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