Brexit process

[UndercoverElephant]

OK, so two key developments today:

https://www.independent.co.uk/news/uk/p ... 52731.html

https://edition.cnn.com/2018/12/04/uk/b ... index.html

Both UK and EU lawyers now say the UK can unilaterally revoke brexit, provided we don't take the piss and re-invoke A50 the next day. This is extremely important, and makes the cancellation of brexit much more likely.

Probably needs a general election though. Looking very likely to me.

[UndercoverElephant]

Mervyn King (ex governor of BoE):

https://www.bloomberg.com/opinion/artic ... a-betrayal

When Tony Blair and Boris Johnson unite in their condemnation of the “deal� under which Theresa May proposes that the U.K. should leave the EU, you know something has gone badly wrong. The withdrawal agreement is less a carefully crafted diplomatic compromise and more the result of incompetence of a high order. I have friends who are passionate Remainers and others who are passionate Leavers. None of them believe this deal makes any sense. It is time to think again, and the first step is to reject a deal that is the worst of all worlds.

There have been three episodes in modern history when the British political class let down the rest of the country: in the 1930s, with appeasement; in the 1970s, when the British economy was the “sick man� of Europe and the government saw its role as managing decline; and now, in the turmoil that has followed the Brexit referendum. In all three cases, the conventional wisdom of the day was wrong.

In the first two instances, it took a revolution: in 1940, the dismissal of the prime minister and his replacement by someone better suited to the role of wartime leader; in the 1970s, a political and intellectual upheaval, and a radical new government capable of changing course. Both times, the country escaped ruin by the skin of its teeth. Today’s challenge is of a similar order.

Britain is not facing an economic crisis. It is confronting a deep political crisis. Parliament has brought this on the country. It voted overwhelmingly to hold a referendum. The public were told they would decide. And the rules of the game were clear: Fifty percent of the vote plus one would settle the matter. The prime minister and the chancellor of the exchequer at the time said unequivocally that Brexit meant leaving Europe’s single market and customs union. This was the Brexit that, after the referendum, both main political parties promised to deliver.

But a majority of members of Parliament were against leaving, and both parties were split down the middle. For members of the Labour opposition, the opportunity to undermine the government outweighed their views on the issue at hand, momentous though it was. A divided governing party was unable to rely on a majority to support any plan to deliver Brexit.

To be sure, no coherent plan has ever been presented. There are arguments for remaining in the EU and arguments for leaving. But there is no case whatever for giving up the benefits of remaining without obtaining the benefits of leaving. Yet that is exactly what the government is now proposing. It simply beggars belief that a government could be hell-bent on a deal that hands over £39 billion, while giving the EU both the right to impose laws on the U.K. indefinitely and a veto on ending this state of fiefdom.

Preparations for Brexit based on trade under WTO terms should have started in 2016, immediately after the referendum, as I said at the time. Britain needed a fall-back position — it is foolish to negotiate without one — and that was the form it should have taken. An immigration policy for the post-Brexit world could and should have been published in 2016. But there was no such planning. Instead, the government pretended that everything could be postponed until an imaginary long-term deal could be negotiated. This was naïve at best, and in the event has proven disastrous. And so Project Fear turned into Project Impossible. It is incompetence on a monumental scale.

Before the referendum, official economic projections intended to scare the country into voting Remain didn’t succeed. Based on flimsy and arbitrary assumptions, they were subsequently proved wrong. The same strategy has resurfaced.

It saddens me to see the Bank of England unnecessarily drawn into this project. The Bank’s latest worst-case scenario shows the cost of leaving without a deal exceeding 10 percent of GDP. Two factors are responsible for the size of this effect: first, the assertion that productivity will fall because of lower trade; second, the assumption that disruption at borders — queues of lorries and interminable customs checks — will continue year after year. Neither is plausible. On this I concur with Paul Krugman. He’s no friend of Brexit and believes that Britain would be better off inside the EU — but on the claim of lower productivity, he describes the Bank’s estimates as “black box numbers� that are “dubious� and “questionable.� And on the claim of semi-permanent dislocation, he just says, “Really?� I agree: The British civil service may not be perfect, but it surely isn’t as bad as that.

The U.K. is a European country, and always will be. Trade and contacts among the nations of Europe can and should continue much as before. And I have no doubt they will do so. But the political nature of the EU has changed since monetary union. The EU failed to recognize that the euro would demand fiscal and political integration if it was to succeed, and that countries outside the euro area would require a different kind of EU membership. It was inevitable, therefore, that, sooner or later, Britain would decide to withdraw from a political project in which it had little interest apart from the shared desire for free trade.

