brexit

Brexit update (POTMR)

Boris Johnson is planning to force a new Brexit deal through parliament in just 10 days — including holding late-night and weekend sittings — in a further sign of Downing Street’s determination to negotiate an orderly exit from the EU. According to Number 10 officials, Mr Johnson’s team has drawn up detailed plans under which the prime minister would secure a deal with the EU at a Brussels summit on October 17-18, before pushing the new withdrawal deal through parliament at breakneck speed.

The pound rose 1.1 per cent against the US dollar to $1.247 on Friday amid growing optimism that Mr Johnson has now decisively shifted away from the prospect of a no-deal exit and is focused on a compromise largely based on Theresa May’s withdrawal agreement.

That is new from the FT, here is part of my Brexit post from August 29:

I would sooner think that Boris Johnson wishes to see through a relabeled version of the Teresa May deal, perhaps with an extra concession from the EU tacked on.  His dramatic precommitment raises the costs to the Tories of not supporting such a deal, and it also may induce slight additional EU concessions.  The narrower time window forces the recalcitrants who would not sign the May deal to get their act together and fall into line, more or less now.

Uncertainty is high, but the smart money says the Parliamentary suspension is more of a stage play, and a move toward an actual deal, than a leap to authoritarian government.

This remains very much an open question, but if you “solve for the equilibrium,” that is indeed what you get.

Brexit day has come and gone

I must have read two hundred tweets about how dysfunctional the British government is, or what a bad leader Theresa May has been.  Really?  That has yet to be demonstrated.  I’ve all along been “vote Remain,” but I also recognize Remain works only if British membership in the EU has a certain amount of internal legitimacy.

What might a process of testing that legitimacy look like?  Long, extended confusion, lots of back and forth, indecisiveness, and inability to form a durable majority for any other option, perhaps?

Right now the chances of Remain seem to be rising, or perhaps some version of Norway plus, and those are among the better options.  I am hardly distraught, noting that I genuinely do not have a strong sense of what will happen next.  I am pleased to see that not one of the seven versions of Brexit could command a majority.

Is it really so tragic and terrible to have all this — whatever comes to pass — revealed only at the last moment?  Isn’t that often how optimal search looks?  Isn’t it how the “to Remainers all-holy EU” so often does its business?  Alternatively, how smooth, open, and transparent did the American constitutional convention actually run?

I’m not predicting triumph or victory here, only that I don’t yet see that anything has fallen off the rails.  Nor is the British pound being hammered in the markets.  Nor do I know many (any?) people who could have done much better than Theresa May.

But now is the time to pay more attention again, these are the proverbial last five minutes of the basketball game…

How bad would a hard Brexit really be?

This account has some gloomy rhetoric, but doesn’t drum up such an awful scenario, for instance:

Among the little-noticed impacts: U.K. citizens and businesses will no longer be able to register internet sites using the .eu domain, and any U.K. entities that currently have such sites will not be able to renew them.

As mentioned, no doubt British truckers would be badly hurt, but what else?  This sounds correct to me:

Custom delays could create food shortages. The U.K. is vulnerable because an extreme heat wave and summer drought caused by global warming have already reduced food output.

Tariffs would be reimposed. They are as high as 74 percent for tobacco, 22 percent for orange juice, and 10 percent for automobiles. That would hurt exporters. Some of that pain would be offset by a weaker pound.

Tariffs would increase prices of imports into the U.K. One-third of its food comes from the EU. Higher import prices would create inflation and lower the standard of living for U.K. residents.

Is this the biggest danger?:

Health Secretary Matt Hancock has warned medical drug companies to expect six months of “significantly reduced access” to the main trade routes between Britain and Continental Europe if there is a no-deal Brexit.

This one seems exaggerated:

“Bodies may remain uncollected and children might miss exams due to gridlocked roads in the event of a no-deal Brexit”, the report said.

So people, what’s the deal?  Put aside the longer and medium-term effects on gdp and the like, what are the greatest short-run dangers of a hard Brexit in the weeks to come?  Or is it a big, overstated worry, the new Y2K?

