenues and the introduction of mega ships and mega ports, the future of the industry is in doubt without immediate change and reform.

The essential point here, from the Brexit perspective, is that many of the more optimistic pundits, confronted with warnings of disruption to the ro-ro traffic passing through the Dover-Calais route, argue that the slack can be picked up by other ports and, where there is a shortfall in ro-ro capacity, goods can be diverted into shipping containers and handled by the container ports.

Even in the best of times, this would lead to a significant loss of flexibility and extended transit times, rendering some goods uneconomic or impractical to ship.

But, even if swapping routes and transport modes is theoretically possible, the Kemball report suggests that an industry on the brink would not be able to cope with the additional traffic, on top of the disturbance and delays brought about by newly implemented border controls.

Norway rejected May’s late in game idea of joining the EEA/Efta as a way to preserve access to the Single Market. Richard North had said long ago that the UK needed to have started work on that long ago for this option to be viable. Readers like vlade and Clive were more skeptical. The UK would be vastly larger than the other Efta members and would expect to be the dominant player. And anyone who’d watched how the UK operated in the EU could not have failed to notice that the UK was regularly throwing its weight around and would regularly trash talk the Union.

Admittedly, May’s gambit was an even-more-certain version of this idea, the “Norway, then Canada” option, that the UK would join the Efta to provide a safe haven while it negotiated a free trade agreement with the EU. Why should anyone go to a huge amount of hassle to admit the UK as a temporary member, particularly when you have no idea when they might eventually dump you? From the Telegraph:

Oslo has poured cold water on a proposal from Tory MPs to adopt a Norway-style trading relationship with the EU to break the deadlock over Brexit and the Irish border.

At a press conference in Oslo, Norwegian prime minister Erna Solberg said allowing Britain to become a member of the EEA/Efta trading bloc, which has a very close relationship with the EU, would be “difficult” to accept.

EU workers go home? The UK scheme for “settled status” residents who’d lived in the UK for more than five years to be able to stay and enjoy the rights of UK citizens looks iffy in the event of a disorderly Brexit. The Home Office only set up a pilot program to register them and can’t give straight answers on how far it can get by March 29. From the BBC:

Firms may have to do “rigorous” checks on EU staff if there is a no-deal Brexit, a minister has suggested.

Caroline Nokes said employers wouldn’t be able to tell the difference between people who had settled in the UK and those who had just arrived…

Ms Nokes also revealed the system for EU citizens to register for settled status still didn’t work on Apple phones.

The US tech giant “won’t release the upgrade we need in order for it to function”, she told MPs…

The government wants the estimated 3.5 million EU citizens in the UK to apply for settled status so they can continue living and working her…

But it will not have happened by the time Britain leaves the EU on 29 March.

In fact, Ms Nokes revealed to the Commons Home Affairs committee, just 650 people had registered so far in a pilot programme…

But Ms Nokes suggested that in the event of a no-deal Brexit, where there would not be a transition period, new immigration controls – including employer checks of immigration status – will apply to EU citizens next year.

This sounds Kafkaesque. How can your prove your “immigration status” if the system isn’t in place for you to register? A suit was lodged yesterday and it can’t include the details from the Home Office briefing, indicating that there are even more problems with this program. From the Financial Times:

The UK’s post-Brexit residency plan for almost 4m EU nationals living in the country fails to offer hundreds of thousands of people the certainty that they will be allowed to remain in Britain, a charity is claiming in a legal challenge.

The Joint Council for the Welfare of Immigrants is concerned that the government’s scheme under which 3.8m EU nationals can apply for so-called “settled status” in the UK after Brexit does not have the simple rules that ministers promised it would.

Ministers have said repeatedly that under the scheme there would be only three checks on EU citizens before deciding whether to grant them settled status: nationality, residence in the UK, and whether they had been convicted of serious criminal offences…

The JCWI argued in its legal challenge lodged with the High Court in London that the settled status scheme rules were not simple because of the provisions in relation to removal orders.

UK has cinched only 14 of 236 international treaties. The pink paper earlier had said the UK would fall out of at least 759 agreements as a result of Brexit. Why is the number now so much smaller? Is it, so as not to scare the horses, that the focus is only on “treaties” and not “agreements,” which could be broader? Notice that Whitehall is the source of the figure, which is consistent with the notion that the officialdom wants to make a bad fact set look less catastrophic. From the Financial Times:

The UK has managed to “roll over”only 14 of the 236 international treaties that the EU has signed with countries around the world, raising fresh concern of disruption if Britain crashes out the bloc without a deal…..

Last week, Whitehall officials were given data showing that only a fraction of the 236 treaties that the EU has with countries outside the bloc have been successfully copied by the UK into new mini-arrangements with the relevant nations.

Britain needs to roll over about 40 free trade agreements that the EU has with countries including Canada, Japan, South Korea and Mexico.

The 236 treaties also cover important agreements well beyond trade — relating to airlines’ take-off and landing rights at overseas airports, as well as industries such as financial services, fisheries and nuclear.

UK-EU flight talks not started. Another cliff-hanger! In case you missed it, from the Guardian

Flights could be disrupted after Brexit, the transport secretary has admitted, but he said the European commission would be to blame for not starting talks on a deal to keep planes in the air.

Chris Grayling told an aviation conference that disruption was “unlikely” but that talks to secure an aviation agreement had not yet started with only five months to the date of Britain’s departure. He added: “That process is not in our hands.”

Grayling said there was “no way that flights will stop” between the UK and the EU, but there appeared to be a marked change in tone from previous speeches in which he had described planes being grounded after Brexit as inconceivable…

The legal basis for continuing flights between the UK and the EU is unclear without a new deal. Grayling said the UK could fall back on bilateral agreements with individual EU member states but was hoping for a “barebones” aviation agreement with the whole bloc, saying he had not met “one single person” in the commission or a member state who believed there would be an interruption to aviation…

But airport bosses said they were preparing for the worst, including queues of lorries potentially jamming Britain’s main road artery, the M1, because of new customs requirements.

Karen Smart, the managing director of East Midlands airport, which handles large amounts of freight, said Brexit could cause tailbacks on the motorway if longer checks on goods lorries were needed.:

I’m not sure what Grayling means by “interruption”. The EU has been insistent that only point to point flights will be allowed in and out of the UK to EU airports.

EU regulators give “don’t expect us to help” message to banks. Normally one would take this sort of “go prepare and don’t assume a bailout” message to be posturing, but financial services industry experts see the recently-adopted Bank Recovery and Resolution Directive as a monstrosity that will if anything increase the number of bank runs. And because it was a “no more bailouts” regulation, at a minimum it will make it politically difficult to bypass the BRRD and rescue banks.1 From the Financial Times:

Europe’s top official in charge of winding down failed banks has also recently urged the industry to press ahead with preparations for a no-deal Brexit, saying lenders should not expect regulators to help them cope with any upheaval caused by the UK’s departure.

Elke König, head of the eurozone’s Single Resolution Board, told the FT that banks should not expect any leeway in meeting one regulatory standard: the rules requiring lenders to issue a minimum amount of unsecured debt and other securities that regulators can write down or convert into shares if the institution fails.

If Britain leaves the EU without an exit deal, bank bonds issued under UK law will no longer be eligible without contractual changes. This could affect more than €100bn of bank debt, according to industry estimates.

The Fed has an “unusual and exigent circumstances” clause, which as former central banker Willem Buiter put it, allows the Fed to accept a dead dog as collateral. I’d assume the ECB could also be forgiving in a crisis but due to the hour and the terrible state of search engines, I’m prevailing on readers to fill in details.

