Brexit pantomime would be funny except it’s a tragedy

Brexit as an early Christmas pantomime is the common theme of much current commentary. Entertaining – and as accurate – as that is, it doesn't offer much insight or analysis as to what to do next, what to expect , how to size up the possible outcomes. That's understandable: given how the process has twisted and turned over the past couple of years, accurate crystal ball-gazing is next to impossible. But what are the facts? What do we know that might help us think about how things might evolve from here?

Mood

One interesting aspect of the last few days is a palpable change of mood: apart from those who now want her job, Theresa May has managed to elicit a remarkable degree of sympathy from the country at large. Whatever her qualities as a leader or prime minister, there is widespread admiration for her resilience. A new understanding has emerged, one that accepts that it is either her deal or chaos. Even hard Brexiteers have displayed some degree of honesty in explicitly calling for a hard Brexit as the only realistic, practical alternative to her deal. The tiny minority of MPs who think that the recently concluded withdrawal agreement can somehow be renegotiated have been widely derided as fantasists.

If the House of Commons rejects that deal we are into no-deal territory

So, it’s either Theresa May’s deal or chaos. If the House of Commons rejects that deal – whether or not she is still prime minister – we are into no-deal territory. Other paths do present themselves. A general election, MPs to vote repeatedly until they come up with the right answer, extension of the article 50 process, European Economic Area (EEA) membership or a second referendum are all possibilities, not all of which are mutually exclusive, all of which would be chaotic. At least one respected commentator suggests that temporary EEA membership should now be applied for with the longer term ambition of readmission to the EU.

No-deal wouldn’t mean the absence of mini-deals. The threats to food and drug supplies, the southeast of England as a giant lorry park, the harsh reality of grounded aeroplanes all mean that side deals have to be done, some of which are being quietly negotiated by officials.

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Chaos

The prospect of chaos is now embraced by the Brexiteers: several prominent hardliners have stated that having survived both world wars, Britain could cope with the consequences of crashing out on March 29th. It’s a point of view, albeit one far removed from the sunny uplands promised by those who longed to “take back control”. Those war metaphors have been a key feature of Brexiteer rhetoric, ones that I hope come don’t come back to haunt them. Their hero, Churchill, would have been appalled.

The explicit embracing of the consequences of a hard Brexit is a welcome outbreak of intellectual honesty. But it follows from the logic of Brexit. Brexiteers have, until they recently began their sprint to the cliff edge, promised that Britain could leave the single market, abolish freedom of movement, apply their own trade rules and regulations and still keep full and unfettered access to that single market. Facts eventually intrude, if somewhat belatedly.

Brexit uncertainty will continue even if the cliff-edge is avoided

Brexiteers have been waging this war since 1973 (if not earlier) and will continue to do so unless there is a hard Brexit, especially if Theresa May’s deal is implemented. That’s important in the context of planning: Brexit uncertainty will continue even if the cliff-edge is avoided. Businesses should plan for a hostile trading environment between the EU and the UK for the foreseeable future. That’s a sentence that was hard to write.

The hardest heads are in the financial markets. Sterling behaved predictably: it strengthened when a deal looked like it was done and weakened (a lot) when the resignations started. It is the single most important barometer of informed opinion about what happens next. According to Bank of America Merrill Lynch, the UK stock market is now the most hated in the developed world. Another opinion but one worth paying attention to. Contrarian investors might be tempted by extreme market sentiment but, for once, the consensus looks about right to me.

Outcome

Chris Grey is one of the best Brexit commentators around. He too describes Brexit as a process, one that has been running for decades. His recent description of the current juncture is spot-on: we are merely at the end of the beginning. He says, correctly, that there are no good outcomes now. Each and every one of the possible Brexit paths involve British economic decline. The only uncertainty is over the speed of that decline. All concerned can only hope that it is a gentle fall.

Is a full-blown Brexit inspired financial crisis possible? That might seem a little dramatic but it remains an outside chance, one fraught with danger for Ireland. Markets are starting to get nervous about UK banks: while the slowing housing market doesn’t pose an immediate threat (but might yet), the steady erosion of commercial property values has appeared on the radar screen. Amazon’s threat to the high street along with Brexit might, it is feared, prompt a hit to UK bank property lending books. Banking crises often come from surprising places.

Chris Grey astutely observes that most people think – or maybe just hope – that Brexit is entering the endgame. He argues that couldn’t be further from the truth. He’s right.