The die is cast: The choice is now between no deal and a very hard Brexit

OK, so this is the prevailing assumption in financial markets, and indeed much of the commentariat – that what we are witnessing in the continued stand-off between UK and EU negotiators is no more than a political dance, or even charade, in which like some sham World Wrestling Entertainment fight, opponents are merely going through the motions, rehearsed theatrical head clench matched by rehearsed theatrical body slam, before at the very last moment, a carefully choreographed accommodation is reached that will allow both sides to claim some sort of victory.

Maybe so, but that expectation is based on the idea that not to reach a deal would be irrational, and is therefore out of the question for supposedly grown-up politicians intent on imposing as little extra damage on an already devastated economic landscape as possible.

In the real world, however, sub-optimal, irrational outcomes happen all the time. As it is, the sheer number of political constituencies that need to be satisfied on both sides of the Channel make not reaching a deal seemingly more likely than reaching one. If there are master choreographers at work here, I’d like to know who they are, for they seem virtually invisible.

British PM Boris Johnson with European Commission President Ursula von der Leyen in Brussels.
British PM Boris Johnson with European Commission President Ursula von der Leyen in Brussels.Credit:AP

All the same, we have to assume that Boris Johnson would not be going to Brussels if there was no deal to be done. To return empty handed would not be a good look. Quite apart from the added economic challenges of such an outcome, it would also threaten to bring the cause of Scottish separatism that much closer. The judgment of history on a Tory leader who loses the Union would be harsh.

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From the start, both Johnson and other leading Brexit campaigners have declared that reaching a deal with the EU would be “easy”; predictably, this has proved far from the case.

Still, no matter. Whatever the outcome, the Johnson government will attempt to make capital out of it. Either it will be a great showboating moment, as in “they told us a deal couldn’t be done, but here it is”, or it will be “we’ve tried our hardest, but bloody minded EU intransigence has prevailed, demonstrating once and for all how right we are to be leaving such a dogmatically inflexible bloc”.

The political calculation for the British prime minister is nevertheless an almost impossible one. If he reaches a deal, it is bound to involve a degree of compromise and ceded sovereignty that many of his backbenchers will find unacceptable. This in turn might deprive him of one of the main political wins of his entire Brexit strategy – that by leaving the EU the Tories would finally lance the boil that has plagued and divided the party for more than 30 years now. Instead, it would continue to fester, flaring up anew every time the EU attempted to interfere in our affairs.

Only the purity of perfect, unadulterated sovereignty will satisfy this constituency. Almost any deal would compromise it in some way, never mind that this is to some degree the case with virtually all international agreements, including membership of the World Trade Organisation and the North Atlantic Treaty Organisation.

It is also a reflection of just how far we have travelled from the initial pre-referendum position, when many Eurosceptics, including Nigel Farage, thought that a Norwegian-type relationship with the EU would be a perfectly acceptable way forward. This position admittedly hardened during the referendum itself, when prominent Leave campaigners including the Prime Minister made it pretty clear that ending free movement would also mean leaving the single market.

The die is cast. Deal or no deal, Britain must just make the best of whatever the Prime Minister comes back with.

Even so, few thought back then that we would end up departing on lowest common denominator WTO terms. There is a sense in which Britain has been bamboozled by a small clique of idealists into such an uncompromising position.

As it is, the difference in overall economic terms between the Canadian-style free trade agreement the British government seeks and what ministers have taken to calling an “Australian” relationship on WTO terms may not be that great. Whatever the outcome, it will be a “hard Brexit”, one that imposes significant trading barriers between the UK and its largest export market. Not having to pay tariffs would not change this reality.

Modelling by the UK in a Changing Europe research group found the difference between the Canadian and the Australian option to be a marginal 0.175 per cent of GDP a year, or 1.75 per cent after 10 years. Much of this was calculated to derive from productivity loss, a highly contentious assumption since it is equally possible to argue that Brexit will force the UK to up its game on competitiveness and productivity.

Even so, I would be a great deal more confident in Johnson’s assertion that Britain will “prosper mightily”, even if he stands on principle and no deal is struck, if I knew what his government proposes to do with its new found sovereign purity. More appropriate agricultural and environmental policies would certainly be one major plus, but beyond doing its own trade deals, the government has yet to articulate any kind of an economic vision for the future, or explain why Britain needs to leave the EU to pursue whatever it might be. Perhaps that is because it knows that many of the reforms the UK economy so urgently needs would both not be popular and would be perfectly achievable within the ambit of the EU.

It is perhaps true that to galvanise the country and the political class into embarking on such a programme of reform, it needs the shock therapy of leaving the EU, but for obvious reasons, that argument wasn’t much used in the referendum campaign or subsequently. Let’s just get it over with, people say. We are sick to death with the constant toing and froing and simply want to move on. Would the outcome were of such little importance. In aggregate terms, the difference may not be that great, and in any case, it is remarkable how adaptive economies can be when up against the wall.

Yet for many communities and businesses, for lamb farmers, car plant workers and their suppliers, and yes, ironically even fishermen reliant on exporting their catch to the continent, the outcome is the difference between survival or otherwise. There is only so long the British government can keep propping them up with subsidies. Nor would it be wise to begin its new relationship with the EU on the hostile footing implied by an irreconcilable breakdown in talks.

Whatever. The die is cast. Deal or no deal, Britain must just make the best of whatever the Prime Minister comes back with.

The Daily Telegraph, London

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Source: Thanks smh.com