EU Holds Emergency Meeting to Prepare for No-Deal Hard Brexit

After the EU rebuked Theresa May's Chequers proposal, the chance of a hard Brexit rose sharply. The EU is now preparing.

Neither article said much of anything beyond the title and subtitle.

Eurointelligence had much more interesting commentary.

As a no-deal Brexit emerges as a serious possibility on the political horizon, the EU-side is making no secret of ramping up its own contingency preparations.

The political difficulty here for the EU side is clear. Make the contingency planning for a hard Brexit too comprehensive and too conspicuous, and you feed into a dynamic where no-deal is established in the mind of the public as a workable option —and perhaps even as the best or only realistic one. This would then reduce the public appetite for politically difficult concessions necessary for a final deal.

Does Planning For No-Deal Make No-Deal More Likely?

Here are the pros and cons.

  1. If we plan for a no-deal we can diffuse all the "lurid stories about a break-down of air traffic, empty foodshelves in supermarkets and a shortage of essential medicines as a consequence of a crash-Brexit" that currently permeate the UK airwaves. This will take the wind out the fearmonger's sails.
  2. If we discuss the alleged disaster scenarios enough, both sides will work towards a deal to prevent those disaster. After all, government plans seldom achieve what they are supposed to.

Right now, argument number one seems to have the upper hand. If the EU will not budge, May can always wash her hands an moan at the stubbornness of the EU.

She might be able to give in on minor points, as might the EU, but the recent meeting in Salzburg where the EU thoroughly rebuked May's Chequers proposal shoved both sides into a corner will take a lot of time to heal, and the clock is ticking.

Let's return to Eurointelligence for possible ways out.

Two Ways Out of the Brexit Impasse

We keep hearing the phrase from commentators and politicians that there is no majority for a hard Brexit in the House of Commons. At the Labour party conference, Jeremy Corbyn underlined his opposition to such an outcome and promised to do whatever it takes to stop a hard Brexit. His preferred method is a general election. This is indeed one of two plausible outcomes. Labour would campaign in favour of a customs union agreement. In that case, Labour’s commitment to a referendum would end because it is contingent on no election being held.

Could there be a deal with Theresa May in power? A threat to call elections remains her strongest card. Under the Fixed Term Parliaments Act, the prime minister can no longer simply call elections when it pleases her, but has the power to initiate the process if she manages to get a two-thirds majority in the House of Commons. Her Chequers proposal is opposed by two factions in her own party - the proponent of a Canada deal and those in favour of a customs union and/or Efta/EEA membership. Both sides have the numbers to block any agreement.

The real political problem for May is the EU’s open hostility towards Chequers. It has unwittingly strengthened the position of the Brexiteers in their demand for a Canada-type deal. May is resisting this option for now because an FTA would necessarily trigger the Irish backstop and create a customs border inside the UK.

The Times reports this morning that there are reservations inside the cabinet about her strategy to confront the EU with a take-it-or-leave-it strategy and take this to the brink. The opposition comes from cabinet ministers who are in favour of a Canada deal. These ministers include Dominic Raab, Jeremy Hunt, Michael Gove and Sajid Javid - four of the five most important ministers.

Rudd said in an ITV interview yesterday that there are about 40 Tory MPs, herself included, willing to block a Canada-deal, which means it would not carry a majority in the parliament. But we note that her statement about a deal creating its own political dynamics also applies to her own position. If May were to conclude, at the end of the day, that a Canada deal is the only option to prevent a cliff-edge, and if she can secure some technical fudges on the border, then a re-branded Canada deal might be a way forward. To confuse everybody, it could be called Chequers-Plus.

Time Is About to Expire

The problem with all of these deals is not only do the Tories have to get their act together, The EU has to agree with it.

There may indeed be elections. And it would not take much to trigger them. But time will have expired.

The EU would extend the clock to work out minor details, but we are essentially taking about referendums and deals that even a new government might not be able to deliver on for months, at a minimum.

Irish Sword

The EU would not deal with May's proposal on Ireland. It demands a hard border. May's government only survives now because the DUP (Northern Ireland MPs) back her because May insists on no border.

For months, Eurointelligence expected a "fudge", a crafted statement that pushes the decision to a later time. With the hard rebuke in Salzburg, that chance may have flown out the window.

A Canada deal will require a hard border, or as Eurointelligence discusses a Chequers-Plus fudge arrangement.

Bottom Line

As long as the EU believes it will remain relatively unscathed (it won't), and as long as contingency plans are in place to stop complete silliness (e.g. no flights between the UK and mainland Europe), the odds of a hard Brexit will keep rising.

Planning for that will increase the odds.

There may be a "plan on the table" but no one seems to like it.

By the way, this is excellent news. The UK desperately needs to move away from the EU nannycrats. A hard brexit would allow the UK to cut its own trade deals, make its own corporate tax plans, and it would immediately stop sending billions of Euros to the common slush fund.

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Mike "Mish" Shedlock

Comments
No. 1-11
ML1
ML1

There can be a "hard border" that is completely open using smart customs procedures like large companies doing their customs at the factory inside UK with dedicated customs official assigned to the factory and middle-sized and small companies and individuals bringing over 500 pounds worth of stuff to UK doing customs with local customs officials in their own city in UK after first self-reporting through a website etc.

Keep the border between Ireland and Northern Ireland open with this smart customs procedure and giving individuals 500 pound customs free allowance. Just have some spot checks at the border and levy fines if someone has not self-reported. There will be some customs evasion but it will be much more cheaper than staying chained to EU.

Also Ireland is outside of Schengen like UK so there will be NO hordes of migrants coming through that open border because Ireland also checks everyones ID before letting them into Ireland.

Kinuachdrach
Kinuachdrach

What kind of trade deals will the Brits try to negotiate after separation from the EU ?

Since trade with the continental EU will certainly take a short-term hit, the immediate Brit negotiating position will be weak. And the whole Brexit debacle suggests that the UK Political Class are not good negotiators. It would be an interesting experiment if they adopted Mish's proposal for the US -- unilaterally eliminate all tariffs on imports. Then there would be no need for negotiations, and it would let the rest of the world see if the theory that this would make the Brits richer is borne out in practice.

There would be some related issues. Would the post-separation UK also have to remove non-tariff barriers, such as the "No Curved Bananas" rule? Would they have to allow unilateral free movement of people as well as unilateral free movement of goods?

RonJ
RonJ

It has been over 2 years since the British people chose Brexit. It goes to show why no European country should have agreed to be a part of the EU, in the first place.

Yancey_Ward
Yancey_Ward

They have to push to the brink of hard Brexit in order to force the calling of a new referendum, one the British government and their masters in Brussels will ensure is won by Remain. At that point, all these silly rules about how withdrawal can't be reversed will be magically waived and Britain remains in the EU. This has been the plan since June 2016.

Christian dk
Christian dk

So what are the odds of a hard brexit, and tumbling uk £..vs € .?

Well, on unibet, you can get 3 x your money, if the £ is equal or lower than the Euro on or before 30/3/2019 = the brexit exit date... great deal, currently at 1.12 € , so all it takes is a 12 % drop in the next 6 months.. hmmm - so gold/silver is actually paying interest as the £ drops against real money. I love those barbaric relics.....

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