Brexit after the deal

The Brexit deal takes all its flavor by looking at the situation in Northern Ireland. It will be in the United Kingdom and the single market. The UK will therefore have a border with one of its provinces and Northern Ireland will be in a customs union with the EU. Let’s not doubt that UK products or products going through the UK will not find it very difficult to end up in the single market.

Once again the British get what they want and have an exorbitant power over the European law. The Europeans accept this situation with a smile. Since 1973, discussions and negotiations between the EU and the the UK are usually in favor of the UK. With this deal this also the case. What a scandal. How, under these conditions, can we, one day, imagine a political Europe that does not disintegrate when the pressure is rising?

The deal must now go before the British Parliament. The Conservatives do not have the majority, as this balance of strength of Parliament shows.

Referendum is the ultimate weapon for the UK

The UK House of Commons does not want Brexit, and on three occasions, it voted down the deal that Theresa May’s government negotiated with the European Union, which would have eased the country out of the bloc gently. However, MPs do not want a hasty no-deal exit either, and have also rejected Boris Johnson’s plans for leaving the European Union on October 31 do or die. 

However, MPs feel that there is not enough time left now before this date to come to a fresh exit agreement, different from Theresa May’s deal. So the deadline for leaving the European Union could now be pushed back to January 30, 2020, which according to Parliament, would be a better date for the UK to exit the EU with the agreement of the remaining 27.

It is worth raising several points on this issue:
1 – What has happened since the initial March 29 exit date to put MPs in this hasty situation less than two months from the new deadline? 
The quest for political balance right throughout the lengthy process to appoint a new prime minister ground all new initiatives to a halt and dwindled the chances of considering new options. The two months between Theresa May’s resignation on May 24 and BoJo’s appointment on July 24 were wasted time and took up a huge chunk of the extension granted by the EU.
2 – An extension beyond October 31 is only possible if the EU agrees. EU countrieswill be meeting on October 17 and 18 to discuss Brexit. Dissenters have already made their views known, with the French president, Spain and some others already expressing their frustration at the extension to October 31. As recently as September 5, Amélie de Montchalin, French Secretary of State for European affairs, again referred to a likely no-deal Brexit on October 31, soEurope could well take the wind out of British MPs’ sails. 
3 – At the European summit on April 10, the different countries did not seem to be united on the issue of the extension. So it would be preferable for the next summit in October to be able to set aside this issue, as the various member countries need to show a united front on October 17 and 18.
4 – It may be in Europe’s best interests to swiftly cut ties. The Brexit issue is at the forefront of everyone’s minds, it creates uncertainty and delays the potential economic impacts that could be felt depending on the final exit scenario. Europe needs to get this matter cleared up quickly. 
5 – The British economy is also hampered by this situation. The country’s growth is now much lower than the pace across the other G7 countries and corporate investment is 11% lower than it could have been without a referendum, so the price is high. 
6 – Boris Johnson has lost and his coup has failed. Parliament will not support him and in an ultimate humiliation, he cannot call an early election for October 15 just ahead of the crucial end-October deadline either (he will ask Parliament to call an election during the next sitting on Monday 9, but he will not win a two-thirds majority if the election date is too soon). From a London perspective, there can be no Brexit on October 31, whatever happens. 
BoJo no longer has a parliamentary majority after Phillip Lee’s defection and the 21 Conservative rebels had the whip withdrawn, so the whole system is now in deadlock.

It looks like there is no possible outcome for this political chaos. BoJo’s resignation may look like a potential solution, but there is the question of his successor and the time required to appoint him or her, so this would be a risky move given the state of the party and its shaky situation in the House of Commons. 
The whole situation needs a fresh start and this will probably involve a general election at a date beyond October 15 (the next general election in the UK must take place by May 5, 2022). 
However there is a risk that no party will win a majority: thiswill call to mind the latest election that Theresa May called on June 8, 2017, when she only managed to scrape together a majority with the support of a small group of MPs from the Northern Irish Democratic Unionist Party.
Achieving a clear majority looks like mission impossible in light of the sea change in British right-wing politics after recent events – both within the Conservative party and as a result of competition from Nigel Farage – as well as the rising influence of the Lib Dems, and wariness of Labour leader Corbyn, who wants to nationalize at any cost. The swift election that Johnson wanted would have forced each candidate to clearly state their remain or leave position. This would admittedly make the whole situation much easier for any new prime minister, but this majority would be Brexit-based and would only last a short time. Any elections taking place well after the October 31 date would raise different questions, although this would not make it any easier to establish a clear majority and choose a prime minister. The fundamental questions raised during the June 2016 referendum will not just fade away into the political background.
Against this backdrop and with no decisive majority to make a clear decision, it is in Europe’s interests to put paid to any further extension. In other words, political chaos would not be resolved by a general election, but rather a hard Brexit scenario would then be on the cards.

To eliminate all doubt, and in light of the government’s and MPs’ inability to come to an agreement that no-one wants anyway, a fresh referendum is needed. This time no-one can say they were unaware after the first vote on June 23, 2016. At the time, the UK voted 51.89% to leave the European Union. Now it is up to them to confirm their decision …or not. They must now take their future into their own hands, because the government and Parliament have failed to do so. 

