Gilles Moëc, chief economist at Axa Group | Our key assumption is that Boris Johnson wants a deal, just a different one. That is in itself complex, but not yet impossible to achieve and get passed. If he is reconciled with the possibility of no deal, then the outlook is much grimmer. At this stage we want to believe that rhetorics should not be taken at face value. It is a close call. It has been our long-standing view that any resolution on Brexit is likely to entail elections – with the uncertainty it entails. We think the latest events have raised this probability.
Boris Johnson is well versed in the classics, which he read at Oxford. He usually mentions Pericles as his favourite historical character. It is thus only right we draw attention to the parallels between the current episode of the Brexit drama and Greek history, both ancient and modern.
Let us start with modern history. This week the British Prime Minister chose to “suspend parliament” to reduce (but not altogether eliminate) the capacity of those who will oppose a “no deal” to force him to request from the European Union (EU) another extension (“no deal Brexit” is the default outcome if nothing changes by 31 October). This has some domestic implications – more on this in a moment – but we suspect this is primarily a ploy to convince the EU negotiators that he “means business” and that they should not count on the British parliament to alter the Prime Minister’s stance. In the British administration’s view, this would normally make the EU more amenable to concessions.
This reminds us a lot of the referendum Alexis Tsipras won in July 2015 rejecting the “bailout” conditions offered by the EU. The idea was that the Europeans would understand Athens “meant business”. Actually, two weeks after the referendum and coming close to a euro exit, the Greek government had to accept the terms of the bailout.
Now, the UK is not Greece. The ramifications of a “no deal” Brexit for the EU economy would be more profound than those of a Grexit which, by 2015, had become much more manageable. Besides, Europe is facing so many headwinds at the moment – with real prospects of a recession in Germany – that some “peace and quiet” on the Brexit front would be more than welcome. Still, it is unlikely that the EU would be ready to move very far away from the key tenets of the withdrawal agreement negotiated with the previous Prime Minister. These are matters of principle for the EU, and in any case the fundamental imbalance has not changed: no deal Brexit would be an annoyance for the EU. It would be a catastrophe for the UK.
Maybe some progress could be made on the “backstop” – the principle according to which the UK would de facto remain in regulatory and tariff alignment with the EU on goods, to ensure no border controls in Ireland. There has been a flurry of ideas to find alternative solutions – such as the “mutual enforcement” proposal by constitutional experts in the Verfassungsblog. Most of these last minutes ideas look quite sketchy, but there might be enough sense of emergency now for all the parts to the negotiation to agree on a “fudge” right now, the technical details postponed to some soft deadline during the transition period which comes after a deal.
An issue though is that such a “fudge” – which is by no means guaranteed – may not even be enough for the hardliners in the tory party to accept a “reformed deal”. This is where the parallel with Greek ancient history comes in. Boris Johnson reportedly knick-named those “ultra-Brexiters” who actively favour a no deal the “Spartans”. The press was reporting earlier this week that he would “see them down” and would not demand more from the EU were the council to accept a change to the “backstop”. But then he may not have the numbers in parliament to get the deal through. Boris Johnson certainly remembers that in the end, the Spartans won and Athens was defeated.
The only “narrow way” for Johnson would thus either to “terrify” enough “remainers” to support a deal to offset the “Spartans”, or alternatively to precipitate early elections which could return a wider majority for Johnson, making him less dependent on the “Spartans” (and the Northern Irish unionists). This is how we understand the domestic objectives of the “suspension of parliament”.
The remainers have until September 9th to find a majority to force the executive to request an extension. If this fails, parliamentarians will reconvene only two days before the 17 October European Council, normally the last chance to negotiate a deal. They would then be pressed into accepting whatever agreement Johnson will have hypothetically been able to broker with Brussels.
What happens if the remainers manage to find a majority? Then, it is likely Johnson would call an early election, campaigning on a “people against parliament” platform, asking the country to give him a clear mandate for a tough stance towards the EU. There would be just enough time to do so before the deadline. And then either a “pro deal” or “remain” majority emerges from the elections, and this very divided camp needs to sort out exactly what they want (another referendum? A “Norway-like” tight relationship with the EU?), or a “hard deal” to “no deal” majority emerges, and we are back to square one: would the EU move its position enough for a deal to pass.
But we also need to contemplate two other options:
- One, that the parliamentarians fail to stop the PM in his tracks, but that no deal can muster a majority in the Commons on 17 October. i.e a “double no”: no majority to extend, no majority to pass a deal. Then, unfortunately, “no deal” is unavoidable on 31 October.
- Two, that faced with procedural difficulties to agree on a motion to extend, a majority of PMs support of “motion of no confidence” against Johnson. Then Johnson can refuse to resign – there is some legal uncertainty here – and precipitate elections potentially AFTER the deadline. In this case, exiting with “no deal” would also be outcome. This puts the “remainers” in a very delicate situation: even finding a majority to replace the PM is not guaranteed to avoid no deal.
In this note our key assumption is that Boris Johnson wants a deal, just a different one. That is in itself complex, but not yet impossible to achieve and get passed. If he is reconciled with the possibility of no deal, then the outlook is much grimmer. At this stage we want to believe that rhetorics should not be taken at face value. It is a close call. It has been our long-standing view that any resolution on Brexit is likely to entail elections – with the uncertainty it entails. We think the latest events have raised this probability.