Unfortunately, none of this is cheery news to those of you who live in the UK or Ireland. There’s no change in the inertia propelling the UK into a crash out. Hopefully later in the week, we’ll discuss some procedual issues.


1 Saving banks as institutions does not require sparing their executives and board members.

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    1. skippy

      The point is how the exit was arranged and them managed [or the lack thereof], that is attributed to the ultras. Now the elites have assets outside England and FX options – not so much for the unwashed.

      I would suggest some consider how exiting could have been done in a reasonable approach with due time for negotiation, but no, its a parody of the Blazing Saddles Sheriff holding the gun to his own head.

  1. Ataraxite

    The most astonishing thing to my mind, at the moment, is just how calm everyone is. It’s 4 months and 29 days until March 29, 2019, there is no deal, there is no obvious path to a deal between the UK and the EU, and there are plenty of doubts as to whether any deal could make it through the House of Commons.

    Yet, calm pervades everything.

    I have a theory: people simply don’t believe that the predictions can come to pass. Not just the feral Brexiters and shock doctrinists, but even remainers and otherwise sensible people. They cannot bring themselves to accept, except as the most theoretical of concerns, that the things are predicted could happen. They’ve never experienced planes not flying between the UK and the EU, so it’s not possible they could stop. It’s the same with food in supermarket shelves, or picking up medicines from the chemist. People in the UK fundamentally aren’t accepting at any visceral level that these things could actually happen.

    I was in Sarajevo recently, and the thing which sticks in my mind was that in 1989, it was a smaller city in Yugoslavia, which seemed to have peacefully integrated the various ethnicities and cultures which are there. By 1992, the city was under siege, and snipers were picking off citizens on the streets. I don’t say that to predict that civil war will come to the UK, but merely to highlight that the range of potential futures in any society is often far broader (both better and worse) than anyone would dare predict, and they can arrive awfully quickly.

    Nicholas Nassim Taleb’s concept of fragility (and anti-fragility) also comes to mind. A modern, first-world economy (particularly after 2008) is probably a prime example of fragility – something which is made weaker by external shocks and unforeseen events. And the UK economy – with its huge finance sector, its highly optimised supply chains, and its reliance on imports for a lot of basic necessities, is about to receive a whole lot of external shocks. And some of those shocks will be completely unforeseen – even by those of us who watch closely.

    The next few months are going to be interesting.

    (Also, blaming Apple because the Home Office’s half-arsed software depends on features Apple has never had? Truly cretinous stuff.)

    1. Which is worse - bankers or terrorists

      I have a two layperson’s questions if I may:

      (a) That 100bn in bank bonds becoming “ineligible” seems important as this could destabilize bank balance sheets in a substantial way. Could not emergency legislation be passed to handle his sort of this thing, given its’ potentially destabilizing influence on the financial system? It seems like a likely candidate for it. If not, this would certainly seem to be a threat to the pound.

      (b) with respect to the issue of port capacity, is there any provision under UK law that customs could be held responsible for goods damaged unusually lengthy delays in the process of customs checks (in the case of spoilt food or delayed medicine)? In the US, I believe it is true that CBP does at some point best some liability if it damages my property during customs checks. I’m curious as to the legal recourse businesses and individuals have under current UK law. More broadly I’m curious as to how Northern Ireland residents could claim injury over a hard border.

      1. Anders K

        The main problem of port capacity is mainly on the EU end; the UK can decide to let through whatever on its end (this has long-term issues, but would probably be possible to argue in the short to middle term in the WTO), but the EU will start requiring quite a bit more documentation than it currently does, as well as performing more inspections.

        This will reduce the amount of UK exports that the EU can receive as well as imposing an additional cost on exporters, as well as force everyone using the current system in the UK exporting business to adjust – they need to make sure their exports do not get stuck waiting on the UK side (or accept their lorries waiting to pass on their stuff to the ports).

        I doubt that the UK customs will take monetary responsibility of delays imposed on the EU end. As for Northern Ireland, I also doubt the hard border in and of itself would be actionable – but coupled with the Good Friday Agreement, there may well be something that one could do legally speaking.

        1. vlade

          No. Read North’s post. The container ports are clogged – not because of customs or similar, but simply the infra (at ports and the road haulage after that, forget trains, IT “upgrades” at Felixstowe) is at the breaking point already. You can keep roll-on-roll-off coming from Europe – if you drop all pretense on security, safety and customs. It will mean pretty much stopping the exports though.

          According to the report North is quoting, UK transport infra is in crisis right now. Throw in disorderly Brexit, and it will collapse. To paraphrase Yves most people just “assume logistic infrastructure” – we got so used to order today, deliver tomorrow, ship anything anywhere etc. that we don’t pay attention.

          But in the UK, infra investments – private and public – were at the bottom of the pile. I used to joke about the UK trains that “if it worked for Victorians, it’s good enough for us, right?” – because it’s decades behind the continent. Arguably, to an extent because the infrat at the continent was ripped apart by the war, and finished being fixed only in late sixties – but then, even countries not hit by the war managed to upgrade it – in the UK it was just mostly ignored (the one exceptions being some road infra, but even that is insufficient now). How else can you have a relatively flat country where the first HS rail was opened only 11 years ago, and has all of 70 miles?

    2. ambrit

      One aspect of this that I am wondering about is the Trans Atlantic contagion effect. How closely coupled are the UK and American economies? I could see a seizing up of Land Rover deliveries, or BSA scooters, but what about Marmite? Will I have to travel down to the Duty Free shop at Moisant International Airport in New Orleans for my yeasty fix?
      This is going to be much bigger than advertised.

      1. Skip Intro

        We have already stocked two 55gal. drums of marmite for just this eventuality. I guess the question is ‘Do you feel lucky?’. Now we didn’t get a very good bulk rate on the marmite, but with Amazon Prime 2-day free shipping, it worked out well. It is very convenient that marmite is pre-spoiled. I don’t know how we’ll cope with perishable foodstuffs.

        1. JW

          My Twinings tea bedecked in little Union Jacks is made in Poland. Maybe a similar fate awaits Marmite.

          1. ambrit

            Bl–dy H—! I forgot about tea! It’s grown in some foreign place, ain’t it! Maybe tea is one of the ‘fast track’ trade negotiations on Whitehall’s ‘to do, not dither’ list.
            The closer you look, the ‘deeper’ the hole gets.
            Now, it will be the opposite from when I was a nipper and Grandad sent over parcels containing Marmite and Brooks Bond tea. I’ll have to ship things needed for maintaining “The English Way” to kinfolks back on the Islands. That is assuming, a big one too, that there will be functioning postal agreements between the countries and England any time soon.
            “Curiouser and curiouser,” said little Teresa.

            1. ChrisPacific

              It had better be on the fast track list. With all the stresses attendant on Brexit and the difficulties that UK citizens are already having getting along with one another, I don’t like to imagine what might happen if you suddenly removed tea from the equation.

      2. blennylips

        Ah Marmite….

        By coincidence, a month ago, I decided living on a small island was a poor excuse for not indulging that near unacquirable acquired taste for years.

        Fortunately, those good folks in Caernarfon, Wales, at R&I Jones Ltd got two tubs to me in under three weeks, Yes, I did miss it, and damn glad to have it now;)

    3. PlutoniumKun

      I think you are quite right to say that for far too many people the sort of problem coming down the line is literally ‘unthinkable’. People just can’t grasp that sometimes last minute deals aren’t done, and economies do go into catastrophic meltdown. Your Yugoslavia example is appropriate. I can remember that on the cusp of the civil war an eminent Yugoslavia expert was asked on TV if a breakup and violent was possible. He said ‘no, absolutely not, people have lived together in peace for decades, it just can’t happen.’ But the expression on his face was not that of an expert outlining facts and analysis, it was of a man for whom this was literally unthinkable, he simply could not bring himself to believe that no solution could be found.