What Europeans Talk about when They Talk about Brexit

I am tempted to call this long piece on a boring subject the best I have read in 2019, but you know I think that might remain true by the end of the year.  Here is an excerpt from the Belgium section:

I was in Brussels recently, taking my son to watch Anderlecht play, when I heard some English people in a café asking the waiter why no one liked the English. They were nice people asking a genuine question, but often it’s the wrong people who ask the right questions. The waiter replied, politely and in perfect English: ‘We can read your newspapers and watch your television; we hear what your politicians and your journalists say about us.’ That summed it up: all this time we Brits thought we were talking to ourselves, and we were, but everyone else was listening in. Belgians are not surprised by Brexit: it’s just the coagulation as policy of what’s been flowing as attitude for decades.

Or Denmark:

The leftish Information provides the most useful articles. One has a headline in English, though anchored in the land of Elsinore: ‘To Be or Not to Be, That Is Not the Question’. The real ‘question’ doesn’t concern the merits of Leave or Remain, but the complexities of a twin crisis, in both the UK and the EU. Another piece, published shortly after the referendum, describes the division of a nation into Leavers and Remainers as afgrundsdyb. Meaning ‘abyssal’, the term, I am told, hints at the unfathomable as well as the unbridgeable, while evoking something that is certainly dangerous to approach.

I enjoyed this line:

Croatia has more experience than most of entering and exiting alliances.

From the Germany section:

‘Brexit shows that the Brussels bureaucracy, that alleged monster that employs no more civil servants than a central German city administration, has done a great job. The extent of interconnectedness at all levels has to be renegotiated: supply chains, industry standards, food and pharmaceutical standards, security architectures, rural and air transport structures, fishing rights, research collaborations, student exchanges, a vast frictionlessness system is now in jeopardy’ (Gustav Seibt, Süddeutsche Zeitung).

This I had not known:

…in Norway the conservative right is overwhelmingly in favour of joining the EU.

And finally:

Being a Brit in Sweden can be embarrassing just now. We’re one of the Swedes’ favourite peoples, admired for our history and culture, and loved for Engelskt humor. Shocked they may be; but a diet of Monty Python and Fawlty Towers means that Swedes are not altogether surprised.

The authors are numerous, the whole piece was published in The London Review of Books, definitely recommended.  I would note that “what group X really thinks of Y” remains an under-exploited genre in journalism, and elsewhere, and it is one of the best ways of learning about a topic.

The Brexit equilibrium

Theresa May has survived, but enough Tories have credibly indicated they won’t support her Brexit plan at least not yet.  She doesn’t want Hard Brexit and doesn’t hate Remain, if the latter can be done sustainably.  She could threaten those Tories with a new election or with a second referendum.  If I were her, I would prefer the latter, as who would want to bring Jeremy Corbyn into the picture?  Nonetheless I don’t think she favors a second referendum per se (too hard to control and manage, no matter what the result).  The threat of a second referendum will be brought to the table, and that means some chance it will happen.  Right now the second referendum contract is selling at 36 cents on the dollar.  That seems correctly priced to me, with the more likely outcome being that enough Conservative MPs fall into line and Theresa May gets her way, more or less.

Why Brexit is so important

In this dilemma, I think of U.K. citizens as a kind of stand-in for the human race. Per capita income and education in the U.K. are well above the global average and, more important, Great Britain has one of the most firmly established democratic traditions in the world. So if the U.K. cannot get this decision right, it’s pretty gloomy news for all of us. I am reminded of the scene in Ingmar Bergman’s “The Seventh Seal,” where the traveling knight has to play a game of chess against the figure of Death, and his life will be spared if he wins…

Paul Krugman opined recently that Brexit would likely cost the U.K. about 2 percent of GDP, a fair estimate in my view. But that is not the only thing at stake here. Humanity is on trial — more specifically, its collective decision-making capacity — and it is the U.K. standing in the dock.

