Brexit: Crisis Nigh

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Brexit watching has become an exercise in waiting for inescapable realities to start penetrating the astonishing delusion and fundamental incomprehension of the UK ruling classes and the media. What is remarkable is that the denialsm persists despite the EU having said “No” as many ways as it possibly could on certain basic issues.

Our best guess is that the EU is going to stick to its plans of forcing a crisis in June over the Irish border issue. Our view is that EU’s chief negotiator Michel Barnier erred in giving May breathing room last December by signing the so-called Joint Agreement. That reaffirmed the UK’s commitment to the Good Friday Agreement, while in remarkably flabby language, set forth three options for the border. The problem is that the two that appeared to offer political escape routes for the UK were never going to work and the EU and everyone who hadn’t swallowed a lot of Brexit Kool-Aid knew that.

Recall that Barnier once said that it wasn’t the EU’s job to solve the UK’s political problems. Yet he relented with the Joint Agreement, apparently to forestall an ouster of May by the hard Brexiteers, who appeared then to be able to pull off a palace coup. The only rationale for the EU to have saved the Government from rule-by-the-even-more-stupid was to spare the EU the costs and disruption of a crash-out Brexit.

But as we discuss below, a crash-out is now the most likely outcome. And if that is indeed the case, the EU has strong incentives to make that clear as soon as possible so as to give businesses as much time as possible to assume the brace position.

UK Debating on Train Tracks as Brexit Locomotive Bears Down

Richard Smith astutely remarked that the Windrush affair illustrates how Theresa May operates, and those habits have made what would have been at best a difficult Brexit into a certain disaster. May adopts rigid targets and keeps trying to beat everyone around her into compliance. That can work in the narrow sense of achieving your immediate goal (irrespective of ignoring warning signals that point to long-term costs) if you are in control of your environment. Ironically, May’s snap election backfire has had the perverse effect of giving her more short-term control over the party, since having a fragile coalition has meant neither the soft nor hard Brexit faction has been willing to press its case too hard and risk a crisis that would result in new elections.

The Cabinet is in the midst of yet another row that is dominating most UK media coverage on May’s “customs partnership” idiocy. The caliber of the political debate suggests that what passes for the British elite had better have some excuse like having contracted mad cow disease en masse to explain this pathetic performance to posterity.

The most embarrassing part is that it isn’t even hard to explain why the UK is wasting huge amount of its most important resource, time left to Brexit, on non-starters.

A “customs partnership” or “continued membership in the customs union” doesn’t solve the problem the UK wants solved. A Guardian story yesterday, , unintentionally makes clear how the UK has send a huge pack of hounds to bark up the wrong tree. From the story:

Tory Brexit moderates and business groups have made a last-ditch attempt to push for Theresa May’s preferred customs plan, with the business secretary warning that thousands of jobs would be at risk unless there is frictionless trade.

Greg Clark dismissed the idea that the prime minister’s idea for a customs partnership – in which the UK would collect import duties on behalf of the EU – had been rejected at a meeting last week of May’s Brexit inner cabinet.

This is painful to read. It’s the sort of thing that makes you want to grab the speaker by the lapels and shake them. “What about ‘A customs union does not mean frictionless trade’ don’t you understand?”

Richard North has been debunking this idea from every angle conceivable, including posting images showing border checks from the hoary old days of the European Economic Community, before an internal market was achieved in 1993.

The EU has already rejected May’s “customs partnership” idea. Turning the mike over to North, from his current post:

The public face of Brexit has lost all with reality.

It’s so far gone that Greg Clark speaks of the discussions at last week’s “War Cabinet” having been much more “professional” and “collegiate” than you would ever think from the report.

This, believe it or not, is the meeting that devoted itself to exploring the two nonsense scenarios that have already been ruled out by the Commission…

If this was entirely a domestic matter, the government could perhaps get away with it, but the big difference is that anything that comes out of the current phase of stupidity will be tested in Brussels, not only by the genial Michel Barnier but by the hard-faced guardians of the treaties, buried in the deepest recesses of the Berlaymont….

The British cabinet is delaying choosing between two types of customs arrangement. Yet each of those two possibilities was long ago rejected by Brussels: one is unworkable the other does not exist.

The Ireland Deadline Looms

Barnier has said that the UK needs to resolve the Irish border matter by the June negotiating round. The EU will not discuss the future relationship nor will it sort out details of the transition period before that is resolved.

The EU now has no incentives to relent. In fact, Barnier probably did the EU a great disservice. There was no reason to think the UK would be any more willing to accept a sea border as the only solution for Ireland a few months later than it was last December. If the UK is going to wind up subjecting itself to a crash-out Brexit due to its inability to deal with the consequences of its choices, it is better for all parties to know that as soon as possible to allow them to do what they can to minimize damage.

The Government is refusing to acknowledge that it has no answers. Per North’s discussion above, it somehow keeps telling itself and the British public that the EU is extorting the UK and scheming to steal Northern Ireland. The reality is, as we and others have explained ad nauseum, that the UK leaving the internal market means there has to be a hard border somewhere with respect to Ireland. The EU27 was never going to stand for Ireland turning into a route for smuggling non-EU compliant goods into Europe.

The Tories and their media allies are sure to scream bloody murder when the EU sticks to its word on Ireland, using words like “blackmail” and “extortion”. At best, Barnier might give the Government another month to faff about, but there is no reason to the UK to come around. Indeed, one can imagine EU officials telling corporate s and regulators privately to prepare for a crash-out, having that get back to the Brits, and having that depicted as yet more dirty dealing.

