December 04, 2017
Can Brexit still be stopped?
We think that the British health secretary, Jeremy Hunt, has it spot-on when he told his cabinet colleagues: you have a choice either between backing the compromises offered by Theresa May, or risk Brexit. This is in response to the various efforts by Brexit hardliners to impose further red lines on the process, such as no ECJ oversight during the transition period, a demand that equates to the rejection of the transition because this issue is non-negotiable for the EU. We treat these interventions by people like Nigel, now Lord Lawson, the former chancellor, or Ian Duncan-Smith, the former Tory leader, as noise.
Hunt's intervention is a sign that the government is now pulling the ultimate threat to the hard-Brexit: back the compromise position of the prime minister, or risk Brexit. It is the first time we have heard a cabinet colleague mentioning that Brexit might not happen. And the mechanism for a Brexit reversal is a fall of the government and a new election before March 2019, with Jeremy Corbyn coming into to power. According to the Daily Telegraph Jeremy Corbyn said that he has not yet made up his mind on a second referendum, presumably because of a shift in public opinion. If you read this with the story in the Guardian that Tony Blair is actively supporting a referendum through the Labour Party, it is very clear that the Labour Party is the probable vehicle through which Brexit can be stopped.
As always, we find it interesting that the German media, like faz.net, find this prospect so enticing that this was their lead story last night. We have always argued that one of the reason German industry is not panicking over Brexit - as they should - is because deep down they believe it is not going to happen.
Various UK newspaper columns over the weekend made the point that the really difficult task ahead are the trade negotiations - as opposed to what is happening in Brussels right now. Juliet Samuel notes in the Daily Telegraph that the UK was dangerously unready for the next phase of Brexit, but she holds out the hope that it should be possible to identify a certain number of service sectors, for which the UK can offer to uphold regimes of regulatory equivalence - meaning that they can continue to trade as though they are in the single market.
In his FT column, Wolfgang Munchau writes that the EU will not go much beyond a classic goods-only trade agreement. If the UK wants third-country status through Brexit, the EU will treat the UK as a third country - it is as simple as that. Since the UK is not prepared for this stark choice politically, the question becomes whether the parliament might reject the Article 50 deal on the grounds that a £50bn settlement would only buy a lousy zero tariff agreement. So we may still get to a point where the UK faces a stark choice between a hard Brexit - and reverting back to the EU.
One of the most persistent proponents of a Brexit reversal is Hugo Dixon who notes that all the various pathways will lead to a radical Corbyn government. The best hope is an early election, he writes, with a slim Labour majority (and reliance on an anti-Brexit party for support), so that Corbyn can be moderated, and cajoled into accepting a second referendum.
We note that both Dixon and Charles Grant premise their argument on the assumption that a two-year transition is insufficient for a trade deal. That would be the case for a trade deal with service components, but an EU level trade deal that focuses only on tariffs, rules of origin, and customs arrangements would be feasible in a much shorter period of time - if both sides want this to happen.