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December 05, 2018

Unilateral Brexit revocation is possible, but only until March 29

Yesterday was a big day in the Brexit process. The ECJ's advocate general gave his legal opinion on the Brexit revocation case, and the government lost a couple of amendment votes in the House of Commons. The former is more important. The latter look scarier from a distance than from close up - an illusory giant. A third important development is a fairly dramatic increase in no-deal preparations. 

In Luxembourg, the ECJ's advocate general yesterday gave an unambiguously clear endorsement of the UK's right to revoke its Art. 50 notification unilaterally but with a bullet: it has to happen inside the two-year negotiation period. But the advocate general did not explicitly say what the position would be if the Art. 50 period were extended: whether revocation would then not be possible at all, or whether it will then need mutual consent. 

His legal reasoning is based on the Vienna Convention on the Law of Treaties, on which Art. 50 was based. One argument used by the advocate general is the wording in Article 50(2), which says that the government would notify the EU of its intention to leave, as opposed to its decision to leave. The advocate general also said that the alternative would have meant that a country gets expelled from the EU against its will. There are several other interesting points of EU law in the opinion, but these two arguments appear to us as the strongest. 

The advocate general imposes a few conditions, however.

  • the notification to revoke has to be officially communicated by the government;
  • it must respect constitutional requirements - in the case of the UK it would require prior parliamentary approval;
  • and finally there are the stipulations of a two-year time limit and the principles of good faith and co-operation.

We were struck by the time-limit clause that revocation is only possible within the two-year period following notification. If this is taken literally, it would mean that the sequence of extension, referendum and revocation is not possible since a referendum cannot be organised before March 29. The additional stipulation that any action by the UK government would have to be done in good faith and in co-operation with the EU also rules out another toxic cycle - revocation followed by a renewed trigger of Art. 50. For example, elections might bring about a Labour government which could in theory decide to reset the clock on Brexit, revoke, re-trigger and gain a further two years of full membership. 

The Court is expected to rule shortly, but probably not before next week's Commons vote. It tends to follow the advocate general's advice. In this particular case we would be interested to hear what the court has to say about the two-year limit.

The second most important Brexit news yesterday are indications of a dramatic increase in preparations for a no-deal Brexit. We are hearing from the inside that the civil service is now spinning full-circle, and that ministers have developed an unusual appetite for risk. One of the preparations under way is a plan to contact 145,000 companies that export and import only to or from the EU, to urge them to sort out necessary HMRC registration in the event of a no-deal Brexit. 

We continue to alert readers not to seek comfort in news reports that parliament will stop a no-deal Brexit. It will first need to find an agreed alternative - agreed by the EU. The only alternative under discussion in the UK seems to be the Norway option, whose growing support in the UK government is based on a number of misunderstandings in addition to the usual failure to familiarise oneself with actual treaty texts. What the advocates of the Norway option either fail to understand or fail to mention is that it will still require an Irish backstop. The withdrawal agreement will not change. All that could change is the political declaration, with Norway being specifically mentioned as an alternative. But if the deal is voted down next Tuesday, May and the European Council will almost invariable open up the political declaration to allow for alternative future relationships.

The big Brexit debate that started in the House of Commons yesterday was preceded by a couple of amendment votes which the government lost. We still fail to get excited about the publication of the government's legal advice. Marginally more important was another amendment brought by Dominic Grieve, which passed. It marginally strengthens the parliament role after next Tuesday. This was not another attempt to bring back the original meaningful-vote amendment, which would have put parliament at a much stronger position vis-a-vis the government. In yesterday's amendment, parliament has de facto co-decision rights in the drafting stages of a plan B. But we would add that this would most likely have been allowed in any case. The government will certainly want to make sure than any plan B Brexit deal would pass parliament the second time round. 

The trouble with this entire debate - as with almost every debate on this issue in the UK - is that it takes no account of the position of the EU. There is a no plan B Brexit from the EU's perspective. We don't think the EU is willing to accept material changes to the withdrawal agreement, no matter how many amendments the Commons pass. It was always the logic of Article 50 to get the Commission and the UK government to negotiate a deal, and then get everyone to ratify it.

