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UK PM Boris’s genius Brexit plan

Why a no-deal Brexit will ultimately turn into a deal for the UK

It was reported early this week that Brussels has finally accepted that Boris Johnson is not bluffing and is prepared to leave the EU without a deal.Further reports in the week, from Boris Johnson’s special adviser, Dominic Cummings, said that it is now too late for the UK Parliament to stop a no-deal Brexit. That point is currently debatable. Some commentators are still seeing a possibility to stop a no-deal Brexit. See this newspaper piece from Vernon Bogdanor, professor of Government at King’s College London and author of Beyond Brexit for a list of possible ways a no-deal may still be stopped. However, although theoretically possible, it is becoming harder and harder for a no-deal Brexit to be stopped and the market is increasingly pricing in a no-deal Brexit with short GBP positions increasing week by week on the COT report.

At the moment there remain five potential ways a no deal Brexit can be stopped, but here are the three obvious outcomes that I can see the UK getting from here:

1. Standstill agreement

This is a potential way of formalising the current stand off where the UK would be outside of the EU, but continue to be part of the single market and customs union until the long term relationship between the UK and the EU can be agreed. In this scenario the problematic Irish backstop problem would vanish (on the basis of an upcoming long term agreement) and the UK would continue to contribute to the EU budget.You can read here about the details on such an agreement from the Institute for Government. The issue I see with this is that politically that would seem disastrous for Johnson. The man of the moment, about to deliver Brexit and instead he delivers a potentially eternal limbo agreement. Not good for your street cred.

2. A General election

On Thursday of this week it was reported that Johnson was considering calling a general election of November 01. That is one day after Brexit which is scheduled for October 31. Nice move Boris ;-).The issue with calling a General election is that there is limited time to actually execute it administratively. This would be the case if a vote of no-confidence is called too, as Boris might just try and ride it out until October 31 is passed and Briatin leaves the EU.

3. A No Deal

This is the most likely outcome for the UK now this late in the day. Needless to say, this will involve considerable disruption for the UK and you can read ten ways it will impact the UK here. Government will be dominated by ‘no-deal’ issues for the foreseeable future and projections by the institute for Government are that at least 16,000 officials will be working on Brexit by the Autumn . However, this I would argue is now the best way for Johnson to get a deal. The EU won’t back down and Johnson won’t back down. We know that. Politically both sides have too much to lose from doing an about turn. Boris will lose the UK electorate and risk sending the Conservative party into immediate obscurity and the EU fundamental European Union issues. Britain is now heading for a UK exit from the EU, but it is not all gloomy as the world will not end for the UK on October 31. In the same way the millennium bug did not halt civilisation, Brexit will not be the “end of the UK”. The no-deal, will simply turn into a deal…Yes, my good ForexLive readers, Boris will conjure a deal from a no deal.

How a no-deal turns into a deal

Brexit

When two powerful sides draw a line in the sand that ‘cannot be crossed’, like the UK and the EU have,they them have to find a way of re-drawing the lines. History is littered with examples of powerful nations both claiming victory over the same event by ‘re-drawing the lines of engagement. Think of the Cold War and the Cuban Missile Crisis. Both the US and the USSR got what they wanted. The US moved their nukes out of Turkey to please the USSR, albeit quietly and discreetly. This was done a few months after the USSR took their nukes back from Cuba. Kruschev can claim he has saved Cuba, which remained Communist and heavily defended, from the big bad US. Kennedy can claim he has kept his election promise and stood up to the USSR and kept nuclear missiles out of Cuba.No-one lost face publicly and no-one backed down, the lines were just re-drawn. It was a win-win.For some cynical people this is ‘dirty politics’. However, there is very little to be gained by publicly humiliating someone if you want a constructive relationship, or maybe just avoiding an all out war (never a bad thing where possible).

This is what I see as the most likely event now for Britain and Brexit. Johnson takes the UK out of the EU and then renegotiates a deal after Brexit. Will the UK fall apart in the meantime. What about London?

Will Brexit destroy London?

EU, no-deal, London

London has been up against it before, and arguably has faced larger challenges in the past. As a Londoner at heart, born in Wimbledon, one of the things Londoners like to remind themselves of is that London has the an enduring ability to carry on. London stumbled, but didn’t fall under the Great black death plague of 1665. It was singed, but not consumed by the Great fire of 1666. It was bombed to pieces, but rebuilt itself through the blitzas Axis powers brought raids in the second world war. My Gran’s street was struck by the ‘doodle bug’ bombs and London has marched on. Some large manufacturers have threatened to leave the UK on a no-deal Brexit, like Airbus and Japanese automakers. However, Unilever and HSBC threatened to head over to Europe, but decided to stay in the UK after a second thought.

London has historic roots

One of the factors helping London is that there is a lack of a major contender to take its place in the present climate. Paris, Dublin, Amsterdam and Frankfurt all have financial services, but not with the range of asset classes and historic roots that London’s trading connections established when the British Empire ruled 25% of the world. This advantage gives London an edge, particularly over Asia, above that of it’s European competitors. Even the size of London, at 9+ million, is nearly triple the size of Berlin at 3.7 million. So, London has weight that should mean it can still pack a punch when it wants to.

How will Brexit affect the EU?

According to BBC’s Adam Fleming the EU are expecting a no-deal Brexit to hurt the UK far more than it hurts the EU.The EU expect a loss of 1.2 million jobs and for the UK to lose 500K jobs. That is less numerically, but higher percentage wise. The UK has pledged to eliminate

So for Boris a no-deal is now the best way to get a deal

I would give the UK an 80% chance of leaving the EU without a deal. It is the most probable outcome now in my view. So, I could see a sell the rumour, buy the fact response from a Brexit no-deal scenario as focus shifts on the ‘deal to be done’ after the ‘no-deal Brexit’ has been delivered. The UK will still want a free trade agreement and the EU wish list is for the rights of EU citizens, the UK’s financial obligations and the Irish Border. It will just be back to the negotiating table without the drama of “Brexit”. In this way everyone keeps face. Both sides claim victory and the crisis is, in a typically roundabout political way,diverted. This is going to be a Boris No-Deal (but actually a deal) Brexit.

ForexLive

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