      I do believe that the systemic impacts are potentially catastrophic. Any one element of Brexit could be managed – food could be kept stocked, supply chains could just about be maintained, aircraft could be kept in the air, banks can be kept solvent. But it is the combined simultaneous impact which will be unprecedented outside of a major war. And self evidently, the UK does not have the organisational capacity to deal with it.

      Interestingly, I’ve been on Holiday in Portugal the past week and the topic of Brexit has inevitably come up. The Northern Europeans I’ve talked to seem well aware that it will be a catastrophe. Maybe because they were brought up on family stories of the WW2 period and know how fragile modern states can be? I don’t know, I just know that the last people to panic will be the British, and they should be the first.

      1. Colonel Smithers

        Thank you, PK.

        I have noticed the same from trips to France since the spring. Family and friends and strangers ask often and are staggered by the apparent lack of preparation and / or panic. The issue gets MSM airings more often now. There has been some good analysis on France 2, better than anything on its UK peer group.

      2. Toni M

        I was born in Yugoslavia, near Sarajevo, and we got out just before he war broke out. My father’s family are Bosnian Croats and my grandfather was certain that civil war would happen. Nobody else was, including my father. My mother’s family are Bosniaks of Muslim faith, and the concept of the break-up not to mention civil war was unthinkable to them. I was obviously far too young to understand but the speed at which everything unravelled is staggering, and just how far things have fallen. The most striking characteristic of my visits back home is the ultimate hopelessness that anything will improve, or that politics is anything but a self-enrichment exercise.

        I don’t know how much this transfers over to the UK with its mature institutions and centuries of unification, but the Brits are incredibly complacent about what can happen when people feel scarcity breathing down their neck.

      3. JBird4049

        But the expression on his face was not that of an expert outlining facts and analysis, it was of a man for whom this was literally unthinkable, he simply could not bring himself to believe that no solution could be found.

        That is probably because most of the people he knew did not want that. Many, perhaps the majority, of Yugoslavians did not want to break the country up into its constituent parts, not only did that blind them to the minority that did, it really blinded them to that minority’s minority that had effective control of the army, more specifically its heavy weapons, was was willing to use it to commit ethnic cleansing, genocide, rape, systematic destruction of all landmarks, including schools, libraries, museums, bridges, monuments, mosques, anything that showed the unapproved past existence and knowledge of the other. Later in the Civil War, some of the original targeted minorities also did the same. At least five centuries of history was almost obliterated.

        The allies of the various factions were not helped anything.

        The Western states refused to effectively blunt forget stopping the opportunistic Serbian “politicians” creation and use of the war as well as negotiating such disasters as the initial Sarajevo truce that allowed the “Yugoslavian” armored invasion columns to extricate themselves after then found out why in armored warfare attacking large cities means dying. At the time it was inspiring to see a mixed population using basically light weapons and guts stop some racists thugs. Too bad they weren’t allowed to finish the job. Then the West put in a arms embargo on everyone including the majority populations that did not have armor or artillery.

        The Russians, who are Orthodox Christians, supported their ethnic and religious brethren, from the big bad West and leaving exposed the Serbians’ victims.

        The Saudi supported Wahhabis, the precursors of the more radical ISIS, set about helping the much, much more moderate local Muslims by militarily defending them and imposing their regime of fanatical religious schooling, destruction of heathen and apostate schools, churches, mosques, museums, artwork, writings, the same evil that the Serbs were doing. Maybe with more sexism and less genocide, but ultimately similar results.

        It was the people with the weapons, the money, the outside support, and initially the intense ill will and drive that wanted, started, continued, and succeeded in destroying the country although they did not get the Greater Serbia that they wanted. They were perfectly willing to murder anyone, including moderate Serbs.

        1. rosemerry

          As usual, it is always the Serbs demonised. Serbia has been considered the “evil one” by all the western pundits, starting with the Germans 9 days after reunification, when the removal of Croatia from the multi-ethnic Yugoslavia led to the rest of the warmaking and the attacks by NATO in 1999. Kosovo became a “nation” with Camp Bondsteel, Thaci, human trafficking, organ trafficking, gunrunning, all supported by the West. How dare the Russians support the Christian Serbians, who valiantly fought the Nazis in WW2? Serbia has been blamed and none of the investigations have been public if they did not support the official record.

    4. vlade

      Brexit is a micro-cosm of why humans will be incapable of dealing with climate change short of popular, competent, charismatic leader. I.e. we’re doomed. And I say that as a father, so not happily at all.

      1. m-ga

        The analogy to climate change is pertinent.

        With Brexit, we may not see a reaction until the flights are literally grounded and the lorries literally come to a standstill.

        Similarly, with climate change we may not see a reaction until parts of London and New York are literally underwater.

        Let’s hope there is at least a blinking before impact.

      2. vidimi

        you beat me to it, vlade. it is the same kind of fairy tail thinking. someone else will solve the problem. where does it come from?

      3. ChristopherJ

        Vlade, perceptive, as others have said.

        Mitigation is what the UK and the world needs – a targeted and coordinated approach by everyone.

        Adaptation is what the UK and the world will get,

        because there’ll be insufficient of the former.

    5. bold'un

      I think that most people in the UK are assuming that the true worst case is a ‘blind brexit’ where the UK settles all its bills in exchange for a transition but leaves the future relationship (its nature and start date) in limbo. Procrastination is our fail-safe!

      1. ChrisPacific

        The small problem with that is that no deal Brexit may be the EU’s last and most effective point of leverage to secure a permanent deal on the Irish border (I read an article recently making this argument). If no deal Brexit is as bad as the worst case scenarios suggest, then it will drive the UK back to the negotiating table very quickly and make them desperate to accept any terms on offer – compare Greece following the rejection of the bailout extension, when the banking system stopped functioning.

        The large caveat is that it requires a UK government with a mandate to deal. If no deal Brexit brings down the government then it will take some time to form a new one, and there will be plenty of pain to endure in the meantime.

        1. ambrit

          There is the time honoured tradition of starting a war in some far away place to distract the populace with. Say, a bloody succession contest in Rhodesia for instance. A Neo Mau Mau uprising in Kenya. The French send an aircraft carrier to Saint Pierre and Miquelon to menace the Anglo Canadiens! The Deutsches Heer occupies the Channel Islands! The Franco Brigade besieges Gibraltar! The possibilities are endless.

    6. Schofield

      Yet, calm pervades everything.

      That’s because the UK should have been renamed Fukwitland a long time ago!

      1. Tom Bradford

        And where else?

        Oh yes, I remember all the scare stories about every computer in the world grinding to a halt at midnight on 31/12/1999 with aircraft falling out of the sky and nuclear power stations exploding left, right and centre.

        I suspect the Brits, of which I was one once, will keep calm and muddle through. Panicking is such hard work.

        1. JW

          The Brexiteers did not write “we’ll middle through” on the sides of buses, and now that’s the best case scenario. What a massive con job.

        2. UKnotOK

          What people have to remember about the Y2K problem is that an immense amount of actual foresight and preparation went into making sure that computers didn’t fail on December 31st 1999. That preparation is nowhere near as extensive to issues like Climate Change and Brexit.

