Silly season

3 August 2019

As we enter the silly season of August, first let us examine the success of the new government in meeting the three objectives in my last. They were:

Thwarting Commons opposition by changing the weather on the streets. Announcements of boosted budgets for information programmes, no deal contingencies and much else have been balanced by warnings from the Bank of England, the IMF and Peugeot. Dominic Cummings must be amused at his rock-star coverage, while mindful of how rapidly journalistic admiration turns to scorn.

Although Brexit parties won a majority of the vote in the Brecon by-election, the Boris bounce was insufficient to hold the seat, leaving the Government’s Commons majority at the perilous level of one.

The PM went north of the border, but we’ve heard nothing of him asking Sturgeon where specifically Scotland needs help in the event of no deal. My read would be he’d be offering the carrot of handsome recompense, giving her credit for taking the lead; and the stick that if she declines to cooperate on principle, she should stand by for the leak. Then to co-opt Davidson with a similar front-of-house role while Gove’s XO committee addresses Scottish interests directly through press, TV and the Internet, enabling the UK government (and the Tories) to monopolise the credit. But this wheeze could be wishful thinking on my part.

Cutting Ireland out of the herd's protection. I don’t make too much of the delay in the call between Johnson and Varadkar (it’s not even clear who was playing hard to get), nor that it was apparently something of a dialogue of the deaf. More to the point, if there is anything to the sort of Scottish intervention I’ve set out above, I would expect Cummings to be watching it like a hawk, polling in Eire, England and Scotland, with a view to rolling out something similar across the Irish Sea in a week or two. Meanwhile, the issue is leading to transatlantic complications as below.

Getting an MOU out of Trump. US-Irish politicians of both parties have explicitly linked a trade deal to maintaining peaceable cross-border relations on the island of Ireland. Contrary to the German expectations I reported, so far Trump has been silent on this.

-o-

This week, there’s been a fair bit of guff as to relative strength in the Brexit negotiations. Another way of looking at this is to examine the firepower available to the two sides in should no-deal occur. It is often pointed out that the total EU27 economies dwarf the UK and that the impact of trade disruption is correspondingly asymmetric. Quite true, but each EU Member-State has its own domestic budget and political priorities. The EU is akin to a confederation, with relatively few resources of its own.

Let’s look at the figures. The EU budget for 2019 is €165.8bn,[1] so say £150.1bn at current exchange rates, reduced by (say) £10bn if the UK ceases to make the contributions of the WA, so some £140bn. Not altogether apples and apples as we don’t have the figures for the current year, but the UK budget for 2018 was £842bn. [2] Finally, the table below sets out trade between the UK and EU in 2018 with imports shown as negative sums.[3]

Let’s say no-deal costs each side ten percent of trade totalling at present £641bn - so £64bn in the first year. For purposes of illustration, I’ve taken the largest number I can imagine; I’d expect it would be less than that. These figures represent an increase of 7.6% in the UK budget, tremendously unwelcome but in extremis doable. When, however, we consider the EU budget, they represent an increase of 43%, or 46% if the UK is no longer making contributions. This is patently not on. What’s more, how happy do we think the EU’s paymaster, Germany, now entering recession, will be if asked to ante up from its own resources not just for its own costs (which in principle the EU is obliged to compensate under Article 41.3 of the Treaty of Lisbon); but also for no-deal costs throughout the EU?

It’s also worth bearing in mind that not only does HMG have over five times as much in its overall budget, which ought to mean five times as much either devoted to contingency planning or capable of being shaken loose for such purposes, but it’s easier to make decisions here - certainly for as long as the Commons are sunning themselves. For some reason the penny hasn’t dropped on these figures but once it does, I’d expect - how best to put it? - adjustments in negotiating stance and popular sentiment.

-o-

Once August was the silly season. Not this year. I continue to believe the new government will stand or fall by what it achieves over these dog days. We hear amusing stories of special advisors horrified by the notion that they might have to turn up on weekends. But also of their relief at getting firm directions. None of this counts for anything by the side of the task facing them. It is foolish to draw conclusions after ten days, so let us simply say that we see little progress so far, but the relative strength of the two sides may turn out to be more even than has been thought.