Leaving the EU is not the end of the world, any more than it will deliver the promised land. Nonetheless the country is entitled to expect something better than a muddled commitment to perpetual subordination from which the U.K. cannot withdraw without the agreement of the EU.

Many MPs will argue that “we are where we are,� that it’s too late to change course, and that May’s deal is the only deal available. But remember, this is a political not an economic crisis. If Blair and Johnson, from opposing political viewpoints, can see the fatal weaknesses of this proposed deal, politicians of all hues should try to do the same. This deal will not end the divisiveness of the debate about Britain’s relationship with the EU. The Remain camp will continue to argue, correctly, that to align the country indefinitely with laws over which it has no influence is madness, and a second referendum is vital to escape from this continuing nightmare. And the Leave camp will argue, also correctly, that it is intolerable for the fifth largest economy in the world to continue indefinitely as a fiefdom.

If this deal is not abandoned, I believe that the U.K. will end up abrogating it unilaterally — regardless of the grave damage that would do to Britain’s reputation and standing. Vassal states do not go gently into that good night. They rage. If this parliament bequeaths to its successors the choice between a humiliating submission and the abrogation of a binding international treaty, it will not be forgiven — and will not deserve to be.

I see two possible outcomes now: no deal or general election.

[RevdTess]

I see two possible outcomes now: no deal or general election.

I agree these seem the most likely, but there are still so many possible outcomes.

At the moment everyone is against May's deal because there are so many preferable alternatives for different groups after the deal is defeated:

1) No deal/WTO
2) Vote of no confidence/General Election
3) Customs Union and Single Market option (with FoM inevitably continuing).
4) Second Referendum with no deal and remain options.

For some people, May's deal is probably even worse than *all* of these!

My sense is that Brexiteers think no deal is the only possible outcome after May's deal is lost. After all, everything else requires government support which seems unlikely, and the only way to change govt is a no confidence vote (actually two, 14 days apart) which even non-Brexiteer tories are unlikely to support. Getting rid of May without a GE makes no deal more likely. The CU/SM option is plausible but it breaks so many of May's red lines she would have to resign and then a Brexiteer will probably become PM without a GE and take everyone to the cliff-edge no deal or no confidence.

It is certainly 4d chess. So many possible combinations of outcomes and that's just from one perspective. If you're a remainer hoping for a second referendum the calculation as to how to get there looks quite different. Likewise the Labour position of CU/SM.

I just wish I was watching all this from some other country. It's a real battle over the soul of the nation. And of course the same battle is being fought over the whole world between neoliberals/globalists and nationalists. I was always a supporter of the green/anarchist/anti-capitalist movement that opposed neoliberalism, but now the nationalist/populist movement which has very effectively opposed neoliberalism actually seems even worse! So as with the UK green party I've ended up a fervent remainer just because the social divisions fomented by nationalist populism seem so viscerally horrendous. Obviously Brexiteers take the opposite view that I'm ignoring the legitimate needs and authority of their constituency and supporting the selfish elite's status quo. And so the long year wears on.

[UndercoverElephant]

For some people, May's deal is probably even worse than *all* of these!

A consensus is emerging that May's deal is worse than any of those. I don't think there's any way back for May's deal. It's already dead.

My sense is that Brexiteers think no deal is the only possible outcome after May's deal is lost.

Some of them think it is the only outcome or the most likely outcome, yes.

After all, everything else requires government support which seems unlikely, and the only way to change govt is a no confidence vote (actually two, 14 days apart) which even non-Brexiteer tories are unlikely to support.

Not the only way. May could call an election herself. Would be typical of her to do this when everybody expects her to resign.

Getting rid of May without a GE makes no deal more likely. The CU/SM option is plausible but it breaks so many of May's red lines she would have to resign and then a Brexiteer will probably become PM without a GE and take everyone to the cliff-edge no deal or no confidence.

Which is why it won't happen. Tory MPs won't topple her because they fear exactly this outcome.

If you're a remainer hoping for a second referendum the calculation as to how to get there looks quite different.

That can only come via a general election, and presumably a labour win, although it is possible the tories would also offer a referendum in their manifesto.

