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November 21, 2018

The need and limitations of plan B Brexit options

The votes for the Brexit deal are still not there - nor are the votes for the removal of Theresa May as Conservative leader. But the lobbying effort is at full speed, now that the UK government and the European Commission are both pushing in the same direction and no longer against each other.

There is no appetite on either side to open the withdrawal agreement at this stage, but there is some flexibility left in the political declaration. The BBC informs us that the latest draft is now 20 pages long, up from the initial seven pages when the draft treaty was first published. It is in the political declaration where some of the frustrations and ambitions of various parties can best be dealt with. 

We are puzzled by a report in the FT this morning that May is trying to lure Conservative eurosceptics by offering maximum facilitation as an alternative to the all-UK backstop plan. It would make more sense to us if max-fac were to relate to the future trade deal. But we don’t see any max-fac before a new trade deal takes effect. The paper reports that these talks appeared however to have had the desirable effect to turn the eurosceptics against each other.

We also note that some of the commentary is becoming more constructive. Mark Carney gave testimony to the House of Commons saying the agreed withdrawal treaty would benefit investment, in contrast to the most restrictive of the no-deal scenarios.

As we have noted before, much of the debate in the UK was premised on illusions of non-existing alternatives. As we are heading into the final phase of the Brexit process, the discussions will become more focused. We would not rule out a defeat of the government in a first vote, followed by a short renegotiation of the treaty plus the political declaration, and then followed by a final vote in the Commons. 

The strategic choice for May will be whether to secure the missing votes from the right or from the left. The idea of a max-fac solution suggests that she is now trying to woo the eurosceptics.

An alternative approach has been put forward by Raphael Hogarth in the Times. He writes that the best way ahead would be a leadership election, which May would win and which would make her immune for one year. She should table the withdrawal agreement but allow amendments, including for a second referendum. If this is defeated, pro-EU Tories will then subsequently support the plan. The government should also support another amendment, committing the UK to a permanent customs union with the EU. Such an amendment would no doubt be tabled by the Labour Party. It would be in the government’s interest to lose the vote on that amendment. This could then form the basis for a renegotiation of the treaty - in a direction that the EU would probably accept. The pro-EU majority in the Commons could assert itself at this point.

We think this is a viable plan B route, but with some qualification. The EU cannot contractually commit to a permanent customs union at this stage. Art. 50 does not allow that. One could, however, tweak the withdrawal agreement to make such an outcome more likely in the future. As a first best option, however, we believe that May will try to get her withdrawal treaty approved. And she will point out to eurosceptics that the consequences of a failure to approve the treaty would be an even softer Brexit, rather than the no-deal outcome many eurosceptics are overtly or covertly hankering for. May’s task will be to inject uncertainty into that belief.

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November 21, 2018

The revenge of the left behind - French edition

The gap between thriving metropolitans and those living in rural areas in social and economic decline widened in the US over the past decades. It nurtured small-town resentment against cosmopolitan urban elites. Technology worked in favour of clusters in skills and firms, which led to very different economic developments, as a Brookings paper shows. The election of Donald Trump in 2016 can be seen as the revenge of those places that felt and were left behind in this changing economy. 

Will we see something similar here in Europe? This story may resonate in France where the centre of gravity had historically already been in the metropolitan area around Paris. Rural areas, as idyllic as they may appear, are indeed quite poor, socially depleted of young and skilled people and technologically lagging behind. And in this respect size matters: France is nearly twice the size as Germany, with a population 20% smaller and twice the proportion of people living in the countryside. 

Rural discontent has been growing for some years. Its latest expression is the grassroots protests over the rise in diesel tax. It started last weekend in the small towns and rural areas in over 2000 locations all over in France. There is now an online initiative to bring the protests to Paris this coming Saturday with a march on the Élysée palace. Feel a whiff of French revolution.

Observers warn that the initiative will end up in chaos, with no organisational structure in place and as of now no protests registered at the local authorities. The over 400 injured people and the death of two protesters as a result of an accident will serve as a reminder of the risks involved. The French government also spoke up against the radicalisation of the protests, and images of violent clashes made their round on social media. There is also a warning that the terrorist threat is for real, after an IS video made reference to the yellow traffic vest movement. Will this deter the protesters from coming to Paris? We cannot say at this moment. What emerges is that the protests are no longer only about the diesel tax, but have become a vessel for citizens to vent their discontent and frustration. 

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