I’ll be glued to my seat, watching.

Recommended!  Here is the full column.

Preference for realistic art predicts support for Brexit

Here is part of the abstract from Noah Carl, Lindsay Richards, and Anthony Heath:

Controlling for a range of personal characteristics, we found that respondents who preferred all four realistic paintings were 15–20 percentage points more likely to support Leave than those who preferred zero or one realistic paintings. This effect was comparable to the difference in support between those with a degree and those with no education, and was robust to controlling for the respondent’s party identity.

Via the excellent Kevin Lewis.

Let the boy Brexit!

Pope Francis has been praying for the British toddler Alfie Evans — and the Italian government has granted the child Italian citizenship and lined up a transportation plan that could swiftly bring the sick little boy to a Vatican hospital.

But Alfie’s doctors say he cannot be healed, and shouldn’t make the trip at all.

On Tuesday, according to lawyers representing Alfie’s family, a British judge sided with the doctors, saying that the family cannot accept the offer to take Alfie to the Vatican for treatment.

Here is the full story.  The boy’s situation is dire, but he has not even received a definitive diagnosis from the British doctors.

What is up with the new Brexit deal?

Most of the Tories are happy they found a semi-workable version of the deal.  They pay a big divorce bill to the EU, have a long transition period, opt for “regulatory standardization with the EU” for the whole UK, as enforced by the need to avoid a hard border in Ireland, and over the longer term end up with a customs union and free trade agreement of Norway-like nature.

In other words, they pay a lot of money, lose a seat at the table, and don’t significantly increase the policy autonomy of the country.  In the subsequent bargaining over the details, the EU still holds most of the cards.  Here are a few observations:

1. This represents an almost complete “fold” of the pro-Brexit stance, though like so many other political issues of the Anglo-American day it has become more about exerting one’s will over the opposition than achieving a very particular exit path or even outcome.  One group in British society has won quite a major victory in symbolic terms, namely it has been shown that the country has agreed to leave.

2. At this point, the chance of Brexit being reversed in the short term is very slim.  The anti-Brexit forces know that if this deal falls apart, they could end up with something much worse.  That said, the chances of a medium-term reversal may be higher.  Come the next election, it will still feel as if the UK is in the EU.  The transition period could be extended, and then extended again.  And then…

3. With the current deal, assuming it sticks, the chance of the UK itself unraveling is small.

4. The remaining pro-Brexit case is simply that the UK has limited its entanglement with the EU legal system and a possible future of full federal union.  That’s worth something, but still I am pro-Remain.

5. Real estate in Northern Ireland remains significantly undervalued.

6. the EU really has shown it has a fairly strong and indivisible commitment to the “Four Freedoms,” on migration much more than I would have expected.  You can debate whether this makes the rest of the union more or less stable over the longer term, but for sure it does one of those two things.

Here is a good piece on the Irish border issues.

London’s Uber ban is a big Brexit mistake

That is the title given to my latest Bloomberg column.  Excerpt:

The new Britain appears to be a nationalistic, job-protecting, quasi-mercantilist entity, as evidenced by the desire to preserve the work and pay of London’s traditional cabbies. That’s hardly the right signal to send to a world considering new trade deals or possibly foreign investment in the U.K. Uber, of course, is an American company, and it did sink capital into setting up in London — and its reputational capital is on the line in what is still Europe’s most economically important city. This kind of slap in the face won’t exactly encourage other market entrants, including in the dynamic tech sector that London so desperately seeking.

I should note that I prefer London cabs, because of their higher quality service, noting that the people most hurt by this ban are from lower-income groups.

The two Irelands have ties Brexit cannot destroy

That is the title of my latest Bloomberg column, here is one bit from it:

…the U.K. seems to be in a crisis of ideas, as outlined by Michael Moran in his recent “The End of British Politics?”. He points out that the earlier Protestant, imperial and social democratic rationalizations for the political union largely have fallen away. Scottish separatism — now very much back on the agenda — is one manifestation of this problem. In such a setting, it’s possible to imagine a slightly different legal status for Northern Ireland, where the border check — if there is to be one — is done for flights to London rather than for ground transport to the Republic of Ireland, such as on the ground in Donegal County.

