End of the revo­lu­tion?

A no-deal Brexit is off the ta­ble and ster­ling as­sets are a scream­ing buy

The Daily Telegraph - Business - - Front Page - Am­brose Evan­sPritchard

The dam has bro­ken. The like­li­hood of a no-deal Brexit – that is to say with­drawal on terms com­pat­i­ble with British sovereignty – has di­min­ished to al­most zero.

It is ei­ther Theresa May’s stom­achchurn­ing deal or out­right re­vo­ca­tion of Ar­ti­cle 50. The rest is mostly noise. Nor­way at this point is a fairy­tale.

There was a brief mo­ment in late No­vem­ber when it looked like De­cem­ber 1916, the par­lia­men­tary coup that top­pled Her­bert Asquith in the mid­dle of a na­tional emer­gency.

Pa­tri­cian lead­ers feared that Britain would suc­cumb to de­featism or lose the First World War if the Gov­ern­ment car­ried on in the same di­la­tory and am­a­teur­ish fash­ion. They turned to a rad­i­cal fire­brand to wage to­tal war on ev­ery front. Lloyd Ge­orge did the job with proper dis­patch.

The anti-May coup was foiled, and per­haps it was Hegel’s “Cun­ning of His­tory”. You can­not take a di­vided Britain into a show­down with the EU, in de­fi­ance of Scot­land, the big guns of in­dus­try and the na­tion un­der the age of 40. We are not fight­ing the First World War to­day.

Events are now mov­ing very fast. The “guer­rilla war­fare” launched against no-deal­ism in the Com­mons this week has ex­posed the hard arith­metic. Seven­teen Tories with min­is­te­rial back­grounds joined the re­volt, if one can use such a term to de­scribe an episode in which the Gov­ern­ment was com­plicit in its own de­feat. Tot­ting up the num­ber of “pay­roll” Tories at ev­ery level and itch­ing to do the same, the im­plicit fig­ure rises to an easy ma­jor­ity in Par­lia­ment.

In my opin­ion, they are act­ing be­yond their con­sti­tu­tional au­thor­ity. Par­lia­ment re­turned the power to the British peo­ple in 2016 on the as­sur­ance that the de­ci­sion would be fi­nal. The vot­ers clearly chose na­tional in­de­pen­dence and full demo­cratic self-gov­ern­ment. Par­lia­ment can­not le­git­i­mately take back that power and over­ride the de­ci­sion. But opin­ion is worth lit­tle. It is Par­lia­ment that has the le­gions. Wear­ing my other hat as an ob­server of mar­kets, it is clear that ster­ling and UK-linked eq­ui­ties are now the most un­der­priced as­sets in the world.

Mar­kets are still dis­count­ing the pound as if noth­ing has changed in West­min­ster and as if the catas­tro­phe sce­nar­ios put about in the press – du­bi­ous at any time – are re­motely plau­si­ble.

Ster­ling is trad­ing at a cri­sis-lev­els of €1.1065 to the euro. You would hardly know that Ger­many is in an in­dus­trial re­ces­sion, Italy is in a full re­ces­sion and con­fi­dence has crashed to re­ces­sion lev­els in pre-in­sur­rec­tional

gilets jaunes France.

JP Mor­gan says the Bank of Eng­land is likely to lift rates by 50 ba­sis points this year once the tail-risk of a no-deal out­come is elim­i­nated. Ster­ling will rise by 5pc across the board.

Bank of Amer­ica is bet­ting on a 6pc jump to $1.35 against the dol­lar un­der Theresa May’s deal. Ster­ling would rocket to “pre-Ref­er­en­dum” lev­els of $1.50 un­der re­vo­ca­tion.

Con­trary to wide­spread claims, the EU is likely to help Theresa May by of­fer­ing some sort of “le­gal” as­sur­ance on the Ir­ish back­stop and fu­ture trade.

The Eu­ro­pean Pol­icy Cen­tre in Brus­sels has come up with a plan to res­cue the May deal with creative use of EU “soft law”. It is writ­ten by for­mer Euro-MP An­drew Duff, pres­i­dent of the ul­tra-in­te­gra­tionist Spinelli Group.

