Brexit: When the no-fault divorce turned sour

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Brexit: When the no-fault divorce turned sour

David Cameron called the Brexit referendum to lance the European boil. Instead, it has riven the Tory Party in two, raising the terrifying prospect of a Corbyn government. And relations with Europe, post-divorce, could be anything but warm. How will it all end?

When things go wrong

Theresa May came to office with a mission: to make a success of Brexit. History might judge that this was Mission Impossible. A woman who was a reluctant Remainer during the referendum became a reluctant Leaver charged with taking Britain out. But which exit?

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This week, at the Conservative Party Conference in Birmingham, Mrs May struggled for her political life. When she rose to address the Conference on 03 October – on her 813th day as Prime Minister – surrounded by would-be political assassins, their daggers not always carefully concealed, she demonstrated her finely-honed survival skills.

Her Brexit strategy – the Chequers Plan – had been rejected by the 85-strong European Reform Group (ERG) of Conservative MPs, openly mocked by European leaders and regularly savaged with fire and brimstone by Calvinist preacher Johnson from his pulpit in the Daily Telegraph. And yet, once again, she has survived to fight another day – and, despite everything, her Chequers Plan is still the official policy of the British government, now rebranded as a free trade agreement. Clearly, Brexit is still evolving.

The next six months – the long and fractious winter that I alluded to two weeks ago – is unprecedentedly uncertain for UK investors. They need some notion of how things will work out. But, in order to consider what happens next, we need to reflect on what has happened since the Brexit earthquake of June 2016.

Four grievous negotiating mistakes

The British negotiating strategy with Europe was calamitous from the very first in four key respects. For this, the Prime Minister must ultimately take responsibility, but there seems to have been no-one in government who would have done a better job. The Whitehall civil service was always overwhelmingly pro-Remain and would have resisted any perceived belligerence on Britain’s part.

Firstly, Article 50 was triggered without any consensus within government about the final form that Brexit would – or rather, should – take. Mrs May became Prime Minister on 13 July 2016 and formally triggered Article 50 of the Treaty of Lisbon, advising the European Council of Britain’s intention to withdraw from the EU on 29 March 2017. She therefore had 259 days in which to thrash out a plan that could secure the final agreement of the Europeans and the Conservative parliamentary party.

The Lancaster House speech of 17 January 2017 seemed like a good start insofar as it set out a very clear vision of a basically Hard Brexit that appeared to command broad support across the Tory Party – save for the rump of fifteen or so die-hard Remainers who were – and still are – implacably opposed. The Lancaster House vision was of a Britain outside both the Single Market and the Customs union, independent of the European Court of Justice (ECJ), which could forge its own trade deals.


Initially, Mrs May (and others) supposed that the overwhelmingly important business of leaving the EU could be managed by the executive alone. Under the British constitution – such as it is, since it consists of a bundle of laws and precedents that have never been formalised in a single document – Prime Ministers have inherited the royal prerogative to make treaties with foreign powers without consulting parliament. Consider how Neville Chamberlain concluded the Munich Agreement with Adolf Hitler (1938 – peace in our time) without a parliamentary debate.

Then came Ms Miller’s extraordinary intervention. She challenged this doctrine in the Supreme Court. From the moment on 25 January 2017 that the Supreme Court determined that triggering Article 50 (and, therefore, any ultimate Brexit deal) would have to be approved by parliament, Mrs May was faced with a trilemma. Her proposed Brexit solution would have to get the approval of (a) the EU (technically the European Council under President Tusk); (b) the parliamentary Conservative Party; and (c) Parliament – meaning both the House of Commons and the House of Lords.

There was, is and never will be a form of Brexit that will be acceptable to all these three entities – but let’s not run ahead of ourselves. The generally favourable reception accorded to the Lancaster House proposals, Labour’s backsliding and inelegant tergiversations on Brexit, plus the narrow majority in the House of Commons so surprisingly secured by Mr Cameron in May 2015, persuaded Mrs May that, having just triggered Article 50, it was the right moment to go the country. As we know, she called a general election on 18 April.

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As we also know, the Tories started the election campaign with a 20-point lead in the opinion polls and were expected to romp home with a 100-seat majority. Alas for the Tories, who ran the most inept and pitiful campaign of my lifetime, Mr Corbyn and his hordes showed a remarkable mastery of modern communications, totally outgunning the Tories on social media. Mrs May was returned on 09 June – but at the head of a minority government propped up by the ten MPs returned for the Democratic Unionist Party (DUP). In hindsight, we should have known on 09 June 2017 that the negotiated Hard Brexit envisaged by the Lancaster House proposals was never going to happen.