I don’t expect full union anytime soon, as I explain in the piece, but here is the closing tag line:

I’m seeing a world where the past is emerging as stronger than we had thought, and where nationalism has arguably been the most influential idea since the 17th century. That probably means the two Irelands still have some surprises in store for us.

Do read the whole thing.  And now there is talk of a Northern Irish referendum.

I wish to thank Ray Lopez for the pointer to Moran.

Why did the British economy do OK after Brexit?

One argument is “the higher trade barriers haven’t kicked in yet.”  Another is “the decline in the value of sterling shows the British people already have taken big wealth losses.”  Another approach focuses on consumption, Chris Giles at the FT has some good insights:

…rather than rising, household savings fell throughout 2016. The savings ratio dropped to an exceptionally low level in the third quarter as consumers went on a borrowing and spending binge not seen since before the financial crisis.

The interesting question is why households acted in this way. There are three plausible reasons. First, households correctly thought Brexit would improve their personal finances and borrowed and spent accordingly. Second, they were deceived into expecting economic gains from Brexit and still went out to spend. And, third, households watched sterling tumble, understood the likely effect on prices and brought forward their consumption, so they were spending in the knowledge their money would buy less in future.

Economic analysis allows us to set out these possibilities; it tells us only the last of the three options is sustainable; but it does not yet inform us which is correct.

By the end of 2017, we will know whether historically low levels of saving have persisted through the year, and this will provide a pretty good answer to the question of why spending held up so well after the EU referendum. If spending was merely brought forward, there will be a nasty jolt in the economy.

Here are some figures for consumer credit.  Do stay tuned…

The long-term consequences of Brexit

Britain’s service sector will see its exports drop up to 60 per cent after leaving the European single market, even with a free-trade agreement with the EU in place, according to research from a leading think-tank.

A new study from the National Institute of Economic and Social Research, to be published on Wednesday, says that signing a free-trade agreement with the EU will not recoup any loss in services exports, but would reduce the long-term fall in goods exports from between 58-65 per cent to between 35-44 per cent.

…In theory, the falls in exports could be reduced if Britain managed to sign a deep bilateral agreement with the EU, including good coverage of the services sector. But Monique Ebell, the author of the report, said: “The average FTA for services at the moment is not very comprehensive and tends not to do very much.”

In 2014, 40 per cent of Britain’s services trade, and 56 per cent of its goods trade, was with other European Economic Area members, meaning that the overall fall in British exports would be 24 per cent for services and 20-25 per cent for goods.

That is from Alan Beattie at the FT.

The best argument for Brexit so far

The plummeting pound is threatening UK households’ supplies of Ben & Jerry’s ice cream and Marmite spread, as Tesco, the country’s biggest supermarket, pulled dozens of products from sale online in a row over who should bear the cost of the weakening currency.

Unilever has demanded steep price increases to offset the higher cost of imported commodities, which are priced in euros and dollars, according to executives at multiple supermarket groups.

But Tesco signalled it would fight the rises, removing Unilever products from its website and warning that some of the items could disappear from shelves if the dispute dragged on. Other supermarkets have warned that they could follow suit.

Here is the full FT story.

Good Brexit sentences

The liberal Brexiters have been a bit quiet in the last few weeks.

That is from Duncan Robinson.  Of course that is a response to Theresa May’s announcement that formal Brexit talks will start this spring (NYT).  If true, that is likely to mean “hard Brexit” with no free trade treaty with the EU, no Norwegian or Swiss status, no nothing, Brexit and nothing but Brexit is Brexit is Brexit is Brexit.  I’m still hoping that a raising of the stakes leads to a different outcome, but at this point I’m not counting on it.

In the meantime, those who suggested Brexit would give the UK the best of both worlds don’t seem to have called this one very well.