I just wish I was watching all this from some other country. It's a real battle over the soul of the nation. And of course the same battle is being fought over the whole world between neoliberals/globalists and nationalists. I was always a supporter of the green/anarchist/anti-capitalist movement that opposed neoliberalism, but now the nationalist/populist movement which has very effectively opposed neoliberalism actually seems even worse! So as with the UK green party I've ended up a fervent remainer just because the social divisions fomented by nationalist populism seem so viscerally horrendous. Obviously Brexiteers take the opposite view that I'm ignoring the legitimate needs and authority of their constituency and supporting the selfish elite's status quo. And so the long year wears on.

Something unusual is about to happen. The puppeteers have got their strings crossed. They cannot control the outcome of this battle. Specifically, they cannot avoid their absolute nightmare outcome, which is Jeremy Corbyn in Downing Street.

[UndercoverElephant]

Woo-hoo! The government has been found in contempt of Parliament for the first time ever. The tories are in so much trouble.

[kenneal - lagger]

Let's stay in Europe and bale out this lot. From Capital and Conflict -

… like a circle in a spiral, like a wheel within a wheel,
Never ending or beginning on an ever spinning reel…

– “Windmills of Your Mind�, Alan and Marilyn Bergman (1968)


Our old friend the doom loop is back in the news, having gained a spot in the Bank of England’s (BoE) financial stability report. We’ve detailed this phenomenon in past issues of Capital & Conflict – on the assumption that sovereign debt is risk free, European banks have bought huge quantities of their own government’s debt. The fates of European banks and their governments are now tied together, as a decline in the value of government debt will lead to problems for the banks, while a decline in the banks will lead to problems for the government.

But the doom loop situation gets gloomier, for when it begins to do damage, other countries are affected too. From the BoE’s financial stability report, emphasis mine:

A further deterioration in Italy’s financial outlook could result in material spillovers to the euro area and the UK.

Following market tensions in May, Italian government bond yields rose again in October, to their highest levels since early 2014. The rise was linked to the new Italian government’s publication of a draft budget, which envisaged a fiscal loosening, reversing the previous tightening policy. If implemented, this would have adverse implications for Italian public debt, which, at 130% of GDP, is already high.

Italian banks hold a significant proportion of Italian public debt, and greater perceived sovereign risk has spilled over to measures of [Italian bank] riskiness, raising [Italian bank] funding costs. Further increases in funding costs, if passed on to households and businesses, could depress already weak growth, leading to an increase in non-performing loans (NPLs). Italian NPLs account for a quarter of all euro-area NPLs.

Although direct UK banking exposures to Italy are low, if financial strains were to spread across the euro area, there could be a material risk to UK financial stability. UK-owned banks have much higher claims on countries with close links to Italy, including France (63% of CET1) and Germany (74%).


CET1 is common equity tier one –a bank’s core capital. If that gets wiped out, it’s bailout time…

and

An insider at Deutsche Bank spills the beans
On the topic of bailouts and non-performing loans, we return to Deutsche Bank, which may need the former to cure the latter. As detailed yesterday, this global systemically important bank I plumbing near 30-year lows:

Click image to enlarge (Image show the Bank's share price fall from 80 euros to 10)

To get a better understanding of Deutsche’s position and just how dangerous its failure would be, I asked John Butler, a former managing director at the bank.

John had an illustrious career in investment banking before becoming disillusioned with the fiat monetary system and turning to gold. His latest venture is the Lend & Borrow Trust Company, which allows businesses and individuals to borrow at low cost with their precious metals holdings – you can read more on that here.

His thoughts on Deutsche’s woes were intriguing:

Given the much larger size of DB's balance sheet, its sudden failure would be almost certain to roil German, European and global financial markets to an even greater extent than Lehman's failure did. It is thus difficult to imagine that the German government would not step in to rescue and restructure it in some way, presumably with a huge amount of taxpayer-backed capital.

However, as this would violate the EU's and ECB's post-crisis rules about direct national assistance for failing banks, it would open up a general euro-area can of worms in which Italy, Spain, France and probably all euro member countries would seize the precedent as an opportunity to part-nationalise their own respective banking systems.

As this would imply soaring national debt issuance requiring de facto monetisation in some form by the ECB, it would certainly spell the end of the euro as we know it and the possible re-emergence of national parallel currencies. Indeed, this is now such a distinct possibility I would be surprised if any euro-area participating government were not now actively preparing contingency plans. Naturally, these would be kept as closely guarded state secrets unless and until their implementation were actually needed in a crisis scenario.