The debate on the second referendum is unaffected by this. Parliament cannot force it against the will of the government. We are informed that it is, in theory, possible for the parliament to take the legislative agenda into its own hands by taking control of the legislative time-tabling process, and then to maintain that majority in subsequent legislation. As we said before, it is also possible for the parliament to instruct the government to send a letter to the EU asking for an extension of Article 50, but in view of the advocate general's ruling it is no longer clear what such an extension would entail.

If we ever get to this position - failure of withdrawal agreement, government's loss of executive powers in dealings with the EU, and loss of legislative majority - then surely the government will have lost its majority. A hypothetical pro-second referendum majority would need to hold much beyond the legislative process. It would need to displace the current government with, for example, an Italian-style technical government. This is possible in theory, but we should be mindful of the different interests of those who support a second referendum. The Labour leadership prefers elections. And at that point, we think, so would the Tories. Also note that, among the sixteen Tories that supported the Grieve amendment, ten said they would support May's withdrawal agreement. There are quite a few MPs who straddle the various political divides Brexit has opened up. We think there is no majority for a second referendum and, if there is, no majority for the further action needed to make it happen.

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December 05, 2018

French government suspends diesel tax - too little, too late?

The French government signalled a small retreat to take the air out of the gilets jaunes movement: Édouard Philippe announced he would suspend for six months the carbon tax and the new technical control requirements for cars, and would freeze electricity and natural-gas prices over the winter. No tax is worth putting the nation's unity in danger, he said, only three weeks after insisting that the government would not change course. Philippe and his interior minister also warned protesters against more violence at the protests in Paris this coming weekend. 

The government's strategy seems to be that by signalling their readiness for concessions they can divide the movement into pragmatists - ready for dialogue with the government and to accept compromises - and radicals who will not listen no matter what. But will the measures be enough to get the trust back from the moderate ones?

According to first reactions in the opposition and among the gilets jaunes protesters, the measures were too little, too late. 

One has to understand that this protest movement is not only about the diesel tax. There is a deep sense of injustice that is threatening the sense of Égalité, one of the three mottos of the French Republic. For the workers and the lower-middle class living in rural areas, living costs have been rising while income stagnated over many years. The fiscal measures put into place by Macron's government may have increased disposable income for the rich and the upper middle class, but not for others, who now feel left behind. Macron's reforms are also not showing effects on the economy, so people feel let down yet again. There is a sense of unfair treatment, and that can simply not be put aside with a moratorium on the diesel tax. The FT cites an IPP study showing that the benefits cuts and tax changes in 2018 and 2019 will leave the poorest households worse off, while the abolition of the ISF wealth tax means that by far the biggest gains will go to the top 1%.

Natalie Nougayrède warns in the Guardian that a weakened Macron is a danger to all of Europe, as it will provide new fodder for extremists and populists across the continent. The Le Pens, Orbáns and Salvinis are waiting in the wings and the EU elections are just around the corner. She draws parallels to Italy, where a wave of protests gave rise to the 5 star movement as a precursor to a government under the far-right Matteo Salvini. 

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December 05, 2018

Schauble supports Merz

We heard all sorts of speculation about what Wolfgang Schauble's unusual intervention yesterday could have meant: he openly came out in favour of Friedrich Merz in an interview with FAZ, which was clearly placed and timed for maximum effect. Angela Merkel chose not to intervene in the campaign, but is believed to favour the candidacy of Annegret Kramp-Karrenbauer, the CDU general secretary. Schauble's call may affect some wavering delegates, but it is hard to say whether this is going to be decisive. We know of two CDU regional parties - Baden-Wuerttemberg and Hesse - to be in favour of Merz, while Schleswig-Hostein and Saarland are in favour of AKK. What will be crucial is the position of North-Rhine Westphalia, which is at this stage not endorsing a candidate as two out of three, Merz and Jens Spahn, are from that state. We should not underestimate the extent to which the CDU has moved to the political centre under Angela Merkel. Schauble's argument in favour of Merz is that his leadership would help strengthen the political centre in Germany and weaken the fringes. We agree with that analysis. What is also unusual about Merz are his pro-European instincts, but as this campaign also showed, one should not expect miracles from a political party that remains ideologically steeped in an ordo-liberal tradition of economic policy making. 

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