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September 10, 2019

Beware of the Salvini trap

Let’s imagine the following scenario: the House of Commons returns in October. There is a no deal. Jeremy Corbyn calls a no-confidence vote, wins and agrees to support a national unity government under Kenneth Clarke as interim prime minister. Clarke may only receive a mandate to seek an extension. But, as we observe in other parts of Europe, interim government can prove sticky. 

Can’t happen? Consider Corbyn is a much diminished figure these days. Imagine that Labour’s popularity will continue to shrink, and that the Labour leadership concludes it cannot afford elections at this point. What started as a short-lived government of national unity would then remain in office because those that support it are desperate to avoid elections. They are playing for time. That government could seek a Brexit extension until after the next scheduled elections in 2022 - at which point the British electorate may have lost interest in Brexit.

This is not a prediction, only a scenario. But look at what just happened in Italy. Who would have foreseen a few weeks ago that Matteo Salvini’s exit from government would lead to a coalition between Five Star and the PD? But it did, because Salvini’s electoral support surged and so it is in the interest of the two other parties to stop him. We admire Cummings’ strategic acumen, but strange things happen in politics that are beyond the grip of a strategic planner.  

We don’t think it is possible to game the multitude of interacting political scenarios beyond October. Our baseline scenario remains that the House of Commons will ultimately not succeed in stopping Brexit. But it looks increasingly uncertain that Brexit will happen on October 31.

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September 10, 2019

After the diesel car, now goes the SUV

If there is one industrial story where events intruded it must be the story of the German car industry. After the diesel emissions fraud that ended up accelerating the decline of the fuel-driven car, a more recent event is now about to face the sale of SUVs, one of the biggest sources of earnings for German car companies. A horrific accident occurred in Berlin, where the driver of a Porsche SUV appeared to have suffered a fit, lost control of the vehicle, and drove onto a pavement killing four people, including a thee-year old child. The Green Party and Germany’s most important environmental groups used the accident for a massive campaign against SUV, calling for a ban of large SUVs in crowded cities. The argument is that tank-like vehicles constitute a danger for the public.

The anti-car lobby in Germany has learned that the best way to drive the industry to despair is through partial bans. The diesel bans are a reality only in a few cities. But that alone managed to kill the technology by driving down sales and profit margins. When people expect restrictions, either now or in the future, they will no longer buy the technology or they will demand steep discounts. SUVs are among the highest-margin vehicles sold by German car makers.

It is also noteworthy for the main report from Germany’s most prestigious car fair to be not about the latest generation of cars, but about an activist group calling itself sand-in-the-transmission managing to infiltrate the show. 

We have no idea whether a ban of SUVs will ever happen. What speaks in its favour is that the fragmentation of the Bundestag makes it more likely that the Greens will be represented in government. In exchange for its willingness to enter a coalition, the Greens will insist on a whole range of measures to curtail the car industry.

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