Brexit Makes an About Face

16.01.2018 • United Kingdom

Nick Hubble – Capital and Conflict (United Kingdom) –

Politics is a fickle creature. So it’s no surprise that Brexit is especially fickle.

In the US, the Democrats and Republicans did an ideology swap at the turn of the 20th century. In Australia, the so called Liberal Party is conservative. The Liberal Democrats lived up to neither name here in the UK.

In this tradition, Brexit went haywire last week. Everyone seems to have reversed their position on the issue.

Nigel Farage pondered a second referendum. Putting the issue beyond doubt is his aim. Along with making some sort of return to the national stage, I suspect.

The strongest argument that Remain campaigners had was the economic implosion of the UK in the wake of the Brexit vote. But with news like this hitting the tapes at Reuters in the last few days, those fears are now gone:

Manufacturers recorded their fastest annual growth since March 2011 in the three months to the end of November, expanding by 3.9 percent year-on-year.

The sector, which accounts for around a tenth of British economic output, also posted its seventh consecutive monthly expansion – the longest unbroken run in more than 20 years.

The National Institute of Economic and Social Research (NIESR) said the figures pointed to GDP growth of 0.6 percent in the last quarter of 2017, which would be the strongest of the year and would lift full-year growth to 1.8 percent.

“There was strong and widespread growth across (British) manufacturing with notable increases from renewable energy projects, boats, planes and cars for export,” ONS statistician Ole Black said.

Goods export volumes in the three months to November were 9.1 percent higher than the same period in 2016 […]

From boats to wind power, Britain’s economy is following the Brexit script nicely. The pound has recovered half its referendum losses against the US dollar. The stockmarket is finally surging ahead of the 2000 high. Unemployment is low. Property markets outside of London dominate the tables of price increases.

Property markets outside of London dominate the tables of price increasesSource: The Telegraph

Nigel is far from alone when it comes to changing his mind. My favourite Brexit reversal story so far is this one from the Financial Times. The French are coming for Brexit. One of their biggest banks is looking to expand here:

BNP Paribas aims to capitalise on the disruption of Brexit to gain market share in UK corporate and investment banking and has drawn up aggressive plans to attract business from mid-sized British companies.

So much for Brexit’s doom for the city.

Next on the list of about faces is the extension of the Brexit deadline. For years the two-year deadline in Article 50 has been in the news. They call it the cliff edge.

And for years I’ve been explaining why this is simply incorrect. You’ve heard lots about Article 50. But if you’d actually read it, you’d discover something surprising. Sub-section three details the deadline by which a nation must leave the EU after giving notice:

The Treaties shall cease to apply to the State in question from the date of entry into force of the withdrawal agreement or, failing that, two years after the notification referred to in paragraph 2, unless the European Council, in agreement with the Member State concerned, unanimously decides to extend this period.

In other words, the deadline is not a deadline. Unless someone in the EU council decides to make it one by refusing an extension. The thing is, this is not in their interest. And so now the deadline everyone has been assuming is falling apart.

EU states are realising that their vision for Brexit can’t be completed quickly. It takes the EU years to negotiate trade deals. And so countries are keen to abandon the previously ironclad two-year time constraint. Ireland’s foreign minister suggested a five-year transition. Hungary is advocating an extension clause too, as though there isn’t one already in Article 50.

Sceptics reckon this is all to do with the need for Britain to continue contributing to the EU budget. The 2019 EU elections are coming and the EU won’t be a nice place without British money.

Or perhaps a slower Brexit increases the probability of the UK abandoning Brexit altogether. That’s unlikely given the propensity of the EU to mess itself up over time. Nothing backs Brexit like a dysfunctional EU.

Another reversal in the making is that the EU will have to become a protectionist agitator if it wants to reduce trade and financial ties to the UK as part of Brexit. Britain wants trade, the EU says it can’t have it outside the EU. But to shut down trade will be committing the sort of offences that they’ve lambasted none other than Donald Trump for. They’ll be following in his footsteps.

Not that this would be unusual for the protectionist bloc that is the EU, with its extraordinary high tariffs under the World Trade Organisation.

The good news is that each nation inside the EU is realising what an end to trade would mean for their economies. And so they’re all reversing their hard stances on the future trade deal too.

Even the antagonistic Spanish are supposedly pushing for a Brexit which keeps Britain close. The country’s economy minister has done the maths and realised he can’t afford anything else. Especially given how much Spain stands to lose in an EU budget without Britain according to its own economists’ report. The Guardian summed it up:

It says Brexit will see Spain’s GDP fall by between €2bn and €4bn, force the country to increase its EU budget contributions by €888m, and could result in some regions losing their European funding.

News that the Spanish and Dutch are interested in an accommodative Brexit sent the pound surging over 1% recently – a big move in currency markets.

Italy’s economy minister agreed with his Dutch and Spanish counterparts. He wants the “Canada plus plus plus” deal that David Davis suggests. Something the EU considers impossible. It’ll have to change its stance after its member states do.

Even the Remainers’ darkest desires seem to have turned on them. An EU study confirmed it’s unclear Britain can legally reverse Brexit now, contradicting earlier published opinions.

When it comes to Brexit, nothing is settled and everyone is changing their minds. Is there a method to the madness?

Brexit’s about-turn farce

What does all this flip-flopping mean for you?

People are realising that Brexit decides nothing that matters. Politicians can make of it what they want.

It’s entirely possible Britain increases trade ties with Europe as a result of Brexit, for example. Unlikely, but this illustrates the point that Brexit doesn’t commit anyone to a particular direction of policy. It’s just a rejigging of the status quo.

So, rather than opposing Brexit, Remainers will move to co-opt it into their view of the world. That’s why having a bunch of Remainers at the head of Brexit Britain isn’t a contradiction. Brexit doesn’t determine policy direction.

In the end, the flip-flopping profiled above just makes a more moderate Brexit more likely. That’s the consensus expectation anyway, even if very few people support it. You might as well be inside the EU if you’re going to put up with its shortcomings. But controlling immigration and escaping EU courts is probably a change for the better for Brexit voters. So everyone will be equally unhappy with the result.

What few seem to have factored into Brexit is the opportunity it gives eurosceptics across mainland Europe. Not to stage their own Brexit, but to immigrate to the UK. People hampered by the EU will have an opportunity to leave it without leaving Europe. Just as Eastern Europeans used to try and move to Germany because their country had absurd levels of regulation and mismanagement, Europeans will try to move to Britain.

Take for example the Bulgarians. They don’t seem to like the EU much so far. Eleven protests erupted in the Bulgarian capital a few days ago as the nation took on the EU’s presidency and several high-profile EU commissioners visited. The protesters burned EU flags.

European news described the anti-EU protests as being about the expansion of a ski resort…

No wonder the Bulgarians are furious the EU is ignoring their plight of corruption and political mismanagement. Their best and brightest can escape this sort of nonsense by moving to Britain.

Unless our politicians come up with even worse policies than the EU.

Until next time,

Nick Hubble
Capital & Conflict

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