    7. Prairie Bear

      I think your theory is a very good one, and it applies to all the other threats we are facing worldwide. People just don’t want to believe they will happen. There is also “threat fatigue” because of so many different things to think about.

  2. Colonel Smithers

    Thank you, Yves.

    I had my first interview, by video conference, with a potential employer in Zurich yesterday afternoon, part of the plan to leave Blighty as soon as practicable. I was asked why I was applying. The interviewer was puzzled why more people based in the UK are not looking for fresh pasture. The interviewer was also puzzled by the lack of official preparation and insouciance on the part of the population. The interviewer used to work in London as a lawyer in the City.

    One colleague jumped ship a year ago and is helping his employer, an emerging markets focused British bank, set up a front office in Frankfurt and a back office in Warsaw. His wife is the granddaughter of refugees from Austria, so the family have applied for Austrian passports. The wife’s grandparents were astounded, but they realise that their granddaughter and two great granddaughters have to plan for an uncertain future.

    There’s more talk of jumping ship and getting other passports now.

    1. The Rev Kev

      Thank you for that anecdote, Clive. To be honest, when that interviewer asked you why you were applying for the job, I think that he answered his own question when he asked about the lack of official preparation. To me, that would be a great reason to leave.
      At any rate, good luck with your interview and I hope you get the job.

      1. Colonel Smithers

        Thank you.

        I don’t want to go to Zurich, to be honest. I don’t speak German, but was told that it’s not a problem. The interviewer does not speak German, either.

        I am looking in Mauritius, too, as my parents will return in the next year or two. There has been an increase in the number of Brits, nothing to do with the diaspora, going there for work and / or retirement, including a Leave voter.

        1. The Rev Kev

          If you end up in Zurich, having a command of French would be a big plus but as you have a Mauritius background, I suspect that you already do. German is not that hard to pick up and a simple phrase book will help you out. What really helps is to hear the language spoken so having a Swiss radio station speaking in the background I found helps a lot. Here is a link to streaming Swiss radio stations if you happen to need one-

          1. Colonel Smithers

            Thank you. I will listen.

            I gave up German after a year at secondary school, 30 odd years ago.

        2. darraghlong

          I lived in Zurich for a few years, and my lack of German was never more than a mild inconvenience.

          One small piece of advice – if you end up moving to Zurich, you will need to get a work permit (most likely a B permit or a L permit). The B permit is significantly better – it offers more certainty that you can stay in Switzerland, better benefits, and is surprisingly relevant when looking at things like mobile phone/credit card/car leasing.

          If you haven’t already, it would be worth discussing this with your potential employer and figuring out what will give you the best chance at obtaining a B permit. Best of luck with the job, and with the move!

          1. Colonel Smithers

            Thank you.

            The second round next week is with HR, so I will ask about that. There will be third and fourth / final rounds before Christmas.

  3. Colonel Smithers

    Thank you, Yves.

    With regard to bank resolution, the EU framework does have similar provisions. The UK (and “hawks like the Netherlands and Sweden) wanted tighter criteria for what is eligible collateral, but had to agree to a loosening of provisions in order to get the directive adopted. Much of the resistance came from France, including the lady who now heads regulatory affairs at my German basket case employer, but Marianne was not the only “dove”. Fritz, knowing that my employer was “fcucked”, Italy and Spain joined the resistance. The doves thought bail outs were the optimal, if not the only, solution. I began working on such matters at the banking trade body, but switched to the buy side body in the autumn of 2012, not long after Angela Knight was replaced by Boris Johnson’s crony Anthony Browne. My responses on behalf of the buy side about resolution is still posted by the Basel Committee.

  4. Reds

    I just wanted to add an observation. My partner and I started creating a pantry for Brexit in May when you could easily find 15 kg bags of rice from online grocery stores (specifically Ocado). Now the largest size they carry is 10 kg.

    You can still find bulk rice larger than 10kg, but they’re at more niche sites.

    1. m-ga

      Try Asian supermarkets. Plentiful supply of big bags of rice around here (Manchester).

      I expect the panic buying will hit the 1-2kg bags of rice and lentils in supermarkets to start with. Most British shoppers don’t realise you can easily buy at Asian-owned wholesalers. So, there’s likely to be a cushion (with price hike) before supplies are exhausted. And, I’m guessing supplies will continue to arrive at historic rates (perhaps a bit higher, depending on warehouse capacity) until at least early March.

      If you buy late, you might end up with 15-20kg sacks of speciality rice (e.g. glutinous, or black, or broken), which would make for an interesting daily menu.

      I bought 20kg of oats for £20 last week (I always bulk buy). These are actually grown and milled in Cheshire – one of a few examples of UK produce. After Brexit, I’m expecting more people to get used to porridge every day, although probably with water rather than milk. Turnips might get more popular as well ;-p

    2. fajensen

      Consider buying some of those sealable 15 liter plastic drums as well to store the stuff in (keeping it in the original packaging) for protection and as “firewalls” for an insect contaminated package. Maybe also get some large’ish silica gel bags to throw in the drum together with the dry goods for eliminating moisture and condensation, which will block any mould from forming in the drums. If your storage is flooded, infested by moths et. al. or invaded by vermin it is not going to be a good experience.

      Green lentils, chick peas and beans are good to have also. Some liters of extra virgin olive oil, garlic, spices and sun-dried tomatoes will go a long way in making the dried veggies edible. Milk powder and dried fruits like raisins is good for oat-meal porridge made with water. Don’t forget Tea, for making boiled surface water drinkable. And gin to forget.

      Maybe even invest in an Optimus Multifuel hiking stove? If the worst doesn’t happen, it is still a nice thing to bring for picnics and other expeditions.

    3. ambrit

      Phew! You lot make me think of the Prepping community here in America. All those items are part of a ‘Doomsday Scenario’ survival kit.
      If you are urban, consider a bicycle for getting around. Fuel for automobiles could be the first thing to ‘dry up.’ Mass transit will become more rationed, and troublesome to use; crowds, mob angst and a descent into more ‘disputational’ social relations apply.
      Of interest to Americans will be all the under-appreciated fragilities of modern Western society exposed by Brexit. I have the idea that Brexit is a test run for what’s coming at us all soon due to climate change.

    4. Prairie Bear

      Rice and lentils are good things to have in bulk; my partner and I tend to keep some amount of back stock of storable staples even as a matter of course for normal times. In thinking about prepping for possible extended emergencies (I am in the upper Midwest USA), I always wonder also about energy infrastructure and supplies for cooking. Currently for us that would be natural gas for cooking rice, etc., on the range top and electricity for the oven. So I think some canned goods that can be eaten straight with no prep, if necessary, are a good idea. Longer term, well I think you really can’t plan that well for a total breakdown of civilization.

      1. Yves Smith Post author

        You need to stock your freezer strategically….what do you want as a treat a month in?

        Also, sardines, canned salmon and tuna. Or in jars in oil.

      2. blennylips

        Not at all in jest: The Marmite mentioned up page is part of my plan.

        Lifting the lid on the secrets of Marmite

        …thing about the product is its ‘astounding’ shelf life.

        ‘If a Marmite jar is contaminated with bacteria, leave it alone in the cupboard — because of its high salt content, the Marmite will kill the bacteria. Putting it in the fridge, on the other hand, preserves the bacteria. So not only does it taste better out of the fridge, it’s safer.’

        The UK Overclockers weigh in: Does Marmite ever go off?
        Jun 19, 2013 at 4:14 PM

        So I found a jar of Marmite in this building, the use by date says March 2010, but it smells and looks absolutely fine. Think it’ll be OK to eat?

