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November 29, 2018

There are still a few options left for May

Economics is a useless tool when it comes to discussions about distant future states of the world, which is why we are ignoring the hysterical warnings by the Bank of England and the Treasury on the impact of various Brexit scenarios. The only point we would make is political: a fear-based campaign did not work last time, and we don’t think that the current hysteria will fare much better.

Back in the real world, there were two important Brexit developments yesterday. One was the announcement by the European Court of Justice that advocate general Manuel Campos Sánchez-Bordona will deliver his opinion on the Scottish case about the Art. 50 revocation on December 4. We tried yesterday to decipher the deeper meaning of this announcement - whether it would favour revocation or not - but soon gave up. It is more fruitful to speculate on what this means procedurally. We heard one EU law expert making the prediction that the court might give its ruling before December 11. We recall that the opinion of the advocate general carries great weight in the ECJ. The opinion is followed by the court in most cases, but not always. The reason to expect an early court ruling would be the political mess created by subsequently divergent opinions. Imagine the advocate general saying revocation is ok and the UK parliament then rejecting the withdrawal treaty, only to be told in March that revocation is not possible at all. We therefore see two procedural outcomes as likely: The court either rules before December 11, or if not, the court will broadly concur with the views of the advocate general. For Brexit, it does not matter whether the European Council has to vote by unanimity or, for example, by qualified majority. If a UK government were to request a revocation of Brexit, the European Council would probably accept it. 

The other important development was mentioned in a story by Bloomberg, which reports that Downing Street was considering to allow amendments to the Brexit vote on December 11. The debate is scheduled to take place between Dec 4-6 and Dec 10-11, with a vote on the final day. There could be six amendments, according to Bloomberg. The reason to allow the amendments, resisted by the government at first, is to demonstrate that no other options carry a majority either. The Sun has reported that some cabinet ministers have urged Theresa May to delay the vote. We ourselves are hearing that Downing Street and Whitehall are currently in a state of panic. There is no plan B ready to unroll. A defeat could thus trigger all the options we outlined in our scenario analysis over the last two days.

As in the case of the expected ECJ ruling, it is best to think about the post-vote scenario in terms of procedures rather than desired or even probable outcomes. Downing Street warns of a defeat by as much as 150-200 votes. But we think this is unlikely. For starters, people can express their dissatisfaction by abstaining rather than voting against. And we also assume that the fear of a massive defeat and a possible resignation of May would drive some Tory MPs to support the deal. We think, however, that it is unlikely that this deal would be carried at a first vote. A relatively narrow defeat would allow a second vote later.  

Another procedural possibility we can think of would be for the government to separate the votes on the withdrawal treaty and the political declaration. The EU will not agree to amending the withdrawal treaty itself, but would be open to a different phrasing of the future relationship. A separation of votes would help advocates of the Norway-plus option to vote in favour of the treaty, but against the declaration. We have not heard any suggestions that the government would be pursuing this strategy, but we think this is a more promising avenue than what would otherwise turn into a modern political equivalent of a Charge of the Light Brigade. Maybe this constitutes a strategy for a second vote. 

We broadly agree with the FT’s editorial that the deal should be supported, and if it fails, that the other deal options, such as Norway-plus, should be pursued. The FT writes that if the ultimate choices were to narrow down to deal-vs-no-deal, a referendum should decide. 

What is usually understated in these discussion is the need for a government to support the process since a referendum requires legislation. We doubt very much that a Tory-led government would happily accept a referendum that might lead to a Brexit reversal. Such an outcome would tear the party apart. We also doubt that there would be agreement on the question to be asked. John McDonnell, the shadow chancellor, said yesterday that Labour would favour a second referendum as a final consequence if the Brexit process did not result in early elections. But he said it would be a referendum between the deal and Remain. We doubt very much that it would be legally and politically possible to give the electorate a choice between two non-exclusive options. And we are not sure that the EU would unanimously accept a longish Brexit extension if no-deal was on the menu. We remain convinced that the EU’s best strategy to force agreement on the withdrawal treaty is to rule out Brexit extension, in order to force the Commons to confront what would then become a binary choice.

I remain unpersuaded by the case for a second referendum. The original referendum was based on Art. 50, which clearly stated that no-deal was a possible outcome, as was any deal that was mutually agreed. One could make a case for a referendum to decide between accepting the agreement or not accepting the agreement, but would this not be an abuse of the consultative referendum procedure for detailed legislation that a representative democracy should be able to carry? Much of the current debate about the second referendum is based on a general failure to understand the logic of Art. 50, which was intended to offer the leaving country and the EU a binary choice.

Apart from this formal observation, I also don’t see the political case for a second referendum. Even if there were a parliamentary majority in favour of a second referendum in principle, I would be very surprised if the House of Commons could agree on a question or the process, especially if you are hellbent to deny the only logical choice under Art. 50 - which would be to accept or reject the deal. A three-way referendum is not going to settle the issues, and having two consecutive referendums - Remain vs Leave and Deal vs No Deal, means the first of the two would be a re-run of the 2016 referendum. The referendum would be more likely about whether the UK is still a democracy than about Europe. I would expect it to be accompanied and followed by civil unrest. And it is possible that large parts of the electorate would boycott it.

In the end the best strategy for the Conservatives would be to unite around May’s deal. Any of the alternatives - a no-deal Brexit and a second referendum - would destroy the party. And if you are genuinely pro-EU (as opposed to be pro-EU-opt-outs), then you should accept the 2016 vote and help organise a campaign for a more sustainable version of membership than the current one.

(Wolfgang Münchau)

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November 29, 2018

Berlin and Paris offer to mediate after Azov Sea incident

Few foreign policy issues generate as many confusing European messages as the aggressive behaviour of Vladimir Putin’s Russia. The latest case in point is Russia’s action against Ukrainian vessels and their crews in the Azov Sea. Early talk of new sanctions, or tightening of existing ones, has for now given way to calls for fact-finding and de-escalation. Following a telephone call between Angela Merkel and Putin, Germany and France have offered to mediate. Federica Mogherini had earlier released a statement calling on Russia to release the vessels and imprisoned crews and to ensure free navigation through the Kerch Strait, but sanctions were not mentioned.

The EU is up against its perennial problem in dealing with Russian aggression - how to respond without triggering a dangerous escalation – and its subsidiary quandary of how strongly to back Ukrainian aspirations for full foreign-policy autonomy. Ukrainian ambitions to move closer to the EU and Nato are seen by Russia as a direct challenge to its essential security interests. EU policy is torn between facilitating increasingly close links with its Ukrainian neighbour, and not fuelling dangerous instability on a continental scale. One should add that indecisiveness verging on confusion when it comes to dealing with Moscow is not exclusive to the EU, but applies just as much to Washington.

What Russia’s aggression in the Azov Sea will almost certainly do is facilitate the adoption of a Dutch proposal for a EU equivalent to the US' Magnitsky Act. This targets individuals charged with gross human rights violations with financial sanctions and travel bans. Germany has swung behind the proposal, and France has also expressed support. A decision is now expected for the EU foreign ministers’ meeting on December 10. The Dutch initiative is not just targeting Russia, but must also be seen against the background of the murder of Jamal Khashoggi at the Saudi embassy in Turkey.

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