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The Revanchists of Brussels

It was probably not the intent of the EU negotiators or their British counterparts that the Northern Ireland backstop become a surreptitious method for keeping the UK in the EU against its will.

Perhaps the vague terms of the backstop departure clause and its lack of forethought were formulated under extreme time pressure and as a vague but virtuous necessary condition for a deal.

It might also be that the question of unilateral withdrawal from the backstop, which was not expected to be utilized but conditional on the failure of other negotiations, was not fully considered.  

If the EU has truly accepted the departure of the UK it is not a large concession to permit them after a specified time the right of unilateral withdrawal. The question for the EU negotiators and the politicians in Berlin and Paris, is do they want to help the UK leave the EU?

A few strategic accommodations on the customs union are essential for Prime Minister May to get her deal through Parliament. Without help from the EU the Prime Minister’s Brexit deal is dead.

Does the EU intend to gamble? Will they bet that the final outcome of rejecting May’s entreaty, after all is said and done in British politics, will result in the UK remaining in the EU?  Has the failure of the Brexit treaty stirred EU revanchists to new hope?

British Parliamentary politics is unpredictable. Brexit is the chief, really the only issue of the May Premiership. If Ms. May cannot win on this topic then it is hard to see how she retains power for very long.

A new Tory Prime Minister, Brexiteer or Remainer, would face the same dilemma and party splits. A general election could produce a Labor government which would, in reality, solve little.

The only reason Labor seems united is that they are not in power. Jeremy Corbyn at Number 10 would quickly face similar divisions in his own party. There is no coherent Labor policy for the Brexit treaty, nor for the secondary choices, a no-deal departure, a new referendum, a postponement of the March 29th deadline, or a Parliamentary revocation of the exit.  

Labor and the Tories are a fair reflection of the electorate. They are divided because the nation is.

Hanging over both political parties and the economies of the UK and the EU are the impending costs of uncertainty. A prolonged political dispute over the British departure or a no-deal Brexit would send the continent and the UK into recession.

A downturn in the EU, where unemployment in many countries has not recovered from the financial crisis, Italy’s 10.6% and France’s 9.1% notably, over the esoteric terms of UK disunion, would play to the euro-skeptic sentiments of populist politicians across the EU.

The simmering dangers of economic discontent have been on display in France for the past three weeks. Italy has elected an anti-establishment government. The EU is edging toward recession. Italy and Germany are half way, with negative GDP in the third quarter. The risks are mounting.

No doubt many in power in the EU would prefer to see the UK humiliated and forced to return. But the risk of gratifying the desire to snub Prime Minister May and the British people runs directly against the foundations of the European Union itself. Foundations that are far less secure than they seem.

In the end the bureaucrats of Brussels will be swayed less by their love for the European project and their own authority than by the potential political conflagration in their own backyard.

The safer alternative for the EU is to help Britain leave.

Chart:Reuters

Author

Joseph Trevisani

Joseph Trevisani began his thirty-year career in the financial markets at Credit Suisse in New York and Singapore where he worked for 12 years as an interbank currency trader and trading desk manager.

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