(Image Source – The Times)

Phoney War continues

I can assure readers that these are my final words in 2017 on the subject of Brexit. However, things should liven up in the New Year if and when Mrs May switches her attention from the Home Front to engage fully with issues that are rather more important than maintaining armed neutrality in the Cabinet. She may then discover, if she has not already, that the EU does not intend to fight at all but simply apply its usual processes to highly complicated matters. The EU is, in fact, institutionally incapable of negotiating over anything, unlike the leaders of member countries who are very good at it especially when it comes to drafting fudges (ironically) in English. The leaders are keeping their powder dry to see if Mrs May really will try to start a war over ‘Cake and Eat It’. They want to see who will follow her over the top and in the meantime they have to deal with some rather tricky rebels in Poland and perhaps soon in Italy. Moreover, the EU leaders have a Fifth Column inside the UK composed of at least half of the House of Commons, most of the House of Lords, the Civil Service, the CBI, NHS leadership, much of the City and most Trade Union leaders and…er…allegedly now more than half the voters.

Facts are chiels that winna ding An’ downa be disputed

Regular readers will be familiar with one of my favourite quotations from Robert Burns, which is apparently also a favourite of another eminent Scot, Michael Gove.  He may no longer be so keen as he cautions his Cabinet colleagues not to revive the ‘Project Fear’ that failed to intimidate voters in the Brexit referendum. At that time ‘experts’ were issuing dire warnings and at first many of them have turned out to be premature if not exaggerated. Now, however, awkward facts are starting to emerge that Mr Gove (who like Brutus is an honest man) cannot dispute but might wish to bury. Yesterday, Michel Barnier lifted the lid on the number of trade and aviation deals that the UK has to negotiate to replace what it currently has via EU membership: 759 with 168 countries and all to be done by March 2019. Also yesterday, the IMF published its latest routine annual report on the UK economy, which inter alia confirmed its pre-referendum forecasts. On Tuesday, Chris Giles writing in the Financial Times, painstakingly pulled together analyses that point to a loss so far of up to 1% in GDP since the vote and counting. Business Investment has been the first casualty and Retail Sales have been subdued since the summer. The one bright spot has been a surge in manufacturing exports (including to the EU) thanks to sterling’s plunge in 2016 but even this comes with the sting in the tail of higher inflation due to the inelasticity demand for imports. Ever more unfavourable facts are going to be rolling out in the coming months and here I shall inflict only one chart (from another potential fifth columnist, the Office of National Statistics) showing the geographical destination of UK exports last year.

(Image Source – FT)

Let them eat bread

Apparently, Queen Marie-Antionette may never have said ‘let them eat cake’ but it seems that Mrs May is determined to pursue the ‘Cake and Eat it’ goal first espoused by the Brexiteers.  Yesterday, Michel Barnier while no Robespierre clearly had rather plainer fare in mind as he lost patience with having to ‘negotiate with himself’ while waiting for Mrs May. It is, no doubt, unkind to compare the Prime Minister to Marie-Antionette but she does seem similarily detached from reality in a ‘rustic retreat’ of her own (Figure 3).
Mr Barnier has certainly raised the stakes by using Mrs May’s red lines against her in saying the best the UK can hope for is a similar deal to Canada’s with a few add-ons to keep some ‘planes flying and nuclear waste safe and no easy access for the City and other UK companies in the Services Sector. Why did he do this apart from being fed up? From a UK solipsistic point of view, it puts massive pressure on Mrs May but it must also reflect his obligation to the businesses and voters in the 27 other EU countries. It will certainly bring the ‘Cake and Eat It’ argument to a head and force Mrs May to back down or fall from power. Tory Europhiles may have been sincere in accepting Brexit but will surely now be consoled by the prospect of its being postponed if not yet cancelled. Labour will finally have to come off the fence.

The UK may well eventually leave the EU but it cannot happen soon for economic, commercial, legal, logistical and social reasons. Parliament will have no option but to insist on the withdrawal of the Article 50 Notice or to seek an extension. Joining the EEA in a similar arrangement to Norway is an option but it is hard to believe that our Land of Hope and Glory will for long accept rules it did not help to formulate. In the next few months the Phoney War will turn into a real one or an Armistice will have to be declared.

Chart 3: May’s Trilemma
Source: @Flipchartrick