        I won’t spoil the answer for you.

  5. Kurt Sperry

    Per Wikipedia, BSA scooters were last produced in 1965, so the impact of a cessation in import deliveries stateside might be of, shall we say, limited impact.

    Not to minimize or trivialize the undoubted potential negative impact of a crash-out Brexit, but in that seemingly inevitable event, it should be enormously clarifying in its wake to see how the actual impacts align with the spectrum of predicted impacts we read, ranging from head in the sand “everything will be fine” to full-on “Britain will be reduced to a failed state with people dying hungry in the streets of deprivation and untreated illness and hot civil war in Ireland is inevitable” doom scenarios. Inevitably, some people will be shown to have got it spectaularly wrong, and inevitably we will get a clear show of who along that spectrum were existing in reality and who were, let’s charitably call it, not. The latter, whomever they turn out to be, should wisely probably be derided and ignored forever thereafter once the whole thing shakes out.

    1. makedoanmend

      Facets not considered in your analysis of extreme spectral outcomes are the temporal aspect and impacts at the individual level that are already occurring. On average, so to speak, there may or may not be immediate meta-disruptions; though I suspect there will be if crash-out Brexit occurs. On individual levels, I’m already seeing people’s lives being disrupted by Brexit, especially by the never ending uncertainty imposed by various Tory factions. It seemed the “divorce” payment and rights of existing EU citizens in the UK were settled. Now we know that they do not seem to be. Forget about the so-called backstop agreement. Also, we do not know how these disruptions are going to affect the cultural and social fabric of the UK. Only time will tell. Austerity has fundamentally altered UK society (and in many ways not for the better) and crash-out Brexit could be austerity on steroids.

      Ireland will not be in a civil war. The Republic is stable, though no doubt our economy will be severely impacted in the short to medium term. I expect we will need some structural funding from the EU. I rather doubt that there will be major problem in the North either in the short term. It takes a while for a lit fuse to actually burst into conflagration. It took nearly 50 years and the advent of the US civil rights movement to spur nationalists and others in the North to action to oppose systematic discrimination, and also a feeling that the Northern statelet and their sponsor were not as powerful as they once seemed to be. I know first hand that an underlying anger is building. I also think that that anger might be felt across the social-religious spectrum in the advent of a crash-out. No doubt the severe right-wing in the six counties will blame others but I suspect over time more moderate heads will be looking for solutions that jettison the extremes, but we never know. History has not been favourable in this regard.

      It’s not beyond the realms of possibility that those who use Shock doctrine capitalism play-book are eagerly anticipating a crash out Brexit, and especially those who have a way of escaping the affects of their ideology by virtue of their wealth – i.e. like Rees-mogg. However, one has to wonder if they have gone too far this time.

      Small, continuous insults over time and done to an ever increasing number of people over time often result in outcomes that those who perpetrate the insults can never anticipate.

      1. JBird4049

        It’s not beyond the realms of possibility that those who use Shock doctrine capitalism play-book are eagerly anticipating a crash out Brexit, and especially those who have a way of escaping the affects of their ideology by virtue of their wealth – i.e. like Rees-mogg. However, one has to wonder if they have gone too far this time.

        Horrible things have happened because they are so horrible that most people don’t expect to see. Unfortunately, the perpetrators are usually emboldened by this and only are stopped when enough people get hurt; maybe Brexit will hurt enough people and be so blatantly enriching to those parasitic capitalist hyenas that enough people will finally see it. That would be one good result.

    2. vlade

      The spectrum is a probability spectrum. I believe the median is heavily skewed towards the bad-outcome tail, for reasons too numerous to list in a reponse, but most of them discussed in debt at NC.

      I voted Remain, with the main argument being I did not believe the UK body politics could handle Brexit as competently as it is required to. I was wrong – paradoxically on both sides, i.e. there were some competent UK diplomats (Sir Ivan Rogers turned out to be one, so I assume there are others), but that was more than offest by their political masters being WAY more incompetent than I ever though possible. So I might have been wrong in capability estimation, but the result is I was still overly optimistic in assesing it.

  6. JW

    Is it possible that Brits just collectively assume other countries will let them ignore rules and regulations? We’re not “those people” so of course they’ll accept our imports?

    I’ve been an expat many years and it astounds me how common this attitude/myth is among 1st worlders. Brexit feels like this has been taken to the extreme.

    1. PlutoniumKun

      Short answer ‘yes’.

      One of the most striking features of the behavior of the British government is the seemingly deeply held conviction that other countries will simply bend or break all necessary rules as appropriate to facilitate British needs. The seem to have been genuinely shocked to find this is not the case.

      1. Pavel

        One of the best comments on Brexit recently. This arrogance by the Brits is coupled with the oft-stated belief that “we’ll just muddle our way through [Brexit] and things will work out all right”.

        That attitude may be all right when, say, planning for a wedding or a two-week holiday somewhere, but is not advisable if you are on a large ship headed for a ginormous iceberg.

      2. jabbawocky

        This exactly! I have often wondered that this british obsession with leaving the EU comes from having swapped british rules, which the brits could break at will, for EU rules which the brits are actually expected to follow.

      3. JW

        I think it goes deeper than expecting rules to be bent.

        They think the rules are just a silly game they can dispense with at will.

        Just now a young European woman walked into the cafe, in the middle of a national capital btw, completely barefoot. Seriously? Trivial but typical of what I’m talking about.

        And for the UK, the Third World starts at the Channel and the Irish Sea. And believe me I love Britain and would still go out of my way to meet any Brit in my travels but even for me this is too much.

  7. Mirdif

    I’ve thought for a couple of weeks now that a deal has been struck and the announcement of the new 50p coin and the budget announcement has confirmed it, imo. They are softening up public opinion before the deal is announced.

    We’re seeing some stage management as ministers and MPs have seen over the cliff edge and prefer deal to no deal.

    The EU is complicit because they’d rather keep the UK close and not cause a major shock to the post cold war order in Europe as well for reasons of good old mercantilism.

    I also think the ERG are about to reveal themselves as paper tigers just as their counterparts the Maastricht rebels were under Major. I expect the majority of them to vote with the government for whatever deal has been struck.

    Nevertheless, I’m not stopping my contingency planning as the country is screwed in any case. What could have been used as an opportunity to make real structural changes to the country for the better has been spaffed up the wall for electoral gain and even that didn’t work out.

    SMH as the young’uns say.

    1. Ataraxite

      The problem with this theory is the maths in the House of Commons.

      326 votes are needed to get a majority, although as the 7 Sinn Fein member don’t sit, it’s 322 as a working majority to pass legislation (assuming full attendance).

      The Tories have 316 members, and the DUP freak show has another 9 members. If there is a secret deal with the EU, then the 9 votes of the DUP aren’t available to pass the deal, as it would surely involve a capitulation on the Irish border backstop.

      If they vote against, then 7 Labour members will have to vote with the government to give the deal a majority. For every additional Tory who votes against the deal, another Labour member will be required to cross the floor. This could both be the ERG Tories, as well as the hard remainer wing of that party, who are seeking a second referendum.

      Jeremy Corbyn has intimated that Labour will oppose any deal that doesn’t meet its (unmeetable) “6 Tests”, and they would be quite keen to see the government collapse. Maybe the threat of No Deal can be used to get enough Labour MPs to vote for the deal in some sense of “national interest”, but I have trouble seeing it.

      1. Mirdif

        I don’t think Labour will whip their MP’s so they’ll be able to vote whichever way they like. This is because Corbyn is not unaware of what no deal entails and how the nations finances in such a case will prevent him from ever instituting any of his ideas at all. FWIW, I think he’s just another charlatan and will do little to change the current state of affairs except perhaps some state intervention in railways or some such.

