For the best part of 2017 this column has been pretty much a Brexit-free zone.
Too much has been written and too much hot air has been generated around a process that nobody on either side of the negotiating table has had a clue as to how it might develop. It’s unimaginably hard to dig in your heels of you’re just drifting along with no solid ground underfoot and every attempt to do so by either side has ended up in a shambles.
The catchphrases have on the one side been “Brexit means Brexit” and “Better leave with no deal than a bad deal”, and on the other, “Of course Brexit means Brexit, we respect the will of voters but we still want to be in the customs union, which means that we’re in favour of the free movement of labour, which in turn means that the UK has to submit to the European Court of Justice and we don’t really respect the will of the majority of voters at all”.
Among my closest friends is the now retired chairman of one of the country’s most important engineering groups who might have left big industry but who is still involved in the front line of technology and innovation. He is and remains a fierce remainer who refers to the other side, myself included, as “knuckle-dragging Brexiteers” Thanks Bob, can I have a banana please?
More on Brexit
In yesterday’s column I wrote about “a growing school of thought that suggests the technical execution of the divorce of the UK from the EU is so complicated that it might be packaged in temporary extensions and other special measures which could eventually lead to it never being fully implemented”.
This prompted a reply from a Zurich-based Brit that read “Agreed. It now seems Brexit will be a massive disruption to the UK economy, an event triggered essentially to appease an aggressive number of reactionary Conservative MPs, hell-bent on leaving the EU, who gave scant consideration to the complex issues and economic uncertainty that would result. Their concerns over their own political futures were undermined by paranoia that UKIP might unseat them, this prompted an increasingly aggressive attitude towards Brussels and European integration for self preservation. The Conservative party cannot excuse itself from blame should they lose power, their demise which looks startlingly, suddenly possible, derives from an inability to foster party unity. Ironic really, given the Conservative ridicule to the obvious divisions within the Labour Party. Corbyn now has strength, he can actually sack members of his shadow cabinet, Maybot cannot, now reduced to begging for cross-party support for her vague Brexit plans given her weak bargaining position.”
Although I respect this reader’s views as I do those of Bob, they both make one fundamental error. The referendum was lost by just four percentage points - 48% to 52% - which means that had just two in 100 voters gone the other way the motion would not have been carried. Where and how, the remain supporters should have been asking themselves, was the difference lost? Had it been 52% remain to 48% leave it would have been hailed as a resounding endorsement of British EU membership. But as we know, European Union-related referenda have a habit of going wrong.
Polls
Twelve years ago in May 2005, France held a referendum on approving the Constitution for Europe. It was roundly rejected by 54.67% to 45.33%. At the time this was seen as the death of further European integration and promised referenda on the constitution in the Czech Republic, Denmark, Ireland, Poland, Portugal and the UK were subsequently cancelled. In the event the French constitution was fiddled around with to account for incompatibilities and the damaged European constitution was replaced by the Lisbon Treaty, which was then quickly introduced in most countries without any referenda at all. The treaty was put to a referendum to the Irish people – again due to incompatibilities between the treaty and the constitution - who clearly rejected it. Given the need for unanimity in promulgating the treaty, the Irish were sent back to try again and in “Lisbon ll” they finally came up with the desired result. It might also be worth remembering that the Danish electorate had already rejected the Maastricht Treaty in a 1992 referendum but they too were sent back in 1993 to try again, at which point they also swung into line.
Consensus among many in the UK, and from both sides of the Brexit argument, is that unwinding British membership has nothing to do with political will but that it might yet be brought its knees by the sheer technical challenge.
I lunched yesterday with a former British diplomat who spent much of his embassy time in the trade department. After a career in the Foreign and Commonwealth Office he is not one to make rash and unconsidered statements although he too is part of a growing group of people in this country that believes Brexit might yet founder when the divorce process becomes simply too complicated to be executed. A patch here, a patch there, the odd bridging agreement and a bucket load of postponements and the withdrawal process could find itself spun on indefinitely.
Don’t get me wrong; I’m not saying that this is the most probable of outcomes but it is beginning to emerge as a distinct possibility…. not that anybody either close to or actually in government would dare say anything to that effect. Japan has a trade agreement with the EU, which means that it has done remarkably well without one until now and, as we know, but there is no trade agreement between the US and Europe and despite all the vacuous tweeting there is no sign of the US closing anything with the EU before the end of the current presidency.
Definitely May be
Theresa May’s attempt to walk on water has ended up with her getting very wet indeed and nearly drowning, but she remains prime minister surrounded by a party with a population of MPs who know that if they get too uppity and fail to back her, the government might fall. They might get swept out of their seats and that would most probably also lift the Jeremysaurus into Downing Street. So while Westminster is trying to learn the old trick of not applying party politics to a non-party political issue the economy is trying to achieve the equivalent of racing across the Passo dello Stelvio using only rear view mirrors.
Keep the consumer consuming and all will be well. If he begins to feel he has consumed enough, bung him some cheep money so that he gets back to doing what he does best. The Bank of England, the saviour of the day in 2008, has again been tasked with keeping the holed ship afloat. For all my doubts about the governor, he is in an invidious position. Tighten and the risk of a sharp slowing of the consumer credit-based economy looms . With that unemployment rises and all the good work of the past few years is lost. Don’t tighten and the consumer boom, already past its sell-by date, rumbles on.
As my diplomatic luncheon host commented yesterday, when the chickens come home to roost, the 2007/2008 crisis will look like a walk in the park and the next time there will be nowhere to hide. Compared to all of this, Brexit might yet prove to be a minor sideshow.
Apart from that, Monday’s markets were slow and uninspired ahead of the Q2 reporting season, which is already ticking along but it begins in earnest on Friday with JP Morgan and Wells Fargo. WTI has bounced back to US$44.75 per barrel although a report has just come out of Goldman Sachs that suggests it is going to fall below US$40/bbl again. On form, a recommendation by Goldman’s oil guys to sell should be a major buying signal in itself. There is already a strong and unusually early sense of a summer lull, which is exactly where black swans love to land. Methinks the animals are restless so stay vigilant.