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Brexit: Chaos Visible

Summary:
Theresa May’s second go at getting her deal passed, where the only change of importance was the proximity of the vote to the crashout date, was like her first, an even bigger failure than anticipated. A loss of 100 seemed to be a magic number of sorts, since being ~50 votes shy seemed inevitable given the continued opposition of the ERG (aka the Ultras) and the DUP. There’s no way to pretty up a 149 vote defeat. Nevertheless, it was easy to see that May’s one trick pony of running the clock out to put pressure on the EU and Parliament had already broken down in the home stretch. Some readers were kind enough to say they’d been looking for more Brexit posts in the last week, but despite the UK press again trying to present May as sallying forth to wrest concessions from bullies in the EU,

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Theresa May’s second go at getting her deal passed, where the only change of importance was the proximity of the vote to the crashout date, was like her first, an even bigger failure than anticipated. A loss of 100 seemed to be a magic number of sorts, since being ~50 votes shy seemed inevitable given the continued opposition of the ERG (aka the Ultras) and the DUP. There’s no way to pretty up a 149 vote defeat.

Nevertheless, it was easy to see that May’s one trick pony of running the clock out to put pressure on the EU and Parliament had already broken down in the home stretch. Some readers were kind enough to say they’d been looking for more Brexit posts in the last week, but despite the UK press again trying to present May as sallying forth to wrest concessions from bullies in the EU, there was absolutely no way anything significant was going to happen. Even with the EU giving May a much better 11th hour fig leaf than she had any reason to expect, it still didn’t add up to much (see Richard North for a long-form discussion), her Attorney General Cox could only hand-wave that this not-precisely legally binding document would only somewhat reduce the likelihood of the UK being stuck in the Irish backstop. And that’s giving more credit to the techno-border “alternative arrangements” notion than it deserves (readers pointed out in comments that equipment would be sabotaged).

One of the ironic features of Brexit is that it’s made Jean-Claude Juncker, the buffoon of the 2015 Greece bailout negotiations, look statesmanlike. And it’s not that Juncker has grown in stature but that he’s managed to get photographed next to diplomatic pygmies of the UK.

In other words (to change metaphors now that we are onto a new paragraph), if you had gotten your hands on the Brexit libretto, nothing that happened in the last week was a surprise. May kept getting in the face of EU pols so as to justify having her votes so close to March 29, and also because she’s obviously bereft of any other ideas. EU officials, who had said they were not changing the Withdrawal Agreement so many times that their remarks were assuming the role of a ritual incantation, utterly predictably lived up to their word. The only surprise that that the EU was willing to offer a third set of optics, and then on the day before yesterday’s Withdrawal Agreement vote.

But in another sense, the magnitude of May’s second loss isn’t surprising. Her wearing the most ginormous necklace I have ever seen her sport, and metallic to boot, looked like an effort to shield herself from an expected debacle. May having been forced into giving MPs two theoretical ways to escape a crash out and hence not be cornered into voting through her deal made it much easier to reject her pact.

But note that even though the Government is supporting the motion against a “no deal” Brexit tomorrow, it’s agreed to have a “free vote”. We’ll discuss below how the Ultras have proposed a diversionary amendment; not sure it will have any impact. And we don’t just mean the vote. Do not forget that the only way out of a no deal Brexit is to revoke Article 50 or get an extension. Parliamentary feel good votes are not sufficient.

EU tells UK no more talking and battens down for a possible no deal. Recall, that as Ernest Hemingway said of bankruptcy, it happened two ways: gradually and then suddenly. The UK has only 17 days to pull out of its current trajectory and the only route under consideration requires EU cooperation. And even if the UK gets an extension, May, most MPs, and popular sentiment are aligned in wanting only a “short” extension. That, as the EU and some commentators appreciate, won’t change anything. So even if the UK avoids a calamity on March 29, it is very likely to be back in the same spot in two to three months.

Key EU officials again go to pains to be clear…not that is likely to make any more difference than it has so far:

This warning from Prime Minister Mark Rutte is significant given that the Netherlands are one of the countries that would be most disrupted by Brexit:

Note that Rutte’s statement echoes the one made by Donald Tusk’s spokesman, a show of EU unanimity.

But Mr. Market is still pretty composed. After slipping 0.6%, sterling firmed to settle at 1.31 to the dollar.