        As for the DUP, they’ll either be bought off with the whole of the UK retaining regulatory alignment with the EU or through some other “concession”; fracking is likely to be a growth industry post-brexit and I believe some DUP bods are sat on some prime fracking land.

        Do not be surprised if even the likes of JRM and Alexander Johnson meekly fall in line and vote with the government.

        1. ChrisPacific

          North has expressed similar opinions recently (his main point of evidence seems to be that there isn’t the urgency around no-deal prep on the EU side that he would have expected to see). I certainly hope it’s true, but even if it is I doubt it could be considered 100% certain. Gamesmanship from Labour can never be ruled out, DUP is DUP, and at least one of them would have to cooperate for it to work out.

    2. Colonel Smithers

      Thank you, Mirdif.

      I hope you enjoyed Andrea Jenkyns’ appearance on Question Time last week.

      I thought you may have been a bit harsh on her recently. We should give her credit for short circuiting the career of Ed Balls, the “brains” behind Gordon Brown, another son of the manse / vicar’s daughter type we could have done without.

      1. Mirdif

        I’ll have to hit up Youtube to watch Question Time as I no longer own a TV, though I do binge QT once in a while but I’m usually appalled at the levels of stupidity on display. I don’t think I’m wrong about Ms. Jenkyns (what was it that farmer said on “Farmer Wants a Wife” all those years ago, all women called Andrea are stupid), though I’ve little respect for Mr Testicles either or come to that any MP.

    3. Yves Smith Post author

      50 MPs have put their names on the Stand4Brexit list. They have committed publicly to voting down a compromise on the Irish border. Take that + the DUP, and you are 57 votes short of what May needs.

      Assume she gets all 12 Lib Dems. Still 45 votes short.

      The most optimistic estimate of how many Labour members would cross the aisle is 35.

      Labour’s position is it will vote down a deal that does not pass Corbyn’s six tests. They want a general election. The EU would supposedly delay March 29 for a GE. So what is Corbyn’s incentive to play ball?

      1. charlesv

        So what is Corbyn’s incentive to play ball?

        It’s not just his call. You are right – a failure for a deal to get through the Commons is likely to trigger an election which is what Corbyn says he wants. However if you are a Labour MP then you’re likely to be pretty nervous about this prospect – Corbyn’s personal polling is bad as is Labour’s – despite this shambles of a government.

        Labour would then be going into a GE election campaign it has forced against the backdrop of a tanking pound and increasing levels of panic whilst still not having a credible alternative policy. You’d have to be a brave Labour MP to relish that prospect.

        Better to vote the deal through and then use the transition period to get a new leader and then put some pressure on for a GE and trying to effect a final deal on the future relationship more to their liking. Any half competent leader would have Labour miles ahead in the polls, that is what most labour MPs will be thinking.

        1. Yves Smith Post author

          They can’t “pressure for a GE”. Under the Fixed Term Parliaments Act, the only realistic path to a GE is for the ruling party/coalition to put the “No Confidence” motion.

          If May does not get a deal this December (and the latter is entirely possible, she’s not budging and the EU just told Raab no November summit as a result), or she brings one back that gets voted down (I went through the numbers, the maximum I’ve estimated for Labour crossing the aisle is 35, not enough to make a difference), all hell breaks loose. BTW, the BBC has a recent article with numbers way lower than my 35 max estimate.

          And it is not whether a leadership group has a realistic plan but whether it thinks it has one. May is still convinced she’s being utterly reasonable. You think Labour isn’t similarly deluded? There are only a handful of pundits plus Sir Ivan Rogers in all of the UK who seem to have a reality-based view of things.

      2. Mirdif

        No deal crushes the finances of the country and kills any prospect of him being able to introduce any of his major policy changes. That’s why he will most likely allow a free vote in the hope that the ensuing slow motion economic downturn will deliver him in to 10 Downing Street with the finances still being able to bear the changes he wishes to make. This is something he cannot do in a no deal situation which will be utterly ruinous and will finish Britain’s international standing forever.

        As for those 50 Tories, expect the vast majority to show themselves to be as mendacious as they really are by voting with the government. It was the same with the Maastricht rebels under John Major when they capitulated at the last minute save for the complete lunatics.

        1. Yves Smith Post author

          This is not 1992. Radicalism is the new normal. We had a bunch in the US, the Freedom Caucus, who were ideologues and didn’t cede ground.

          And some of the MPs who are backing a crash or their allies expect to get rich from the disorder. The collapse of the USSR produced billionaires.

        2. larry

          The UK finances remain untouched by whatever outcome happens with Brexit. The real problems lie with resources. The existing infrastructure is inadequate to deal with a no-deal and there are not sufficient skilled people to do the new jobs that will be required. Etc. Any sovereign government with a sovereign fiat currency system can spend whatever it wants. Its constraints lie in the availability of resources that will be at its disposal. Take medical staff as an example. The government could hire as many people as the system needs, but what if it can’t find the people? Then, in this respect, it has nothing to spend its money on. Similar constraints apply to construction. In addition, there may be difficulties in getting a hold of material resources, like medicines or construction materials. The government has done little or nothing to address these issues.

      3. James Newman

        Depends on what MPs are voting on. 90 Labour MPs defied the Labour whip on the Lord’s amendment on EEA back in June – Blairite Labour MPs are difficult to whip, especially with anything with EEA in its name, not that that is imminent.

        By the way, the Norway “no” was not to ‘Norway’ but to ‘Norway for now’ unsurprisingly, but this wasn’t a Mrs May/government proposal. Newspapers have their own agendas (all sides) and one shouldn’t take reports at face value, being far more reliable, as a bullshit filter.

        1. Yves Smith Post author

          Norway only had to respond to what May was proposing. Richard North, a long-standing proponent of the EE/Efta option, says it’s way too late to go that route. Many readers have separately said they doubt the Efta would let the UK in, given its conduct in the EU.

  8. Sparkling

    Remember that press conference when Trump told May “There’s nothing that will happen to you that we won’t be there to fight for you. You know that.” and gave her this really intense look? At the time I chalked that up to his overdramatic nature and limited understanding of personal boundaries, but after reading all of these articles it is now clear that he knew (possibly more than the Tories themselves) Britain was going to be in big trouble.

    The United States, which has been suspiciously absent from most of this process, is going to bail them out with a trade deal. I would not be surprised at all to find out those negotiations have been going on behind the scenes in order to keep the Blairites and Clintonites from sabotaging them. American companies are also going to swoop in like vultures with mass-produced crappy food (which is why I’m not worried about people starving to death) and other cheap goods whether there’s a deal or not.

    The result of this will not be the apocalypse but the beginning of a new Special Relationship with America– as a vassal state in all but name.

    1. vlade

      US trade deal will not save the UK. There’s no way that the UK car industry can export more to the US than it does now, definitely not the value of it’s UK exports. Similarly for other industries.

      There’s exactly ZERO possibility that the service providers (aka banks, legal, accounting and consultancies in that ecosystem) will be allowed to set up shop in the US to the extent as to replace the EU.

      The US will give the UK a deal. The important word here is “give”. It will be purely on take-or-leave basis, with zero real negotiations. TBH, I’d rather be a vasal state to the EU than to the US. At least in the EU, a reasonable amount of legislation is really protecting the small guy, even at the expense of corporations.