The second massive mistake was that the British immediately surrendered to Brussels’ sequencing of the negotiations. The European Council insisted that there would be two stages. In the first stage, to be concluded before Christmas 2017, three “key issues” would have to be resolved before the more substantive second stage – the resolution of trading negotiations between the EU and the UK, post-Brexit – could begin. The key issues were, of course, the Brexit Bill (how much the UK would have to pay the EU), the status of EU nationals in the UK post-Brexit and the issue of the Irish border.

I have written extensively in this column about why what I call the trope of the Irish border is an entirely manufactured problem. But, at the outset, the Europeans persuaded Mrs May that any “hard border” in Ireland would be a deal-breaker – while she, to be fair, insisted that any customs border between Northern Ireland and the UK would be entirely unacceptable.

Thus, from Day One, the Irish border became a spanner that Monsieur Barnier & Co. could fling into the mechanism at any moment of their choosing. The supposed (but illusory) solution to the problem – the Irish backstop – was a flagrant and unnecessary concession made to pull a stage one deal, rabbit-like, out of the hat on 15 December. Eventually, the Irish backstop became a kind of shibboleth which made bold technical solutions to the issue of how to manage the Irish border taboo.


Under the terms of that agreement, which Herr Juncker & Co. turned into an early morning fanfare (poor Mrs May and Mr Davis were obliged to get on a plane at RAF Brize Norton at three in the morning), Britain agreed to pay Brussels €39 billion without there having been any discussion whatsoever on Britain’s trading relations with Europe post-Brexit. As Mr Davis said recently, when negotiating with a kidnapper, you do not ask: How much would you like me to pay you for my freedom?

Round one to the Europeans.

Thirdly, Theresa May, egged on by the Westminster “establishment”, guaranteed that Britain would remain a guarantor of European security – come what may.

It is natural that Britain should wish to stick together with parliamentary democracies with similar legal standards and openness in a world where undemocratic nations pose a common threat. (Of course I am talking about Russia and China – but there are many smaller powers which have become both more authoritarian and more hostile at the same time, such as Turkey.)

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But Mrs May gave away the future security cooperation of a nuclear power gratis – getting nothing in return. The Europeans riposted, not with gratitude, but by kicking Britain out of the Galileo GPS satellite network – ignoring the fact that Britain had been the major contributor. Estonia – where today 500 British soldiers help guard the frontier with Russia – had nothing to say about this.

The security guarantee was conceded with Mrs May’s milestone Florence speech (22 September 2017) which was supposed to have knocked some of the edges off of the Lancaster House position. This was also when the idea of a transition period (subsequently envisaged to last until 31 December 2020) first saw the light of day. These themes were further developed in the Prime Minister’s Mansion House speech of 02 March this year.

The fourth mistake was that Mrs May and her team really thought that they could by-pass Monsieur Barnier and the European Council by treating directly with Frau Merkel and Monsieur Macron. The argument was that, in the end, the German Chancellor and the French President would not allow the European Council to secure an outcome that would be inimical to German automotive manufacturers and French farmers and fisherman. Common sense, the British side thought, would prevail. No one is really into self-harm – are they?

This error reflected a fundamental misunderstanding by the British ruling class about the European project – and of the Franco-German alliance that drives it. For the European elite, Europe is a religion – and people like the British who challenge the prevailing orthodoxy are branded heretics. Frau Merkel and President Macron turned out to be more Catholic than the Pope. They are in the business of more Europe – not less.

Sure, no-deal will hurt German car manufacturers; but to allow the precedent that the British could escape their cage would invite the Italians, the Greeks and the Hungarians to rattle theirs. No pain, no gain.


The day before Mrs May unveiled the Chequers Plan to her cabinet (07 July) she flew to Berlin abjectly to request the imprimatur of the German Chancellor. (I am afraid I cannot think of that lady anymore without bringing to mind the wonderful Tracey Ullman’s imitations – but let’s try to keep this serious.) No doubt Frau Merkel offered some banal encouragement – and then phoned the French President to tell him she needed a new paper shredder.

Similarly, Mrs May took a day out of her walking holiday on Lake Garda (03 August) to visit the French President at his country retreat on the fortress-island of Brégançon. There were photos of a relaxed terrace lunch – but nothing of substance transpired.

