The logic of no deal

We find ourselves in interesting times with the epic failure of Teresa Mays rightly derided deal. The government is unable to get this deal through the House of Commons and has been forced to reach out to Labour to find common ground and get a deal over the line.

This is actually a trap to push Labour into accepting responsibility for a bad or no deal. The irony being that due to the nature of EU law the only part that is legally binding is the Withdrawal agreement (WA) treaty whereas the Political declaration (PD) is non-binding and largely irrelevant. So everyone is running around trying to change something that can and will be changed soon anyway. All roads in my mind now point to an election regardless if the WA is passed or not.

There is no way that this government will survive until 2022 or even the summer.

Putting that all to one side what are the options facing the UK and EU and what are the advantages and disadvantages to them both long and short term.

There are three potential outcomes regardless of any extensions, referendums or elections.

Revoke

The UK could unilaterally revoke Article 50 as confirmed by the European Court of Justice in a ruling in December 2018 (Link) – this is the nuclear option. Currently I do not see a likelihood of this, but things are moving at a rapid rate.

This would deal with the short-term problems of Brexit with the UK remaining a member of the EU.

Medium to longer term though it becomes more damaging for both the UK and the EU with 50% of the population now hardened Eurosceptics (A lot now genuinely really hate the EU) whom would likely elect greater numbers Eurosceptic MEPs which would join the likely swelling ranks from other countries elected in the forthcoming European Parliament (EP) elections (Link). This would be a massive headache of the EU making business even more difficult to conduct.

Beyond that any UK political party that wants to get elected is going to find it needs to run on at least a partial Eurosceptic message due to the way that constituencies are distributed. This means that the UK government would likely be unable to agree to much in Brussels. The UK also now has a constitutional break written into law meaning a referendum would have to be held for any treaty change. This is a problem as the Eurozone desperately needs root and branch reform and this would require the treaties to be reopened if it ever happens. 

Withdrawal agreement

The UK signs the WA and moves towards stage two which is the trade negotiations.

This government is going to fall in the next few months and so we will have an election. There is a high likelihood both major parties will be punished in this election due to their behavior and there will be a surge in voters either plumping for Eurosceptic parties or not voting.

This will be especially noticeable within the North and Conservative shires making both Labour and the Tories nervous. This will demonstrate the difficulty of winning an election without leave voters due to constituency boundaries and the fact that most remain voters are concentrated in the major cities and university towns.

In my opinion the next election will also return a very close / hung parliament potentially even a minority government which will make talks difficult (Link). This will become especially true as the EU due to hubris will start piling up demands that no UK government can accept. These will revolve around Northern Ireland (NI), fishing and Gibraltar (Link).

There is a high likelihood that this will lead to an abrogation crisis in a few years (Link). There is no way that this could happen without economic and security ties being affected and smarter people in the European Union have started to realise this.

No deal

Though no side wants this it is probably the best option.

It would create a clean break - the UK is out, and we will not be impacting the EU internally as it struggles with populism and its many other splits. The EU is now desperate for us not to stay for the EP elections for this very reason.

From the UK perspective it would force the country to move on from the referendum and push the conversation to what relationship we do want with the EU. This creates a form of stability for the UK as we have left – no going back without much negotiation and certainly not in the short to medium term.

In a no deal environment both parties would be pushed to sustain trading and security ties due to the volume of treaties and agreements which would need to be ratified. There are some who argue based on the European Commission’s (EC) communications that in the event of no deal the EU will force a WA treaty on the UK before trade talks. I find this unlikely as member states would be confronting the economic and security damage from the UK’s departure and the impact on their own electorate.  

The short-term outcome in my opinion would be a bare bones FTA / other agreements to keep trade and security locked down with the EU stating clearly that a more complex FTA possibly covering services would be conditional on a resolution for NI. It is worth noting that Ireland has a veto on all trade treaties anyway.

Conclusion
Being honest I find the likelihood of a no deal Brexit extremely low due to the level of trust within the EU and between the UK and EU. It would require diplomatic engagement which has long since disappeared and require leadership from member states who have abjectly failed to step up and engage.

It would need this high-level engagement to ensure that stand still arrangements were activated on time and that the EC which has set the clear objective of punishing the UK to be put on a short leash whilst the Council of ministers dealt with it. Failure to do so could generate some short-term pain on both sides of the channel but especially within the Eurozone due to the fragility of its economy and banking sector (Link).

To my mind we find ourselves in a classic prisoner’s dilemma with many on both sides realizing that no deal would generate the best medium / long term outcome but lacking the political will and or belief that the other will also move in the same direction.

Hence we are likely to get a far more unstable conclusion which will impact economic, political and security ties just as the world economy begins tipping over into a recession.  

Depressing.