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July 04, 2016

Hard women, hard Brexit

We always treated the Conservative Party in the UK as outside our reservation, and never dreamt a Tory party leadership contest would creep into the circles of our interest. In some respect, it does not matter a lot whether Theresa May, Michael Gove, or Andrea Leadsom become Conservative leader and prime minister. They all insist on Brexit, and we do not have the slightest doubt that Brexit will actually happen. Nor does Janan Ganesh, who writes that Boris Johnson would have been the Remainers' best hope to deliver a pro-European, liberal agreement. 

While all three contenders support a more-or-less hard Brexit, the manner in which it will happen matters. The candidates have three very different strategies, if you want to call them that. May wants a ministry for Brexit to prepare the UK's position in detail, and then to trigger Article 50 but not before the end of this year. Gove is not in a hurry either, but wants to legislate unilaterally. And Leadsom wants to trigger it right away - with the intent of securing only a minimalist trading relationship. There are, in other words, three alternative Brexit strategies. None will lead to a reversal of the vote. None will lead even to membership of the European Economic Area.

There is still talk in some foreign media, and among some clapped-out former politicians and civil servants, that the UK deserves a second vote. We think this is not going to happen for two simple reasons. Any party advocating a second referendum would self-destruct. Here is a very interesting analysis of how the 52-48% Leave-Remain vote breaks according to voting districts. There were 421 voting districts in favour of Leave, and only 229 in favour of Remain. Why would the Conservative Party, which has a narrow absolute majority now, go for a second referendum? And as Andrew Rawnsley points out, the Tories are actually beginning to get past peak chaos, while the Labour Party is not. One of the reasons Labour lost in 2015 was that many of its target voters deserted for UKIP. This time, many voted for Leave. The article concludes that a newly formed pro-European party would have no chance to get into government.

Dominic Lawson gives the second reason: the UK would descend into civil war if the referendum result was not delivered. He does not mean this figuratively - as in civil war inside the Tory party. We agree with him. No politician in their right mind would be prepared to pay such a high price to keep Britain in the EU. This is how he puts it:

"If you wanted to convulse the country with rioting on a revolutionary scale, to cause a lethal rupture between the governing class and the governed and even to provide the conditions for the rise of 21st-century fascism across Europe, here’s what you do.

After a referendum in which an unprecedented number of voters took part, and in which well over a million more people voted for change than for the status quo on our membership of the EU, you declare that the decision cannot be allowed to stand, chiefly on the grounds that the people were too stupid to know what was good either for themselves or for the country."

We would add that a another vote would unleash so much hatred and violence that no EU national would want to stay in the UK.

Boris Johnson, in his first comments since his political defenestration last week, writes that the government is now deliberately trying to maximise the economic damage to force a crisis. We agree that Chancellor George Osborne is clearly not helping, and that the uncertainty will last through the summer. We would presume, however, that a new government would get to grips with the new situation quickly in order to produce some certainty. All the leading candidates faced questions over the weekend of what they were planning to do about EU nationals in the UK. While Johnson wants an iron-clad guarantee, May appears to cast doubt on the status of EU nationals by saying that this was part of the forthcoming negotiations. We presume she wants a deal whereby UK nationals abroad receive the same protection as EU nationals in the UK - which would seem reasonable, but would require agreement. 

In his FT column Wolfgang Münchau says there are only two options for Brexit - the EEA, which he favours, or a trade agreement for product markets, excluding financial services but potentially including some other services like energy. Hence, there is a direct trade-off between the City of London's access to the EU's financial market, and the need to control immigration from EU countries. This is a binary choice. You can't have a bit of each. If they choose immigration control, they will have to go for a minimal trading agreement. He also makes the point that there is no point in triggering Art 50 before the second round of the French presidential elections. This gives the new government time to prepare its position, make informal soundings of what is possible and what isn't, and then get the process finished quickly.

Marc Pierini argues that one of the first casualties of Brexit will be Federica Mogherini's EU global strategy review. Nobody in the EU will have time for clear long-term thinking while they are discussing the terms of Brexit. There is a lot of disagreement within and between EU governments on what should happen now. In Germany, Martin Schulz and Sigmar Gabriel want more integration, while Wolfgang Schäuble wants more inter-governmentalism. François Hollande wants to penalise Britain.

There are reports, like this one here and this one here, that the knives are out for Jean-Claude Juncker. We do not believe that he has been an effective Commission president either, but to make him a scapegoat is poor taste, won't help, and most importantly would greatly accelerate the demise of the EU. We have observed the federalism vs. inter-governmentalism debates for 30 years now, and conclude that a pure inter-governmental approach is unworkable. If you demote the Commission you will end up with a complete stalemate, and that is not a solution either. The second of these articles, in the Daily Telegraph, notes that Angela Merkel is now ready to support several eastern European countries in their call for Juncker to go. Maybe she hopes that this would have an impact on British public opinion. It would be uncharacteristically naïve, though we note that the Germans in particular are prone to misunderstand the political situation in the UK.

And finally, there are many obituaries over the weekend for Michael Rocard, a great European. Rocard, who was prime minister under Francois Mitterrand, regarded Brexit as a necessary pre-requisite for the EU to move forward. We picked up an interview with l’Opinion last December, in which he said the EU needed more than good leadership, but also deep institutional changes to pursue a common vision. 

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July 04, 2016

We'll miss the EU when it's gone

Sergio del Molino traces a historical parallel between the EU and the Austro-Hungarian empire, which nobody seemed to love in its latter years but many people missed after it was gone. Similarly, he imagines a future in a few decades in which elderly people will remember the EU with nostalgia and historians may declare that the EU was not such a bad idea after all with its free movement and low cost flights and Erasmus exchanges. But he also notes that, to hold together, the EU needs more than just the fear of uncertainty over what might come afterwards. Otherwise it will fall victim to nationalist retrenchment, like the Austro-Hungarian Empire did. In a similar vein, in a comment on the surge of nationalistic reasoning in economic arguments, Joaquin Estefanía traces a parallel with the writings of Austro-Hungarian nostalgics about the demise of free movement in Europe after WWI. Estefanía notes that free movement of people legitimises the other free flows of globalisation: capital, goods and services; and that, without free movement, globalisation is incomplete and won't survive politically.

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