Issue 188: 2019 02 07: No Deal

07 February 2019

No Deal

The risk to the EU.

By John Watson

They are difficult times indeed.  German growth was down to 1.5% in 2018; Italy is on the edge of recession.  And is it all because of the possibility of a no-deal Brexit?  Of course not.  The weakness of the global economy is a far far bigger factor but, for all that, a no deal Brexit would be another straw on the back of the EU’s woes.  Not as big a downside as for us, of course, but that is hardly a consolation to those responsible for keeping the EU show on the road.

Just as we in the UK look at the Brexit negotiations with British eyes – will we lose important businesses? Will our workers be unemployed? – so the Eurocrats see things from their perspective.  Could a no deal Brexit damage their economy?  What would economic pressure do to the emerging far right?  How will it affect this year’s European elections?

When Mrs May’s deal was announced, there was talk of the European negotiators being cock-a-hoop.  They had exploited the strength of their position to extort a backstop which would leave Britain with very limited sanctions if no satisfactory deal for a future trading arrangement could be reached.  That doesn’t necessarily mean that they expected to shaft us in those negotiations.  They probably meant what they said about remaining friends, but it was nice to know that they could not be forced into compromises they did not like.  Under the new arrangement Britain would not be able to walk away, deft use of the Irish card had seen to that.

It turned out that the opening of the champagne was premature.  Mrs May could not get her deal through the House.  Now it was not just necessary to satisfy the cabinet.  The proposals needed to be approved by the House of Commons, a febrile political body driven by pressures quite different from those driving the Government.  For the first time a no-deal exit looked possible.

No one knows how this will play out as the two camps put down their cards like poker players in some Las Vegas casino.  Will one side lose its nerve and back off?  Politically almost impossible.  Will there be a fudge? Likely.  Will we end up with the no deal scenario?  Perfectly possible.  Still, as we await the outcome it is worth thinking about how it all looks from the EU side.  What are the nightmares which surround them when they are alone in their beds?

For many economists it will be GDP of course and no doubt that is a worry.  For the more thoughtful however there is something much more dangerous, that the social effects on the UK of a no deal exit infect the EU itself.  To test this let us assume two things.  The first is that there is a no deal exit.  The second – which might or might not follow, but we are talking an assumption not a prediction here – is that it leads to widespread poverty in the UK with people going hungry and the NHS in a state of collapse.  What would happens then?  There would be a period of blame storming, of course.  Some would blame May; some would blame Corbyn; Gove, Johnson, Hammond, MacDonnell, Starmer, they would each come in for their share and the current leadership of the parliamentary parties would be seen as having failed.  So too would trade unions.  New leadership would no doubt emerge, probably populist and nationalistic in nature.

What affect would this have on the EU?  Would it be able to ignore it as now being “someone else’s problem” or would it find its own politics undermined?  It is not looking particularly robust at the moment, with anxiety about the elections this year, trouble with its eastern members about immigration and the economies of its southern states still suffering from the strength of the Euro.  How would it react to a populist nationalist government on its Western flank?

Political movements are no respecters of national boundaries.  The revolutionary movement whose flames the French fanned in America in the eighteenth century came back to their own shores some 14 years later.  The wars of religion spread right across Europe.  Populism is evident everywhere today.  Technology means that ideas travel faster than they used to, but they have always been hard to exclude.  Walls don’t work and neither do ditches.  A political fire which began in the UK could easily devour our European neighbours.

That must be the worry which keeps some of the EUs leaders awake and of course it may all be wrong.  Even if there is a hard exit, the damage may turn out to be politically containable.  Perhaps any political repercussions would remain on our side of the channel.  But you really cannot be sure and those who rule in Brussels tend to be risk-averse by nature.

All parties have quite a lot to fear from a no deal exit.

 

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