Read her brilliant new Saturday column

The Chequers plan may be rejected in an attempt to force us back to the table in a position of weakness

When John D Rockefeller wanted to knock out a competitor in the early days of the oil industry, he would do what he called “giving them a good sweating”. Standard Oil would sharply drop its prices in the offending region, forcing the competitor to start operating at a huge loss. While the smaller independent struggled and went bankrupt, Standard would easily recoup the cost by hauling up prices in other, less competitive regions.

I thought of Rockefeller this week when considering the path of the Brexit negotiations. So far, they have been a rather dry affair. That is soon going to change. We are getting, after all, to the endgame – Britain’s real red lines. Theresa May has at last laid out a plan that is perilously close to her best and final offer. The UK’S political cracks are finally starting to show. And yet, despite some seemingly conciliatory language from Michel Barnier yesterday, the EU is asking for more.

You would think Europe’s nations would be happy with the offer on the table. The UK is promising no tariffs and full obedience to EU goods regulations. It is offering to continue full intelligence and security cooperation, in which it makes an outsized contribution. It is even promising to obey EU rules on competition and state aid and not to lower any of its standards in a huge range of regulatory areas, from the environment to the labour market.

What the EU gets out of this deal is clear. It protects its £92 billion trade surplus with the UK and imposes a Brexit cost by assuming unfettered control of our goods regulations. As one of Britain’s former EU officials put it: “Why Britain should want this deal is not clear.” Still, if this were the end point of a long and difficult negotiation, if it allowed any disputes to be settled by an independent court and if it kept the broad commitments on standards reasonably vague, many Eurosceptics would grumblingly accept it.

In the Commission, you might think they would be congratulating themselves on a job well done. But, asked exactly how the Chequers deal was received in Brussels, one senior EU official summarised with a shrug. Brexit negotiations are now being handled from a special sort of Brussels bunker, one where manufacturing jobs and safety from terrorist attacks are vague, second-order questions in service to legal articles of faith like the “indivisibility of the four freedoms” and “no cherry-picking”. The reason this approach prevails is that the EU believes it has us over a barrel. They plan to give us a damn good sweating.

The pressure point is Northern Ireland. The Irish “backstop”, which our Government unwisely agreed to in December, is being used to present the UK with two unacceptable options: either impose border controls down the Irish Sea or surrender, embracing free movement, EU courts, payments – the whole shebang. While Theresa May might surrender on some of these (the cash and the courts), she won’t give on free movement. So the EU and Ireland have begun the sweating: talk up the prospect of no deal.

They aren’t talking about an orderly, arranged no deal, in which we transition out of the EU’S institutional arrangements and on to World Trade Organisation terms in a managed fashion. They are talking up a fullblown planes-fall-out-of-the-sky, Dover-collapses and God-blots-outthe-sun no deal. France has been using this prospect to give banks the heebie-jeebies for many months. Now, EU officials are warning European governments to start preparing and Irish Prime Minister Leo Varadkar is talking, surreally, about sealing off Irish airspace (given the Irish air force mainly consists of small prop planes, this is an interesting proposition).

If businesses and markets start to believe that this could happen, the first sign will be that sterling plunges against the euro and both the euro and sterling will fall against the dollar. Traders will start selling British-focused stocks and the interest rate on gilts will spike. This is how the sweating starts.

Lending and investment in anything Uk-related, here and abroad, will fall sharply. Firms will begin to stockpile supplies and step up administrative rearrangements and the movement of personnel, although they won’t be able to make many concrete long-term arrangements since they have no idea where this will end up. The prices of Europe’s Uk-destined goods will rise here and plummet on the continent, and vice versa for British exports to the EU. Many businesses won’t be able to cope and will go under.

The effects will ripple out from the Channel in both directions, but on a national scale, they’ll obviously be most dramatic here. The EU, at least those in Mr Barnier’s bunker, believe they are Standard Oil and that we are an unfortunate would-be independent.

No one can be sure that this won’t happen. The EU’S aim isn’t really to bankrupt us; it’s to force us back to the table in a position of abject weakness.

There are two great unknowns. The first is how exactly the Eurocrats’ political masters will respond to this. In the capitals of Europe, Brexit is firmly on the back burner. They believe Brussels has it under control. But if the prospect of a disorderly exit suddenly starts to become real, governments will wake up. Does the Netherlands really want to risk its entire bacon industry? Does Germany fancy a major recession in its biggest car market even as the US threatens tariffs on its other major export destination? And will Angela Merkel be happy with Mr Barnier’s decision to reject the alternative – a deal which she herself has discussed with Mrs May?

It’s possible the answer to these questions is yes. Which brings us to the other unknown: what the Brussels sweating will do to British politics. The EU will be banking on the idea that the economic pain would raise a clamour for our Government to surrender immediately. Only half the country voted for Brexit, after all, and many will blame the Conservatives more than they blame EU.

But there’s also another possible outcome, which is that Britain gets into one of its bloody-minded moods and public opinion turns decidedly against the EU. In this scenario, the Government would start deploying its considerable resources to cushion the economic shock and begin withdrawing all sorts of cooperative arrangements on which the EU relies, such as the stationing of British troops in Estonia.

It is ultimately up to European politicians whether they want to take this enormous gamble. Chequers is a shoddy deal that Britain would swallow, but it is already stretching what’s politically possible. If the EU says no, all bets are off.

The EU will be banking on the idea that the economic pain would lead our Government to surrender