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June 26, 2019

How would the EU react to Do-or-Die?

We think it is significant that Boris Johnson has given a do-or-die pledge on the October 31 Brexit date. The reaction from Brussels is equally significant: nobody believes him.

Johnson’s pledge raises the chances of early elections, given the Commons majorities.

For us it raises a far more interesting, yet unanswered question about Brexit: what would the leaders of the EU and the UK do if they were really confronted by such a threat? Not what they say they would do, but what they would actually do.

EU leaders keep on repeating that they don’t want to re-open the withdrawal agreement. Of course. We see no reason why they should shift position in the current situation. But they were at no point confronted by the reality of a no-deal Brexit. So, how do we know? Olly Robbins, Theresa May’s Brexit negotiator, told his opposites that no-deal wouldn't happen. May herself concluded that she could not take the responsibility for such a momentous decision. So the EU had nothing to lose by sticking to the current deal. 

The reasons why the EU is a relatively successful negotiator is a devolved negotiating process with pre-agreed mandates and an institutionally in-built complacency. The EU is good at negotiating for the same reason robots are better at reading medical images than qualified doctors.

Unless the facts change on Brexit, the EU’s robot-like negotiating positions will remain fixed. If a new UK prime minister were to approach Brussels in the same spirit as May, there would be warm words, but no change.

But what would the EU do if confronted by a PM who is genuinely ready to go for a no-deal Brexit? Would they sleepwalk into it, safe in the knowledge that the economic impact would be worse on the UK than on the EU?

One of the few journalists who has been gaming this scenario in detail is Peter Foster of the Daily Telegraph. Whatever one may think of the newspaper, Foster has been one of the more reliable Brussels correspondents of the UK press corps, and certainly no unicorn man. What he says about the political no-deal dynamics is quite interesting. 

He started off with an observation that also sits firmly on our minds: would Dublin really not blink? We are assured by people with a much better understanding of Irish politics that Leo Vardkar cannot conceivably compromise on the Irish border. For him, it is politically easier to have a super-hard border imposed on him by the UK than to agree a compromise. We believe that this assertion correctly reflects the views in Dublin. But then again, it has not been tested, only stated. Would the politics not change if people were confronted with the economic reality of a harder border, when people lose jobs and income? Would they still want their prime minister to be brave and principled in that situation? The answer may well be yes, but should we really take this for granted?

Foster writes that the EU expects a no-deal UK government to put the heat on Dublin, reminding them that the economic impact on Ireland would be much more severe than on the UK itself - a 4% immediate loss of GDP in the first year, and a hard border across the island. And, while the EU sides with Ireland against the UK, it also has to preserve its own interest vis-a-vis Ireland. As Foster writes, the EU26 have asked Ireland for its contingency plans in case of a no-deal Brexit. 

Foster then asks: what if a Johnson government were to demonstrate that it could deliver a majority for a withdrawal agreement with a time-limited backstop? Would the EU and Ireland really choose pain today over pain tomorrow? The answer again may well be yes - but it would be out of character. 

Foster concludes that Irish politics might favour the latter option. We also remain open to that outcome. But our underlying point remains that it is one thing to state a course of action under a hypothetical scenario in which you don’t really believe in, and it is another thing to act this way when that scenario actually occurs. 

We are well aware that we may be over-gaming this. EU leaders are nowhere near this point. They deal with situations as they arise. The entire political apparatus in Brussels is currently expanding its entire strategic energy on settling the relatively unimportant questions of who is going to be the next president of the European Commission or the European Council. The presidency of the ECB and Brexit are far more important for the future of Europe where solutions will emerge as accidental outcomes of other choices. 

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June 26, 2019

Merkel Procrastinates? Surely not.

We were amused to read about the shocking realisation by the only Green state premier - Winfried Kretschmann of Baden-Württemberg - that Angela Merkel is really not interested in finding solutions to the car crisis in Germany. FAZ quotes him as saying that the newspaper had dropped out of his hand when he read a big car summit to which Merkel invited the industry failed to take a single decision. Kretschmann is, of course, rightly concerned that Germany is procrastinating and likely to lose out to foreign competition by hanging on to its diesel addiction. He criticised that the government and the industry are getting stuck in discussions on legacy issues, rather than looking to the future - like the provision of electric charging stations. As ever, Merkel is riding the process but is not interested in delivering actual solutions.

Welcome to our world, Mr Kretschmann! Merkel will be gone, but the CDU will be your national coalition partner from 2021 at the latest. On the climate issue, the CDU and the SPD are closer to each other than to you. An SPD/CDU coalition would only do the minimum needed under EU rules and international agreements to cut emission targets. We would even expect a CDU/SPD coalition to breach those targets, which are inconsistent with Peter Altmaier’s re-industrialisation strategy. The Greens go from strength to strength, and are likely to be a member of the next government. But they will struggle to implement many of their policies. Those coalition negotiations will be harder than usual.

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