      1. Sparkling

        Why are you assuming that a private company can’t sell as many goods as it wants in another country without a trade deal? Am I going to have to use the barter system in order to complete financial transactions with British customers until Trump tweets that using money is okay again? Are my counterparts in other countries required to do the same?

        That was an exaggeration of course, but the idea that everyone is going to economically blockade you because you left a single organization (that is despised by right-wingers around the world I might add) is unrealistic. What’s really going to happen is that you’re either going to cut your prices and wages enough to make yourselves palatable to international capital as quickly as possible or you’re going to take our deal. Either option will leave you guys with a different standard of living… because it’ll be the American standard of living. That’s what the Tories have wanted for a long time if I’m not mistaken.

        1. vlade

          Did you ever try to sell something outside your country, en-masse? I guess not. Then you’d read upon it before talking (and yes, I worked in financial services, and had to deal with cross-borders issues, so I know what I’m talking about).

          It’s not about blocading. It’s about the fact that when the UK cannot export into EU easily, there’s no way it can just simply redirect those exports somewhere else. That may have worked in about 17th century last time (18th and 19th century were actually pretty protectionists, except for the UK in mid to late 19th). There are quotas, there are various papers to be had and filled, there’s intense lobying by the domestic industries, there’s domestic customers who’s used to somethign (US forced Japan to open its internal markets late 20th century. Still didn’t work, Japanese just didn’t want to buy US goods).

          Replacing export markets is hard. Deal helps, but unless Trumps comes in and orders the State Department or someone to buy from the UK, there’s no way any US deal will replace the EU export market.

          For the UK, services are the greatest export. For your information, it takes helluva lot of work to sell a financial product into US market by a non-US firm (unless it has branch there, or incorporated subsidary, which is actually required over some size). Legal or accounting services? Forget about it – why would a stateside, US centric company need English law lawyers, or EU/UK accounting expertise? And the likes of PWC/EY/McKinseys/BCG etc. already do all the business they can in the US, so it’s not like they could do more on a drop of the hat.

          Donald may wave a bit of paper, but it’s not going to make a huge change to the UK economy anytime soon. 12% of the GDP are EU exports IIRC (>40% of all the exports). Losing even 50% of that mean not recession, but depression.

          US exports are 13% of all UK exports, so it would have to almost double to offset that 20+% loss of EU markets and that’s not going to happen. Again, give that the major UK export are services (approx 1/3rd of all EU exports), which will cease to be sellable into the EU in case of a no-deal Brexit (various professional bodies will not recognise the UK ones anymore, financial services will loose the passports etc.), 50% is actually fairly conservative – it takes only 25% of good exports to evaporate + services to get to the 50% mark. In fact, car exports + services – both sectors that I’d expect to be heavily hit by no-deal Brexit form about 50% of the UK exports into the EU.

          So again, which goods (services are pretty much never parts of trade deals, except in some very limited form) do you propose that the UK can export approximately 110bln USD (assuming GBP=USD after no-deal Brexit, which is IMO realistic) to the US on drop of a hat? Given that the current exports to the US are about 60bln USD?

            1. vlade

              Not much. Sterling already tanked 10+% from Brexit, and it didn’t do much to the exports. Looking from GFC, sterling tanked 30+% against USD, again, with little impact on exports.

              The problem here is that for most goods exports, the value chain is internationalised. So you have to buy in non-sterling, process, sell in non-sterling. In other words, the cost saving from depreciation is mostly local expenses – rent, wages, etc. Which for most aren’t that large part of the costs. Moreover, living costs suffer from cost of imported goods going up (economists famously assume it would be replaced by domestic goods, but the real life for a number of reasons doesn’t work like that), so there’s some pressure on wages, reducing the impact further.

          1. Sparkling

            “For the UK, services are the greatest export.” That explains the difference in our attitudes; two-thirds of all American exports are goods. And I thought our neoliberal status quo was unsustainable!

            It sounds like Leavers know or at least have some inkling of that but don’t care. Most of them are the ones whose fortunes declined during the transition to a service economy and I suspect many of them think the financial well-being of people with service jobs is a more than acceptable sacrifice if it means they’ll get their industrial jobs back. Is that an incredibly spiteful and destructive “plan?” Yes. Does that mean that they’ll care if they’re supping on corn syrup morning, day, and night as long as they’re gainfully employed in five years? Possibly not. The general consensus among Trump supporters at the very beginning of his presidency was that any short-term pain was worth it if the country was saved. Now that the employment rate is the highest it’s been in decades, I can’t say they weren’t entirely wrong.

            As for the privileged Leavers like Johnson and Rees-Moggs, they undoubtedly see this as an opportunity to make all their wildest dreams come true.

            1. vlade

              They will not get their industrial jobs back. In fact, it can kill some industrial jobs, like the car industry. As I said, given Trump’s rethoric (and actions), it’s very unlikely that he would happily give the UK ability to export more cars into the US, to replace the lost EU market (aprox 22bln worth – that’s a lot of cars). The UK car industry is looking at a death knell in case of no-deal Brexit. That’s approximately 200k jobs directly, and close to a 1 mil indirectly (according to the car industry itself).

              UK is not US. US can afford to wage trade wars – UK can’t. At it’s heart it’s a trading nation (and was for last two centuries), and pretty much must remain so to keep any reasonable living standards.

              Sure, new things will show up, etc. etc. But in case of no-deal Brexit, tons of jobs will be lost, and not only the banker jobs in the London. Paradoxically, mid-level banking jobs in London can actually stay (like IT development, where dropping sterling + fact it’s not easy to recruit a few thousands IT people who have not only the IT skills but also the business knowlege), and the top guys will just move, they are pretty mobile as it is.

              No-deal Brexit will fall hardest on the poorest. Ironicaly, the demographics of the leave voters also suggests that it will more or less split into older voters who are likely to be less affected (in some cases, like the more affluent older voters who own their houses outright etc. pretty much unaffected), and the poorer voters, who will suffer the most of it.

              1. Sparkling

                Hmm, I see. Thank you very much for the explanation.

                Wasn’t Britain the first nation to industrialize? It’s sad to see how dependent it’s become on other countries and how difficult it would be for it to support itself if there was some major catastrophe in Europe. We’ll do our best to help, and I still think that things won’t get as bad as 1990s Russia, but it sounds like it will still be rough for a lot of people. I hope something gets worked out!

                1. JW

                  Britain industrialized with the help of imported cotton, exported finished goods and British gunships destroying competing industry in India, China, and elsewhere (i.e., mercantilism).

                  Even in 1790, UK was not US.

                  1. Sparkling

                    I get what you’re saying, but it cut its teeth on triangular trade within its own empire. The colonies provided the raw materials, Britain assembled those materials, and the finished products were sold there and elsewhere. If the rest of Europe turned on it (which happened multiple times and America joined in during the Napoleonic Wars) it would still be able to decently support itself.

                    Nowadays the empire is no more and Britain is within America’s sphere of influence. The old model still exists in a somewhat altered form: Africa provides the raw materials, China assembles those materials, and the finished products are sold there and elsewhere. The US was the second point itself for a while and is now the third. Perhaps if the 2015 status quo had continued for another decade we would have gone full service economy– fortunately that’s not going to happen anytime soon!

                    Britain has put itself at a major disadvantage by not selling resources and/or manufactured products nearly as much as it sells services. It is too dependent on doing certain things for certain people at certain times. What if the European Union continues to become more draconian? If the UK waited to pull the plug until the EU was much less inclined to let its member nations do what they want, this situation would be even worse!

