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September 11, 2018

Brexit by November

When people in the UK hyperventilate about the Chequers proposal, they forget the simple reason why it is there and why there are no alternatives: it is the only proposal that at least attempts to solve the Irish problem and to minimise disruption for business. Details matter, and some elements in Chequers are clearly not acceptable to the EU. But the EU will negotiate with Theresa May on the basis of it. 

The big news in the UK - or rather for the journalists in the UK - is that the EU wants to cut a deal before the end of this year. Michel Barnier is quoted in the UK media as saying that a withdrawal deal is possible within six to eight weeks. We agree it is possible, though we think it might take a tad longer. The EU is currently planning to hold a special Brexit summit in November. 

The probability of a deal - loosely based on Chequers with a fudged political declaration - is high. The question is, of course, will the Commons accept it? 

One Tory MP made headlines yesterday with a claim that 80 Tory MPs would reject it. We think this is nonsense. It is one thing to rage against a specific proposal, but quite another to vote against the withdrawal agreement and confront the extreme two-tail risks that could emanate from such a decision. The most probable, but not certain, outcome of a No vote would be a hard Brexit. Another possibility would be another election or even a second referendum. We don’t think it will happen, but we cannot, of course, completely rule out the possibility of a Brexit reversal if only because of the tendency of events to intrude.

There were a couple of interesting points in this morning’s column by William Hague in the Daily Telegraph - and a sin of omission we find highly revealing. Hague draws up the scenario of a constitutional crisis in the UK that could occur if parliament supported an amendment to extend the Brexit deadline, and the government failed to implement it. 

It is interesting that UK commentators always fail to the see the EU’s own position into account. Under Article 50, only the European Council - not the UK parliament - can extend the Brexit date. Would they agree, by the required unanimity, to a six-month extension of the Brexit process which would place the UK referendum campaign bang in the middle of the EU’s own elections in May? This is the reason why we are a tad more optimistic. It won’t come to a constitutional crisis because the scenario is unrealistic. It is always possible for the UK parliament to pass an amendment to postpone Brexit. It would have the same legal and political significance as an amendment to abolish the tooth fairy. 

A far more likely no-deal scenario is for the government and the EU to make it very clear that a rejection of the withdrawal treaty would not lead to a postponement of Brexit, but to a hard Brexit. By far the most likely outcome of a No vote would be an UK election, maybe early in 2019. It should not be too difficult for May to cast the vote as a proxy referendum between her deal and a no-deal Brexit. If she won a majority, the newly elected House of Commons would approve the deal.

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September 11, 2018

Italian government to reverse the opening of Sunday shopping

The EU wasted far too much time in the first decade of this millennium discussing pseudo-economic issues, like shop opening times and legislation to liberalise the dismissal of workers. We are no fans of the German economic model, but are happy to point out that Germany has one of the strictest employment protection and rent protection laws in the EU. There is no Sunday shopping except in large train stations and airport. One of the great mercies of the current political discourse is that we are no longer discussing the Lisbon agenda. 

But it is one thing to spend your political capital on those reforms, and another to reverse them. This is now happening in Italy where the government is pressing ahead with legislation to undo one of the early reforms of the Monti administration in 2011 - the Save Italy decree - as part of which Sunday shopping was liberalised. 

There are some minor disagreements between the two governing parties, but for us the relevant question is why governing parties waste political capital to undo something, rather than to do something new. The problem with all structural changes - in one direction or the other - is that they also involve short-term costs. Some are worthwhile if they produce long-term gains, but that is not always the case. We don’t think that shopping hours are a big deal for the economy, and we would leave this alone simply because of the negative short-term costs. Corriere della Sera reports on an estimate of 40,000 potential job losses. And, since there no expected long-term gains from reimposing the old restrictions, why bother?

The answer is, of course, that a re-introduction of the old rules has some popular support in a country where Sunday shopping is seen a symbol of the unacceptable face of capitalism. But the trouble with new politics that just reverses the old politics is the inevitable void that comes afterwards. And then what?

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