At the Salzburg summit (19-20 September) the EU could not have been more contemptuous in its rejection of the Chequers Plan. The French President accused the Brexiteers of lying (he did not say about what). President Tusk posted an infantile joke about cakes and “cherry picking” on Instagram. And the leader of Malta – a nation that applied to become part of the UK in 1956 – instructed the British people to vote again. 27 European leaders endorsed the line that the Chequers Plan would assault the integrity of the Single Market. Salzburg, as Mr Rees-Mogg wrote, showed that the relationship between the UK and the EU has been as effectively poisoned as the fields of Carthage[i].

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On her return to London after Salzburg, on 21 September, Mrs May made a televised statement which some have dubbed her Margaret Thatcher moment. She said that negotiations had reached an impasse (a suitably French word). Exactly one year after the Florence speech, the lady seemed angry for the first time.

All could see that the British attempts to approach Brexit in a constructive, emollient, friendly manner had run into the sand. There was a perceptible change that day in the national mood. A number of my readers, indeed, have written to me to say that while they voted Remain, since Salzburg, they are so disgusted with the European’s arrogance that, if there were a second vote, they would vote Leave.

Boris Johnson said in his resignation speech (18 July), since Lancaster House, “It is as though a fog of self-doubt has descended”. Britain had endured “18 months of stealthy retreat”. During that time “We dithered. We burned through negotiating capital. We agreed to hand over a €40 billion exit fee”. The Chequers Plan would leave Britain in a “miserable permanent limbo”. It is not that we have failed to make the case for a free trade agreement as spelled out under Lancaster House: we haven’t even tried.

The civilised no-fault divorce has turned sour. Some of us always thought it would.

What are the possible outcomes?

Basically, there are only four routes the UK can now take: Remain, Hard Brexit aka No-Deal (WTO), Norway or Canada. Allow me to unpack these, albeit briefly.

The people who advance the case for a second people’s referendum imagine that a second vote would reverse the first and that the prodigal would return in penitence. That just isn’t going to happen – unless a Labour government comes to power.

Hard Brexit aka No-Deal means that the UK leaves the EU at 23:00 hours on 29 March next year and immediately starts to trade on WTO rules. I’ll explain shortly exactly what that would entail. For now, let’s just concede that there would be immense (though not disastrous) disruption in supply chains. There would be significant frictions on the frontiers, at least initially – so the first three to six months would be fraught, before procedures settle down to something more like normality. There would be a pivot to home-produced products – about which I shall also have more to say soon. (Let’s put tariffs on Champagne but reduce excise duties on English fizz.) There would be hysteria from the sensitive souls at the Guardian and the BBC.


What has changed over the summer is that Hard Brexit/No-deal/WTO has now become the preferred option for the Ultras as embodied by Mr Rees-Mogg’s European ERG and the Johnson Party. They now believe that, instead of a transition period during which the UK would remain to all intents and purposes an EU member, we could negotiate a trade deal with the EU as a third-party state trading on WTO terms.

“Norway” would mean that, instead of a transition period, Britain would be shunted into EFTA – at least for the time being. This would put us inside the Single Market but outside the Customs Union – something the Irish border fetishists insist is unworkable. There are a number of pedigree Brexiteers who have consistently favoured this option, amongst them the veteran journalist Christopher Booker and the distinguished Conservative MEP Daniel Hannan. The problem is that the UK would still be subject to freedom of movement – though there might be some kind of emergency brake of the kind that Mr Cameron tried to negotiate.

The Canada option (variously billed as Canada Plus or even Canada+++) is the idea that there can be a comprehensive trade deal between the UK and the EU which would effectively rule out all tariffs and minimise non-tariff barriers. Since we start from a position of 100 percent alignment, with good will this should be eminently achievable. But there would still be frictions at the border in the form of (electronic) customs declarations et al. For Mrs May the main objection to a Canada-inspired trade deal is that it would require border checks along the Irish border as indeed at Dover.

The risk of a constitutional crisis

William (Lord) Hague[ii] thinks that the impasse in the Brexit negotiations could precipitate an impasse in Britain’s governance – a constitutional crisis, no less. Let’s just assume that the Europeans relent at the 11th hour in December and offer Mrs May some kind of compromise on the Irish border (which I think unlikely). Under the European Union (Withdrawal) Act passed in June, the deal would have to be approved by Parliament as a new Act.

