July 07, 2016
Article 50 without recourse to parliament
Newspapers all over Europe are today filled with coverage of the Chilcot inquiry, a subject we happily leave outside our reservation. Brexit, however, remains at the top of our agenda given the enormity of its implications.
There was an interesting tweet yesterday by Denis MacShane, according to which only two people in a crowd of exclusively pro-European gathering in London believed that Brexit will actually happen. We wrote yesterday that the still delusional Remain supporters will get their second shock when the political reality of Brexit sets in. It now appears that the government machinery is being re-programmed for Brexit, and will be pursuing that direction with relentless determination.
The Guardian reports on a statement by Oliver Letwin, a cabinet minister in the Cameron administration in charge of the preparatory work for the Brexit negotiations. He told a parliamentary committee that the government has received legal advice that Art 50 can be triggered by royal prerogative, which means without further recourse to parliament.
While this also accords with our own view, this is an important development nevertheless, as the "Bremain" illusion largely rest on one of three notions. The first is that parliament can, and will, block the triggering of Art 50. The second is that parliament will refuse to accept the negotiated outcome. The third is that parliament will instruct the government to undo the Art 50 process once triggered. Letwin said MPs would, of course, be involved in the process, since the procedure will require the repeal of the European Communities Act 1972. Letwin's office will prepare what he calls a "fine grained, multi-dimensional" options paper in time for September 9, when the new prime minister is to be installed.
Today is the final vote in the pre-selection process among Tory MPs, who will determine the two remaining candidates - out of three - to be voted on by Conservative Party members. The Guardian article also contained information about another piece of legal advice relating to whether an Art 50 process can be undone. It appears that the French government has received legal advice that this would indeed be possible (but would obviously have to occur within the two-year timeframe set by the article).
We noted one story this morning in Frankfurter Allgemeine according to which the UK has given up its resistance to opening up the next chapters in Serbia's membership negotiations. At a meeting of the Western Balkan conference in Paris, Britain had signalled that it would no longer block Serbia's and Montenegro's EU accessions - which are pencilled in for 2020. Another case of the Brexit facts already happening on the ground. Britain is now giving up on long-held positions on EU policy.
In the UK, meanwhile, more property funds withheld redemptions - now six altogether - which means that around half of the entire sector is now frozen. To raise the cash to pay out investors they will need to sell properties, which means that the UK's bubbly commercial property sector is going to be deflated as a result of Brexit. There is already anecdotal evidence of a fall in residential property prices, as people are holding off purchases until there is more clarity on the way ahead. While it appears that the UK will not deport any EU residents after Brexit, immigration controls will reduce demand for properties in the long run, relative to pre-Brexit baseline projections. The combination of current uncertainty and expectations of relatively lower demand in the future will have a profound impact on the sector. Note, though, that excess demand will prevail for some time.
We disagree with George Magnus' gloom on the British economy. He writes Sterling is the bellwether of the coming recession, not the FTSE100 index. We agree with him on the FTSE, but the fall in sterling will act as a stabiliser. But even Magnus does not seem to believe in a depression, and says that the UK will emerge from the coming recession in 2017-18. More worrying is that the recession will have medium-to-long-term effects, as a consequence of Brexit affecting trade, investment and immigration.
And finally, it is worth reading Tim Harford's thoughtful piece on the role of expert advice during political campaigns. The economics profession was nearly unanimous in its forecast of impending disaster following a Brexit vote - a forecast that we all now have the pleasure, or misfortune, of seeing either vindicated or refuted. Harford's broader point is that expert advice is needed especially at a time when facts are distorted, but he also quoted Paul Johnson, head of the Institute of Fiscal Studies, saying that it was too easy to point to the media as a scapegoat. The economics profession also has a lot to answer for.