[kenneal - lagger]

Re Mervyn King's article, we have to remember that May is a Remainer although she "said" that she accepted the vote to leave. Perhaps she has deliberately campaigned to get the worst possible deal from the EU so that the country would say that we can't leave on those terms and decide to stay in. Should not Remainers be lauding her abilities not condemning her?

[emordnilap]

Re: Deutsche Bank. I think I read it first on this forum over a year ago, that DB was a metaphorical nuclear bomb with its metaphorical fuse fizzing.

DB or something like it will explode. It's not 'if', it's 'when' and 'when' is approaching.

[Lord Beria3]

Re: Deutsche Bank. I think I read it first on this forum over a year ago, that DB was a metaphorical nuclear bomb with its metaphorical fuse fizzing.

DB or something like it will explode. It's not 'if', it's 'when' and 'when' is approaching.

Very true.

Of course it will be bailed out because Germany is the de facto ruler of the eurozone and the rules are twisted and broken to fit Germany's economic and geopolitical interests.

https://www.dailymail.co.uk/news/articl ... lated.html

Mr Rees-Mogg, chairman of the Brexit-backing European Research Group, warned predictions she will suffer a massive defeat are probably wide of the mark.

He told his weekly ConHome podcast: ‘I think the numbers have got ridiculously inflated I think whatever happens, it will be a close result and I would not rule out the possibility of the Government winning.

Now this is interesting. Is he playing a game or is there a shift by Tory MP's to back the deal?

[clv101]

I'd agree with that - can't rule out the Government winning. Grieve's amendment today probably makes it more likely than less.

I don't think May will win - but it's not a dead cert, far from it. I suspect a lot of Tories are wary of the shitstorm that'd be unleashed on her defeat, remember, first rule of being a tory is party/power above all else.

[UndercoverElephant]

Now this is interesting. Is he playing a game or is there a shift by Tory MP's to back the deal?

He is playing a game. Although some of the predictions are wildly exaggerated. There's no way May is going to win this vote. If she's lucky, she'll lose by 30.

[Potemkin Villager]

Re Mervyn King's article, we have to remember that May is a Remainer although she "said" that she accepted the vote to leave. Perhaps she has deliberately campaigned to get the worst possible deal from the EU so that the country would say that we can't leave on those terms and decide to stay in.

Yes Ken I agree she is playing a very cute game and that is the only logical conclusion. Can anybody suggest any alternative explanation?

[UndercoverElephant]

Can anybody suggest any alternative explanation?

Yes. Gross incompetence.

However, we are where we are. Tonight I think no deal is looking much less likely, after the Grieve amendment. Which means the prospect of cancelling brexit entirely goes up. Which leaves the ERG with a terrible dilemma, because they really don't want to vote for May's deal.

May's deal is doubly dead now though, because remain supporting MP's are much less scared about a defeat for the deal leading to no deal.

I think we're staying in the EU, and I think this evening's votes will turn out to be a pivotal moment.

[Little John]

The Grieve motion does not legally require the government to adhere to any amendments since they would not be amendments to primary legislation. Only amendments to primary legislation are legally required to be adhered to.

Nevertheless, I am sure the Grieve motion will now be used to politically force a revocation of Brexit.

Either these ***** think there will be no consequences in the country over their treachery or they know there will be but have made the calculation it can be managed.

[UndercoverElephant]

Steve....whatever happens, some group of people are going to be incredibly pissed off. There will be major consequences. Whatever happens.

Ultimately (assuming something really unexpected happens) one of three outcomes is possible: no deal, May's deal and no brexit.

May's deal would be apocalyptic. We've had the ex-governor of the BoE comparing it to appeasing Hitler and describing it as "incompetence on a monumental scale." And he's not wrong. Mervyn King actually predicted that we will end up trapped in the backstop until eventually we unilaterally walk away from the treaty and suffer the consequences, because they are less bad than remaining a vassal state. I am not sure how the tory party can survive that. It is unthinkable in the modern western world.

No deal would be both economically and politically catastrophic. It didn't have to be, had preparations been started 2 years ago. But they weren't. It may well turn out to be the "right" outcome in the long run, but the short-term consequences will be severe on a scale beyond anything seen since the end of WW2.

And cancelling brexit will have the effect of (a) instantly splitting the tory party into two irreconcilable parts involved in all-out civil war and (b) totally disenfranchising about a third of the electorate.

All three options are cataclysmic in their own respective ways, and all three will leave a very significant proportion of the population incandescent with rage.