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Now it seems that 80-or-so Tory Ultras will vote against any deal which remotely resembles “Chequers”. And Mr Corbyn told us in Liverpool last week that Labour will oppose any deal that brings Britain out of the Customs Union. (Though, I thought Labour fought the election campaign last year on a platform of leaving the Customs Union: but let’s not expect that to worry the Corbynistas.) The SNP and the Lib Dems will vote against Britain leaving the EU – period. That means that Mrs May is unlikely to get any such deal through the House of Commons.

In fact, she could only get the deal through if about 70 Labour MPs ignored a three-line whip in a sudden burst of patriotic fervour. This is, to put it mildly, unlikely. So we can assume that the only deal available will be rejected by the House of Commons if put to the vote. In that case, Labour would table a motion of no confidence – which itself would be rejected because the Tory Ultras loathe the prospect of a Corbyn government even more than they loathe Brussels. The DUP could be assumed to back the Tories.

That would leave Mrs May with no option but to announce that the UK will leave the EU on 29 March with no-deal – i.e. on WTO trading terms. The problem then would be that the EU Withdrawal Actstipulates that the House of Commons would have to approve a no-deal outcome by the last week of January.

It is quite possible that the Opposition, allied with 15 or so Tory Remainers (Ms Soubry etc.) could then veto no-deal. That would then mean that the government would be unable to pass the necessary legislation to cope with a no-deal outcome including provisions to keep Dover and the East coast ports open in all circumstances – even though a no-deal Brexit would be bearing down upon the nation like a thunderbolt.

Stalemate.


William Hague thinks that there would have to be a case in the Supreme Court to interpret the legality of the Withdrawal Act – which would bring the judiciary into the political arena. An extreme solution would be for the government to prorogue Parliament indefinitely and to rule by royal decree (as Charles I did) but that would provoke a Corbynista revolution on the streets, no doubt. It would be very dangerous. Another would be to postpone Brexit indefinitely, which is what Mrs May was getting at when she said on Wednesday:

If we all go in search of the perfect Brexit, we shall achieve no Brexit at all…

It seems probable after the shenanigans in Liverpool last week that, if a general election were called, Labour would promise a second referendum as part of its manifesto. This would be attractive to Remainers of all political affiliations. The latest UK opinion poll puts Labour on 40 percent with the Tories at 35 percent and the Lib Dems on 12 percent[iii]. Such a result would probably yield a Labour minority government.

All this is why the Moggites and the Johnsonians, despite their passion and their ideological purity, will probably swallow their pride come the hour. They know there is so much more at stake than a botched Brexit. History will not be kind to them if they facilitate the nationalisation of ten percent of the FTSE!

Fighting on the beaches

Britain isn’t afraid to leave with no deal if we have to – Mrs May, 03 October.

 

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Right now, as I see it, the odds are 50 percent on for a May-style botched Brexit and 50 percent for no-deal. A botched Brexit would probably add vigour to the pound and the London stock market, both of which look undervalued. No-deal would put both under severe stress with the prospect, not just of huge (if temporary) disruption in supply chains, but a constitutional crisis as well – and possibly a disastrous Corbyn government.

But then again, if it is no-deal, we Brits will just have to tough it out. In 2019, the British people could confront a 1940-style moment (though, hopefully, none of us will die because of it). I cannot be sure that this divided nation will regain our freedom fully; but, if the British could only rediscover their mislaid collective backbone and fasten their seatbelts hard, after extreme turbulence, the aircraft could land safely in a new place of great opportunity.

In that case the best pilot would be Mrs May – whatever Ultras might think of “Chequers”, which is now defunct anyway. If readers will forgive me a gynaecological inexactitude – the lady, unlike much of her cabinet – has balls. She is the only Western leader to date to have rattled Mr Putin. She will probably still be Prime Minister long after Mr Johnson begins hosting his late night chat show aimed at insomniac celebrity fetishists.

There’s a whole world out there – let’s lift our horizons to meet it.

Either way, we’ll muddle through.


[i]Mrs May was as mighty as Boadicea…but her stirring words don’t make a bad plan good, by Jacob Res Mogg, Mail on Sunday, 23 September 2018.

[ii]With Brexit looming it is worth considering the worst case scenario, William Hague, Daily Telegraph, 11 September 2018.

[iii]HuffPost poll published 30 September 2018. See: https://www.huffingtonpost.co.uk/entry/boris-johnson-overwhelming-favourite-to-take-over-from-theresa-may-as-pm-huffpost-uk-poll-reveals_uk_5baf75cfe4b0c75759657bad?qd4

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