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January 11, 2019

What if May loses by 200 votes?

Theresa May's strategy to portray Tuesday's vote as an open-ended three-way game - deal, no deal, no Brexit - has clearly not worked. Instead of scaring her opponents, she achieved the exact opposite. The hard Remainers and the hard Leavers both believe that they will better off by rejecting her deal. The can of course not both be right, but what matters for now is the fact that they hold those views. BBC research shows that the deal would currently be rejected by a majority of 228. Support for the deal has actually declined over the holiday period. 

We should therefore brace for a Charge of the Light Brigade incident on Tuesday, unless May takes some dramatic action beforehand. If she were to lose on such a scale, both her premiership and the deal might be beyond redemption. A defeat by 30 or 40 votes would be bad enough, but it would at least allow her to agree tweaks in the political declaration that could win over enough support. But there is no way the agreement could be tweaked in such a way as to persuade well over 100 MPs to change their vote. In this case, she would have no alternative but to hand over the process to parliament.

We believe that her only viable strategy is to frame this debate as a straight choice between deal and no deal. She could still do so before Tuesday, or alternatively accept the inevitable defeat, sit back, and run down the clock. The latter has the disadvantage of uncertainty. A 200-vote defeat could end her premiership instantly. Nor does it make sense to hand over the process to the parliament now, having sidelined the Commons during the Brexit negotiations. We thus conclude that Downing Street has committed another serious strategic error - like calling an election in 2017. We think it would have been a better strategy to get the European Council to pre-emptively frustrate third options from the outset, for example by committing not to extend Art. 50 except to make a little more time for ratification. Such a pre-commitment would, at a stroke, effectively rule out a host of perceived alternative options - including a second referendum or the Labour Party's version of a Brexit. There can never be a majority for the withdrawal agreement unless everybody understands that the alternative is no deal.

What about the Norway option? Right after the Brexit referendum we argued that the UK's best choice would be to join Efta and the EEA. While this would not have solved the Irish border problem, since customs procedures would still have been necessary, it would have made it much easier to deal with the problem through technical facilitation. Norway still might end up as the compromise if Labour were to support it. We noted a column by Owen Jones, a Corbyn-supporting columnist in the Guardian, who writes that Norway is not the ideal option for Labour but the best of a bad bunch. Like us, he does not see a second referendum as a solution to the standoff, not least because there is no decisive majority for Remain. A poll of polls  shows a very narrow majority for Remain, 52-48, a lead we consider not robust enough to survive a campaign that would without a doubt turn into a plebiscite on democratic procedures. And we simply cannot see the UK government campaigning for Remain or the EU accepting an Art. 50 extension for a second in-or-out referendum if the government campaigns for Out. 

In his speech yesterday, Corbyn gave no indication that he had shifted his scepticism on the second referendum though he remains formally committed to the process agreed by the Labour conference in the summer. A second referendum formally remains on the table, but only after a no-confidence vote fails. He said he would only commit to a vote of no confidence if he had a realistic chance of winning. We would not rule out the possibility that Corbyn's prevarication may be what pushes the Commons towards a reluctant 11th-hour acceptance of May's deal, or towards no deal. 

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January 11, 2019

Why the departure of Mattis is a big headache for Germany

Josef Janning offers a brutally honest analysis of the impact the departure of Jim Mattis as US defence secretary will have on Germany in particular. He portrays Mattis as Germany's last friend in the Trump administration, and expects the president to intensify his attacks on Germany on three fronts: on German trade surpluses, its refusal to meet the Nato defence spending target, and the Nordstream 2 gas pipeline with Russia. Janning concludes that Mattis' departure requires an end to the previous diplomacy of papering over the cracks and pretending that nothing has happened. On trade, the German strategy has been to engage in a dialogue with Donald Trump and to point out the value of jobs created by German companies in the US. He summarises the German approach as a reluctance to overreact, to overspend or to overcommit. Behind this is the hope that Trump will one day go away and bilateral relations will return to the status quo ante. He writes there is now an intensive debate going on at the top level of the German government whether the policy to duck, take cover and muddle through - as he puts it - is becoming counter-productive. 

The problem, of course, is that modern Germany has no political tradition of formulating its policies in global strategic terms. Angela Merkel may have said that EU should take its fate into its own hands - but to follow through, Janning writes, Germany would have to accept an end to the peace dividend, and agree a significant increase in defence spending:

"For the Germans, this would imply an end to the peace dividend, safely embedded within a neighbourhood of friends whose doors are open to German products and who have a strong appreciation for the German way of life. Worse, the Germans cannot hide behind Europe this time, because German indecision blocks further European integration. Europe cannot act before Germany decides on its role and ambitions within the EU, on its commitments to the continent’s future, and on the road map for implementing its European aims."

Wolfgang Munchau writes: Where I think Janning is wrong is the additional assertion that Franco-German cooperation would feather the fiscal burden. It would not, or at least not to a significant extent. The need for Germany to increase defence spending will arise under any conceivable scenario. If Germany does nothing, Trump will increase the pressure on Germany to meet the 2% target. Any serious joint defence co-operation within the EU or as part of a specific Franco-German umbrella would equally require a big increase in German defence spending. France is already spending a significantly larger share of GDP on defence than Germany - 2% vs 1.2%. To become independent of the US, both countries will need to step up defence spending in actual terms, as well as trying to benefit from economies of scale through the pooling of defence procurement. But the heavy lifting will not come from efficiency effects. The big obstacle to all of this is not fiscal, but political. Nobody in German politics - and Merkel in particular - is willing to commit to such action. As a national strategy, Germany has prioritised an extremist version of fiscal consolidation. This not only has created huge imbalance inside the eurozone and in the global economy, and has reduced German potential growth due to a chronic lack of investment; but is also affecting Germany's ability to formulate a strategic response to Trump. I cannot recall a single peacetime policy with similarly devastating consequences.

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