          2. Sparkling

            If I were May, I would swallow my pride then A) make a deal with the Leavers in both major parties (like Corbyn and *sigh* Johnson) and B) reach out to other countries with successful populist movements. There are more and more of them every day and they’re all withdrawing from their economic blocs too. I would emphasize our commonalities and put as much energy into making deals with them as negotiating a non-catastrophic withdrawal from the EU. The British economy will change drastically no matter what, but at least it wouldn’t be a disaster for London if negotiations with the EU fail.

            1. fajensen

              B) reach out to other countries with successful populist movements

              The problem with most of those movements is that they are haters by nature. They hate weakness, they hate foreigners and they especially hate the unholy combination of the two hatreds: Making any concessions to foreigners whatsoever, a.k.a. as “Special Treatment” – a spectacle of humiliation and weakness!

              According to their thinking, the EU is the proxy for all foreigners. An implacable enemy that subjugates them and forces them to follow EU’s decadent and alien ways.

              These people will be happy for the EU to get a bloody noose over a hard Brexit UK.

              These people want some “blood on the carpet” to show the world (their faithful supporters, basically) how incompetent, evil and cruel the EU is against anyone who “stands up to Brussels”.

              To them, Italy and the UK are useful allies only to the degree that they will deliver the blood and the bloody nose to “Brussels”. What happens after, they don’t care, because that would be spending ressources on them useless foreigners, they will just move on to yet another way of harassing “Bruxelles”!

              Having said that, the state of Denmark is sympathetic to the UK.

              The problem for Denmark is that France and Germany see Denmark as one of the UK’s “market-only / min-rules”-minions within the EU. Denmark knows that we will have to live in some degree of accommodation with France and Germany once the UK is gone so Denmark will not roll out the heavy diplomacy to help the UK. They need it for “people who matter in the future”, which are in Germany and France.

              It would also be a politically unsound move, since the consistent sneering attitude of the UK government through the entire farce, has by now angered more than half the Danish population, who simply don’t care anymore. The attitude here is: “They bought the ticket, now they can enjoy the ride”!

              There is a general election in 2019, there is a large overhang of failed investments here needing to be written off / bailed out – with Brexit as a convenient excuse – and we have a vocal faction here who want danish agriculture to go to hell and if Brexit can do that, they say “Wellcome Brexit”! The positions are all being taken and the bets are made.

              So, Denmark will say enough to be polite and sympathetic but nothing that matters.

              1. Sparkling

                One of the most remarkable things about the night the Brazilian election results were announced was how quickly Trump, Bolsonaro, and their fanbases became staunch allies. The top tweet worldwide had a picture of the US and Brazilian flags together.

                I find it hard to believe that European populists can’t work together when two factions of “xenophobic fascists” from two different continents can form an alliance. There is also already blood on the carpet in Greece. Are the Americas less racist than Europe? Yes. Does that mean your continent can’t rise to our level? No.

                Sadly, the UK government has no idea what the hell it’s doing and the Blairites who pushed May over the finish line have made things worse for their own country out of spite. What happened with Denmark is downright depressing.

              2. Mattski

                Those are, I fear, the two lasting impressions–the Cheshire Sneer and the stunning incompetence–incompetence so pervasive that no one could believe it on its face, coming up with a thousand rationalizations and ulterior motives instead.

                The best we can do now may well be to treat England as a kind of test run for the kind of breakdown that’s coming, learn all we can from it.

      2. ObjectiveFunction

        One possible Trump Plan measure would be to give UK citizens work permits (not permanent residence) in the US for a time, to take the edge off mass unemployment and unrest over ‘ome. The Irish have sent their surplus young people overseas throughout history, with a wink and a nod from the US, Australia et al. who are always happy to have more cheap and cheerful labor. In more recent times, places like 1990s Hong Kong had an influx of’ ‘Geordies’ working service jobs.

        Problem is, today Brits named Mohammed and Tyrone are every bit as likely to take that opportunity up as Brits named Geordie.

        And I can’t see that going over very well with the Orange Man’s Rust Belt deplorables, or with the NatSec state….

        1. Sparkling

          That’s exactly what Trump and his supporters wanted to put an end to, so it’s not going to happen.

          The situation I’m thinking of is what happened in the Rust Belt for decades: employment became scarcer, cheap goods became plentier, and welfare programs were able to plug the gap and enabled the newly unemployed to support themselves with cheap food.

    2. Skip Intro

      Cue the C-130s full of surplus gubmint cheese… you can tell the ‘cheddar’ by its weird orange color.

      1. Sparkling

        You have no idea how much that made me laugh. All the parachutes for the aid packages should have the Kraft logo stamped on them while we’re at it!

  9. Anonymous2

    I’m wondering if May’s thinking is to agree a deal which then fails to get through the Commons because of Labour. Crash out ensues. The Tories and the press blame Labour. An election is then held on the basis ‘you don’t like what has happened. It is all Labour’s fault. Give us a proper majority and we will sort things out ‘. Crazier things have happened.

    1. vlade

      That’s what I was saying last week, but some people thought it would be hard to blame it on Labour – which I disagree with.

      If I was somewhere safely out of the UK, this would be another interesting scenario, for a number of reason:
      – the elections woudl be effectively a referendum on May’s deal
      – which means Labour would have to put out a well spelled deal of its own, and come off the leave/remain fence. Hahahah
      – if Labour lost (far from impossible, it’s neck&neck with Tories right now, and w/o Scotland, which it won’t get, neck&neck means hung parliament at best), what would it mean for Corbyn’s leadership? I suspect the party would split.
      – on the other hand, Tories campaigning and winning on May’s deal would kill the ultras dead, with all their bullshit of “will of people”, so would unify Tory party.
      – Labour winning would be interesting, depending on what they would campaign on – and how would the EU see that (i.e. if if was willing to extend A50 to reengage in some way). TBH, if Labour campaigned on theor current plan, it would be interesting to see whether the EU would be willing to come up and say “this plan ain’t gonna happen” during the elections – as the current Labour plan is worse than Chequers in the pick-and-choose department.

      1. Inert_Bert

        Thank you vlade and Anonymous2,

        I’ve been thinking along similar lines. When gaming out what actions mainstream-politicians might take, a safe assumption is that nothing matters more to them than avoiding the blame for Brexit.

        The tories will want labour to take the blame for either a short term catastrophe (no-deal) or the humiliation of a last-minute climb-down (to permanent EEA or Remain). The scenario you have sketched out could lead to either:

        A post-march election after labour is instrumental in rejecting May’s “Deal” (which was actually just a WA), will taint Labour (and Corbyn especially) enough that the Tories can survive as a going concern: labour taking some of the blame will suffice. And a pre-march election ending with a Labour victory will force Labour to make the choices the Tories wouldn’t, without the luxury of time to seek some fig-leaves from the EU.

        Labour are mainly thinking about avoiding blame for the long term ramifications of a hard brexit while also eyeing pre-march chaos for electoral gain.

        As far as their strategy is concerned, not only are their six tests as contradictory as the Tories’ cake, they are mostly unrelated to the art 50 process: orderly withdrawal first, future relationship “later”. Actively making the vote on the WA agreement a make-or-break moment was an error (I get that some bluffing is unavoidable here but the undeliverable tests are far too concrete). Voting against the WA, is voting for no deal, there is no path to victory there.

        Perhaps a WA-standoff was unavoidable after parliament overwhelmingly voted to authorize May to send out the notification, but “dedramatization” would have been the correct play here. No Deal should have been off the table for both political and material socio-economic reasons (but what westminster bubble-dweller cares about the latter?).

      2. Which is worse - bankers or terrorists

        I still say she should call an election as a means of re-shuffling the deck.

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