June 08, 2017
There are two big events on our radar screen today - the UK election and the ECB’s governing council meeting in Tallinn. On the latter, we expect no surprises. We believe that Mario Draghi’s message on the need for continued monetary support is logical and consistent, given the persistent weakness in core inflation.
As regards the former, it is worth noting that the last pre-election polls seem to have registerd a reversal in the month-long trend of a rising Labour and falling Conservative shares. The latest YouGov/Times poll has the Tories seven points ahead again - 42 versus 35. This would translate into a majority of close to 100 for Teresa May, which would be close to a landslide victory. The headline in the Independent also goes in the same direction. Its latest poll gives the Tories a 10-point lead and a 74-seat majority. One thing we are noticing is that the astonishing variability in the polls is also narrowing. It appears that commentators have put a Tory majority of 50 seats as the expectational benchmark. Anything less, and Theresa May will be in trouble. The polls suggest that she might clear that hurdle. And even pro-Labour commentators, like Owen Jones in the Guardian, now concede that the odds are stacked against them.
The one caveat we would like to add is turnout. While less than 150,000 young people registered to vote before the deadline in 2015, that number has risen to 250,000. Expect most of them to vote Labour. And, if Labour mobilises its voters more than the Conservatives, the gap between the parties might narrow considerably. We would consider a reduced Tory majority or a hung parliament as still within the margin of error of the polls. The margin of error is not 10%, as Nate Silver keeps on claiming, but it is higher than the usual 2-3%.
As we wrote yesterday, the elections matter for the Brexit negotiations. A Labour victory could throw open the entire process, as Daniel Finkelstein of the Times notes. The problem is that Labour’s position on Brexit is internally inconsistent. Jeremy Corbyn says he accepts Brexit, but then says he would not accept a no-deal hard Brexit. But what if the EU does not give him a better deal? Will he then eat his promise not to reverse Brexit, or will he eat his promise not to crash out without a deal?
If the polls are right and Theresa May wins with an enlarged majority, Brexit will go ahead as planned, with or without a deal. The larger the majority, the greater will be May’s ability to compromise with the EU on a deal. She will be able to offer money - not the €100bn, but perhaps half of that. If the EU rejects that offer, it would be interesting to see how they plan to fill this gap. For a compromise to happen, it is essential that the talks are conducted quietly and professionally.
Andrew Duff quotes a former ECJ judge, Franklin Dehousse, as saying that the purpose of Article 50 is to show that the EU is not a prison, and warns that the attempt to impose the jurisdiction of the ECJ on the UK post-Brexit is doomed to failure. Dehousse compares the EU’s attitude towards Brexit with that of the British in China in the 19th century.
Duff concludes that the hopes of Ex-Remainers that the Brexit process can somehow be reversed are doomed to be disappointed. He notes that the attempts in Ireland to get the ECJ to rule on the reversibility of the Article 50 process have been abandoned. This was considered to be one of the most promising routes to a Brexit reversal process - and is now closing.
This concurs with our view that the trigger of Article 50 is de facto and de jure irreversible. If it were intended to be reversible, then clearly this would have been stated in the Treaties. What is stated in Art 50 instead is that countries can leave the EU in accordance with their own constitutional provisions, and that if no agreement is reached, the country would leave automatically.
And finally, here is a comment by Bill Emmott, who is spot-on in his observation that the lack of a Brexit debate in the elections is the true metric of the country's alienation from the EU.
"The bigger reason is that such a result, or even the prospect of it, confirms a simpler fact: that “Europe” does not score highly among the issues that matter for British voters, whether they are for or against membership of the EU. That prevailing indifference, rather than the referendum defeat, represents the true failure of the pro-EU cause in Britain over the past 44 years. It is a tragedy for Britain and its strategic interests that this is the case, but it is so."