Posted in French: 5 September 2019

BoJo and the general elections

This is a spectacular moment. BoJo has lost tonight and the final decision will be taken tomorrow as the Parliament will vote  for the possibility for it to take the lead in the negotiation in order to avoid a no deal Brexit. 
Then BoJo will convene general elections. 
Then we may have what everybody asks since the first referendum: a confirmation of the Brexit or not. 
That’s may be the best move to clarify the political situation as the vote at the general election will again be remain vs brexit. No one will no longer be able to say “we didn’t know”. 
The result is still random even if polls bend on Johnson’s side. 
The general elections results will definitely give the answer. Will the UK remain in the EU or will they exit. An exit vote would probably mean a no deal brexit. 
Therefore the pound will improve in coming hours but will follow polls’ results after BoJo convenes general elections. A poll in favor of Brexit will probably weaken the pound and conversely a stronger pound when polls are in favor of the remain side. The equity market will follow the same momentum. The point is that everyone will know that these elections will definitely close the referendum file. The huge uncertainty will be on the side the coin will fall. We can expect huge uncertainty and volatility if polls have the same volatility than before the referendum. Because investors know that this is the second chance. 
 This can be a source of a kind of sudden stop on the economic activity as no one will take strong bets on the future. 

British procrastination – a postponement will not guarantee an agreement

Theresa May is in Berlin and Paris to request a new deadline. It’s a safe bet that she will get some time. The date discussed is December 31, 2019. It is a little less than what Donald Tusk was talking about, who was ready to go up to a year.

As no one knows the possible consequences of a lack of agreement, no leader will take the risk of being the one who could trigger the possible apocalypse.

Business leaders are making arrangements to manage the possibility of a Brexit but none wants a disruption that would have a negative impact on their business.

This procrastination has a cost. This is true for the English who, if they had not stored heavily, would have been in a recession for the last two quarters. This is the case of the European Union too. Any meeting with employees, clients, bankers or industrialists gives pride of place to the concerns about Brexit. Let’s not doubt that this uncertainty affects behavior and also penalizes the growth of the EU. We are thus in a war of attrition, looking for who will exit first. This may be the worst solution because costs will accumulate on both sides of the Channel.

Because, let us be clear, an additional period does not mean an agreement on the British side on the scheduled date. British are in the EU for an extended period.

Euro area growth projections downgraded, and policy mix still restrictive – My weekly column

The OECD and the ECB have downgraded their 2019 growth projections for the euro area in quick succession, with the OECD now expecting 1% for the year ahead vs. 1.8% previously, and the European Central Bank projecting 1.1% vs. 1.7% in December, putting euro area growth below its potential pace.
The main reason for this rapid slowdown of the activity lies in the rapid deceleration of world trade, particularly in its Asian component. The White House policy is a key explanation of this trend change. This external shock profoundly modifies the equilibrium of the euro zone economy.

The OECD believes that the economy in the bloc has now become a source of concern for the world economy as a whole. Beyond the euro area’s actual situation, a slowdown in the zone along with a sharp and swift downgrade to growth projections for 2019 also make for a shock on world growth. The area is a major contributor to world trade momentum, so a drastic slowdown is an additional source of concern for the world economy.
It is worrying that the euro area is so large, but yet it is still at the mercy of international events with little capacity to react to them clearly. It was buoyed by strengthening trade in 2017 but was dented by the recent negative shock, and its inability to absorb these tremors is alarming for the world as a whole and not just the European economy.

This situation reflects the fact that the area has become more and more open to outside influences, while for example the United States’ exposure to trade with the rest of the world has remained steady over time. Germany plays a major role in this trend, as shown by the chart, while Italy and France are similar in terms of how open their economies are to trade with outside countries

The most surprising aspect during the current downgrades to growth projections is that this swift drop reflects the dearth of economic policy to cushion the shock.

The policy mix – i.e. the way fiscal policy and monetary policy work together – is restrictive. Financial conditions are admittedly encouraging as a result of the ECB’s accommodation, but fiscal policy has been restrictive for too long and is not propping up economic activity, meaning that the shock from the world economy is in no way cushioned by euro area economic policy.

The chart shows the primary budget balance (excluding interest payments) adjusted for the economic cycle and expressed as a % of potential GDP. This figure is an indication of how restrictive fiscal policy is, and in the euro area the balance is positive, pointing to restrictive policy.

For the British, the hardest starts.

The main consequence of Tuesday’s British parliamentary vote is that Theresa May is now out of the game. The power is now in parliament and the European Commission.

The vote tonight (Wednesday) is about whether or not to choose a no deal. If the no deal is chosen by the parliamentarians then the British will leave without EU agreement on March 29th.

If the no deal is not voted, a third vote will be held Thursday on the possibility of a postponement of the exit date. But if May discusses this point with the European Commission it is this one that will accept or not this postponement. As suggested by the spokesperson of the commission, such a extension will only make sense if it allows a progress and a change of perspective.

A 3 months postponement, a delay often mentioned, is probably useless. Theresa May will remain prime minister but she has already exhausted all her resources.

The no deal is gaining ground every day.

The worst for the British would be a resignation from May and the call for general elections. The risk would be an institutional mayhem since a majority would be difficult to find and a prime minister too. A second referendum may take place only at this stage. It will take a long time and may add a supplementary mayhem.

For the British, the hardest starts.