The crunch is even worse than it looks. Assuming that Parliament rejects a no deal Brexit on Wednesday and authorizes seeking an extension to Article 50 on Thursday, the timing is exceedingly tight. (No one wants to contemplate the horror of having the UK wind up bak on a crash out path if Parliament rejects a no deal but then fails to authorize May to seek an extension). The Government ought to get Parliament voting to amend all the legislation that had hard coded the Brexit date. Shadow Brexit minister Kier Starmer claimed 50 bills would need to be addressed.

But even more daunting is dealing with the EU. It would be a mistake to think that the EU is going to roll over and give the UK an extension. EU leaders have been saying that the UK needs to give a reason, and more faffing about isn’t one they’re willing to entertain. There is skepticism that a short extension will accomplish anything, and some businessmen have said that preparing for a crash out on March 29 and having to do so again in 2 or 3 months (particularly if it happens then) is worse than having a crash out in March.

Some EU officials have said publicly that they would prefer that the UK seek an extension of a year, on the assumption that’s how long it would take the UK to change course, as in have a referendum and hopefully decide to rescind the Article 50 notice. But a year isn’t likely to be adequate. A year is barely enough to hold a referendum, given the many views of what the question should be. And what happens if there are more than two choices and Remain wins, but by a plurality rather than a majority? Or Parliament manages to agree on a softer Brexit, but the Government pursues its new idea of Brexit with as much cakeism on display as before?

May presumably gets her marching orders late March 14, a Thursday. The next EU Council meeting is March 21-22. The sherpas need to get materials two days before the meeting to brief their principals, but this Government has generally ignored that protocol. So the UK is likely to ruffle the EU again by dumping something on the national leaders at the last minute.

Another complicating factor is that the EU may demand a concession from the UK to give an extension, particularly if it is the short extension that the EU regards as problematic. For instance, the Telegraph reported over the weekend:

The EU is preparing to impose punitive conditions on Britain as its price for agreeing a Brexit delay if Theresa May is forced to ask for an extension this week.

Member states are “hardening” their attitudes towards a delay and will demand “legal and financial conditions” including a multi-billion pound increase to the £39bn divorce payment.

May is weaker than ever, but still standing. Appropriately, May’s voice gave out during Tuesday’s debate.

The Financial Times has the bizarre headline, Power over Brexit slips from May’s damaged hands. May never had “power over Brexit” because the UK was and remains deeply divided over Brexit. Remember how May has had repeated pitched battles and huge turnover in her own Cabinet as a result of Brexit rows? Remember Chequers? Remember how often it has been predicted that she’d be gone within days? She’s the political version of a comic book superhero, hanging off a ledge by her fingernails since the disaster of her snap election.

On top of that, from top to bottom, no one in a power position understands the EU so that even if the country were united on this issue, it’s doubtful the people nominally in charge could map a realistic path forward.

But at least that story had some good tidbits, like:

Business groups were aghast at the development. “It’s time for Parliament to stop this circus,” said the Confederation of British Industry lobby group. “This must be the last day of failed politics. Jobs and livelihoods depend on it.”

“We are now staring down the precipice,” added the City of London Corporation. “Politicians of every hue must overcome their differences and make avoiding a no-deal Brexit the absolute priority.”

Too many unicorns are still prancing about.For a big dose of why Brexit remains such a mess, you need go no further that an opinion piece by the Financial Times’ editorial board, Theresa May’s Brexit deal is dead — MPs must now take over. This article is so wrong-headed that it is hard to know where to begin.

Start with the headline. The idea that Parliament will take control of Brexit is silly. Legislatures are not capable of administering. More specifically, as our David and Clive have set forth in some detail, in the UK, when Parliament is unhappy with the PM, they get rid of him/her. There is no route for Parliament to bypass the PM and take on functions bestowed upon the executive, like negotiating treaties.

Yet the pink paper pushes for the untested and unworkable mechanism of having MPs reach consensus on a new approach to Brexit. I am not making this up:

It should allow time for a new approach to Brexit that tests MPs’ appetite for other forms of withdrawal. Indicative votes should be held on “softer” options including a permanent customs union with the EU — which this newspaper has supported — or a “Norway-plus” option of remaining in the single market and a customs union.

