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October 08, 2019

Brexit extension as casus belli?

We have wondered at times whether Brexit could at some point turn into a paramilitary conflict - a civil war in the UK or a conflict between the UK and third countries in the EU. This is, of course, a far-fetched scenario, but remember that all wars are preceded by a verbal build-up. The reverse implication does not hold, of course, but we are clearly in that verbal phase now. 

We noted some of the most chilling comments we have yet heard from Number 10 Downing Street yesterday, as reported by James Forsyth from the Spectator. We believe that the unnamed source is either Dominic Cummings himself, or someone authorised directly by him. The source said that the talks were breaking down because Leo Varadkar and Michel Barnier were betting on a Brexit reversal through a second referendum. The source said the deal offered by Boris Johnson would not be revived. The government would accept its narrow duties under the Benn extension bill, but would seek to frustrate its intent. The aim is to go for an election with a promise to deliver a no-deal Brexit by a certain date. 

And then this - a chilling reference of hostile interference by EU member states in British politics. The square brackets are an indirect quote:

"We will make clear privately and publicly that countries which oppose delay will go the front of the queue for future cooperation — cooperation on things both within and outside EU competences. Those who support delay will go to the bottom of the queue. [This source also made clear that defence and security cooperation will inevitably be affected if the EU tries to keep Britain in against the will of its government]. Supporting delay will be seen by this government as hostile interference in domestic politics, and over half of the public will agree with us."

The Guardian has corroborated at least one aspect of that story. The talks are in the process of breaking down. The EU has given the UK a point-by-point rebuff of its proposals. The EU rejects the Stormont veto. We argued ourselves that this is the most unreasonable aspect of the proposal. But the EU also rejects the whole principle of a customs border inside Ireland. The flat-out rejection of a dual border will kill the negotiations. We think that a separation of the two borders could have constituted a reasonable starting point. Barnier’s team also argues that the UK government’s proposed fallback to no controls and no border checks would endanger the EU’s single market. Further issues for the EU are the proposed reform of the common transit convention - again with the same argument. The EU is also taking issue with the proposals on state aid, which would give Northern Irish companies potentially a competitive advantage. The UK would also have continued to enjoy access to EU databases even after the DUP vetoed alignment with the single market.

The Guardian writes that David Frost, the UK’s Brexit negotiator, is scheduled to stay in Brussels for further talks until Monday night. But it looks to us that we are entering gridlock.

We think the EU would be making a risky bet on early UK elections, and might be underestimating the sheer appetite in the UK not so much for Brexit itself but for the issue to be concluded. We are clearly now headed into that scenario.

The comments from Downing Street suggest that they still hold out some hope of an October 31 Brexit. But their main scenario seems to be shifting towards an extension followed by an election. This is also why we don’t think that the present legal cases in Scotland are all that relevant to the ultimate outcome. The fate of Brexit will be decided at the ballot box, not in the courts.

Our main scenario remains an early election, and an absolute majorities for the Tories or at least a Brexit-supporting majority in the House of Commons. We have always warned that a no-deal Brexit has a higher likelihood than widely assumed. But we are now ready to call a no-deal Brexit the single most probable outcome.

One possible action for the EU to take is to offer a long extension, say two or three years, which the present parliament might accept if confronted with the alternative of a no-deal Brexit on October 31. A long extension would give time for a second referendum. This is the scenario we fear the most because it would be construed by Brexiters as an outright hostile act. If such a decision were followed by an election, and a pro-Brexit majority in the House of Commons resulted, we would expect the UK to declare a unilateral withdrawal from the EU bypassing Article 50. That would be the Iron Curtain version of a no-deal Brexit.

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October 08, 2019

If you appoint a woman, I can appoint a man

FAZ informs us of an exchange involving Olaf Scholz and Roberto Gualtieri, the German finance minister and his Italian counterpart. Galtieri had nominated Fabio Panetta of the Bank of Italy as the successor to Benoît Coeuré. The European Parliament rejected Panetta on the grounds that there should be at least one female nominee in addition to Christine Lagarde, especially now that Sabine Lautenschläger is leaving. Scholz reportedly told Galtieri that Italy should drop Panetta and appoint one of the many talented female Italian economists - so that Germany can replace Lautenschläger with a man. We presume that Scholz wanted to reward one of is cronies with the job. The Italians stood firm, and it will be up to Scholz to nominate a woman - we presume either Claudia Buch or Isabel Schnabel.

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