Mr Duff pro­poses link­ing the le­gally bind­ing With­drawal Agree­ment to the looser Po­lit­i­cal Dec­la­ra­tion on the fu­ture re­la­tion­ship, a doc­u­ment dis­missed by Brex­i­teers and Re­main­ers alike as a hot air. In his view it gets a “bad press”.

The Prime Min­is­ter asked the EU to agree to give the Dec­la­ra­tion le­gal force. They told her it was im­pos­si­ble. Yet Mr Duff says she is right to push this point. The doc­u­ment has al­ready has some le­gal weight­ing. There would be “se­ri­ous po­lit­i­cal con­se­quences” if breached by ei­ther side. This could be beefed up by giv­ing the Dec­la­ra­tion for­mal recog­ni­tion in the pre­am­ble to the Coun­cil’s Ar­ti­cle 50 de­ci­sion. The Eu­ro­pean Court would then give it high value.

Mr Duff of­fers an ele­gant way out of the im­passe for Mrs May, whether or not you like her deal. There is an am­ple body of EU soft law cov­er­ing com­pe­ti­tion cases, to point where soft law blends into hard law un­der ECJ rul­ings.

Down­ing Street craves a le­gal text as a guar­an­tee that the EU will de­liver on all pledges in the Dec­la­ra­tion, specif­i­cally to make its “best en­deav­ours to find other ar­range­ments” to avoid a hard bor­der in Ire­land. It talks of “fa­cil­i­ta­tive ar­range­ments” and the recog­ni­tion of “trusted traders”.

Greater le­gal force would make it harder for the EU to drag its feet and refuse to re­lease Britain from the back­stop once blockchain tech­nol­ogy be­comes avail­able. It would also help to lock the EU into its trade pledges while the UK still has lever­age through the £39bn exit pay­ment, and while de­ci­sions are still be­ing made by qual­i­fied ma­jor­ity vot­ing.

Talks on fu­ture ties will be based on una­nim­ity. Any coun­try will be able to veto the deal and stir up trou­ble, whether the French over fish­ing quo­tas or the Span­ish over Gi­bral­tar.

Yet greater le­gal force cuts both ways. It en­snares Britain in fresh traps that few have paid at­ten­tion to so far, such as Ar­ti­cle 135 es­tab­lish­ing a pun­ish­ment mech­a­nism, with “fi­nan­cial com­pen­sa­tion” for breaches of the ac­cord. The ar­biter is the ECJ.

It would keep Britain locked into its le­gal and reg­u­la­tory or­bit, sub­ject to the Ac­quis on the en­vi­ron­ment, labour law, tax­a­tion, com­pe­ti­tion, state aid and trade. It is doubt­ful whether the EU in­tends to give up this ex­tra­or­di­nary power.

The Com­mis­sion’s Sabine Weyand told EU am­bas­sadors be­hind closed doors that the agree­ment “re­quires the cus­toms union as the ba­sis of the fu­ture re­la­tion­ship” and that the British “must align their rules, but the EU will re­tain all the con­trols”.

Such an ar­range­ment is not a steady state equi­lib­rium and will in the end prove in­tol­er­a­ble. It raises the risk that Britain will feel com­pelled to take the dras­tic step of re­sil­ing from its treaty com­mit­ment.

Do we want the le­gal con­se­quences of this to be even worse, if it ever came to that? And do we want a deal that gives the EU un­fet­tered ac­cess to the UK goods mar­ket where it has a £92bn sur­plus, while largely shut­ting us out of its ser­vice mar­ket with the thin gruel of “en­hanced equiv­a­lence”? I would rather walk away. Yet some­times in life you have to recog­nise when you are de­feated.

Those who say that the EU and the British es­tab­lish­ment have be­tween them crushed the In­de­pen­dence Revo­lu­tion of 2016 are surely cor­rect. Op­po­nents of a gen­uine Brexit will have their way. Brace for the back­lash.

‘It is clear that ster­ling and UK-linked eq­ui­ties are now the most un­der­priced as­sets in the world’

Thereas May at last month’s Eu­ro­pean lead­ers’ sum­mit: those who say that the EU and the British es­tab­lish­ment have crushed the In­de­pen­dence Revo­lu­tion of 2016 are surely cor­rect

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