First, exactly how is this deeply divided Parliament supposed to achieve any sort of agreement, when it has been evident for two years the parties themselves, which are the usual vehicles for driving policies forward, are split? And on top of that, neither of the major parties has anything resembling leadership? And given how dopey the FT is being, we are forced to point out that the Ultras, as unattractive as they are, are nevertheless determined and disciplined, which has enabled them to punch above their weight. And with the only two ways our of Brexit being a revocation of Article 50, which is still being treated as a non-starter absent a win for Remain in a second referendum, or a deal, which also seems remote, the Ultras don’t need to win in the normal sense to prevail. All they have to do is obstruct, a much lower bar.

A Guardian op ed by Rafael Behr has a much better grasp of things:

Vital questions about the future will now be settled in a state between despondency and panic. There is no strategy, no guiding intelligence. A plan must be salvaged from the wreckage of a bad idea badly executed….

Every difficulty encountered in Brexit negotiations over the past two years was foreseeable. Most flowed from the same essential miscalculation: the wildly implausible expectation that a bloc of 27 nations, each knowing the value of unity and solidarity, would be the weaker party in negotiations. The path to May’s humiliation began in the weird solipsism of an exiting country, having no notion of the relationship it wanted with the rest of Europe, imagining it might dictate the terms of its exit.

Second, as we’ve pointed out, and Richard North has discussed in gory detail, a customs union does not solve the problems its advocates clearly think it would, such the Irish border and achieving frictionless trade. But the FT is not alone in this confusion. Corbyn is still calling for a customs union, and on Tuesday, falling back on some ramblings of December, membership in the Single Market…when that’s not on unless you accept freedom of movement, adherence to EU laws, and the jurisdiction of the ECJ, when Corbyn was also claiming the UK would still have the right to strike its own trade deals, which is completely outside the pale even with just a customs union (save for goods or services outside the customs union agreement).

Similarly, Norway has already rejected the critical part of the “Norway option,” which is joining the Efta. And that’s before getting to the fact that the EU lets Efta members have a special status because all are small, and giving waivers to little countries isn’t a threat to big ones. And on top of that, Norway has about 50 bi-lateral agreements on top of what membership in Efta and the EEA give it to achieve its relatively close relationship.

It should therefore not be surprising to see the Financial Times op-ed recommend a second referendum if the Parliament’s exploration of non-starters doesn’t go anywhere. I’s astonishing to see this option still being bandied about without a realistic look at timelines. although the pink paper does bleat that an extension “needs to be longer than three months.”

Thankfully, this piece does not take up another notion should have been put to bed by now, that of a general election, which is making the rounds on the Twitterverse. As we’ve discussed, it would have decent odds of leading to a crash out unless it takes place in combination with a long enough extension. Realistically, if there were a GE and the GE delivered a clear mandate on Brexit (unlikely given how clueless the Government and MPs have been and how misleading the media coverage is), it would still likely take a bare minimum of a year after a new GE to reach a new agreement. Is anyone up for neverending Brexit?

UK financial services industry is already diminished by Brexit. Most pundits missed a point stressed by Sir Ivan Rogers in one of his talks: that May’s deal was designed to minimize disruption to trade in goods while effectively throwing the financial services under the bus to enable the UK to opt out of the EU “freedom of movement” requirement. Major players have acted accordingly. From the Wall Street Journal on Monday:

There is one certainty in Brexit: London’s pre-eminent role in global finance has been diminished….

Regardless of how Brexit plays out, Europe’s financial system has been fundamentally altered, industry executives and analysts say. “Brexit forced a re-evaluation,” said Michael Mainelli, chairman of Z/Yen, a London think tank that ranks financial centers.

Hundreds of billions of dollars, as well as hundreds of finance roles, have moved to Europe’s secondary financial centers, especially Frankfurt, Paris and Dublin. JP Morgan Chase & Co., Bank of America Corp. and UBS Group AG are among those diversifying elsewhere.

The papers have more on the various plots underway for tomorrow, but it seems better to let them resolve themselves than get distracted by details. The UK is caught in a trap of the Tories’ design, the key players are battle-weary, even though getting through this phase leads to years more of more difficult negotiations over the future relationship with the EU. Yet no one has the nerve to call it quits and launch a campaign to rescind the Article 50 notice.

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