As I often say, it would be better if I were wrong. One sign of that would be if EU business lobbies, editorials, or prominent politicians were calling for Brussels to ease up on the UK so as to assure that a transition deal gets done. Readers of the Continental press are welcome to correct me but I have seen no evidence of anything of the kind. Even though Europeans probably are underestimating the cost of a crash-out Brexit to them, they’ve made a decision that political considerations are paramount, and that means cutting the UK no slack. And they’ve had the great good fortune that Brits have been so utterly incompetent and high-handed that it is hard to have any sympathy for them. But as usual, the people most responsible for this debacle will be largely insulated from its effects.

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105 comments

  1. PlutoniumKun

    This is all so baffling. The only explanation I can think of as to why business leaders and others are so focused on the Customs Union nonsense is that they see it as a negotiating wedge issue – if they can get concessions on that, they they hope to bring up the Single Market, EEA/EFTA, etc. Its possible some see it that way, but I think its all the more likely that there is genuinely, at all levels, a complete failure to understand the technical and legal issues. I think North speculated a while back that business has become so used to easy trading that they’ve simply forgotten what it was like in the 1970’s and before. You might go further and say that the MBA mentality and overspecialisation in modern organisations means they’ve lost the institutional ability to deal with sudden changes of business environment. There is certainly plenty of evidence that the UK agriculture industry is entirely unaware of the tsunami thats going to hit it.

    Its got to be said, that I’ve heard numerous times (in Ireland, UK, and elsewhere), that ‘somehow they’ll fudge an agreement, they always do’. I think this idea is so baked in that people just aren’t doing the sums. There was an article last week in the Irish Times by the senior political correspondent, a writer known for his utter lack of understanding of anything beyond what he’s been told over drinks in some briefing that ‘Ireland has to compromise on the border’ or some such nonsense. So its not just in the UK that there are some delusions – I suspect the lack of urgency or concern in countries such as the Spain, the Netherlands and Belgium is that they also assume that something will be worked out. But its pretty clear that the EU itself (and probably France and Germany) understand very well what is happening and will be as well prepared as possible.

    If I was in that business, I’d be shorting Sterling to the max. As it is, I’ll be stocking up on canned food (a lot of Irish grocery supply chains are centralised in Britain).

    1. vlade

      I have now seen the words “single market” more and more to show up in connection to the “custom union”, like an article (can’t remember where), which talks abotu custom union, but then says “Tory remainers claim there is a majority in the parliament for staying in single market”. But as you say, whether it’s a cunning plan, or an idiocy, only time will tell (and sometime it’s hard to tell these two apart TBH).

      Re your point on canned food – North last week recommended stocking on basics (not just food) for up to three months.

      In his today posts he expresses hope that maybe the EEA/EFTA solution can be done after the crisis hits, but IMO, if the crisis is such that you’d need to have stocked up for three monhts, I don’t see EEA/EFTA as a solution – it’s most likely that it would mean back to EU (except all those exceptions UK had), unless the UK public surprised me a lot, and went into a war-like mode. Given what I’ve seen during the natural catastrophies when in the UK (floods), where the reaction was to ask government first and last (as well a blame it on them), I’m not ruling it out entirely, but consider it very improbable.

      1. PlutoniumKun

        North reminds me of those Iraq War enablers who cried afterwards ‘oh, if only they’d done it properly it could have worked, its not my fault I didn’t know Bush was incompetent’. I’m sure that at some stage the EEA/EFTA issue will come up – I’m a bit surprised Labour haven’t jumped at it as a wedge issue in Parliament. But its also problematic for the simple reason as I don’t see the EU as being co-operative.

        EEA and EFTA are essentially structures to give diplomatic cover to small, friendly European nations who have struggled politically to get with the EU project. In global terms, Norway and Iceland and Switzerland and Croatia are irrelevancies, so the EU is happy to help them out. But the UK is different. Allowing the UK the cake and eat it option of EEA/EFTA is a potential threat to the EU as Italian and French eurosceptics would see it as a viable option if it worked for the UK. I strongly suspect that this particular door would be firmly shut in the UK’s face if they asked for it.

        1. MisterMr

          This is also my guess, but I don’t know what are the requirements for the UK to join the EEA or the EFTA.

          For example, I read in wikipedia that the EEA is only open to countries that are part of the EU or of the EFTA, but then the UK could join the EFTA and still be locked out from the EEA?

          And also, if the UK applies for the EFTA, who chooses wether to accept them and on what paramenters?

          Not knowing this, I strongly suspect that the whole EFTA/EEA idea is also based on overoptimistic thinking, but I can’t be sure of it.

        2. Johan Telstad

          I think the Norway model is on the table, it’s just that it requires both free movement of labour, relinquishing sovereignty to the ECJ and implementation of EU rules that you have no say in forming.
          And as I understand it, a Brexit solution without national border control is anathema to the Brexiteers.

          1. Yves Smith Post author

            No, it isn’t and you effectively say that too. Barnier has been put in the business of doing the UK’s thinking for them. He did a chart months back showing that the UK’s red lines mean that the only option is a Canada-type deal. Remember the UK had that phase when it was saying it was going to get a “Canada ” deal? Barnier and others had to throw cold water on that too.

            1. WndlB

              The only possible saving grace is that May’s Cabinet and Whitehall appear to be no more ready for crash-out Brexit than anything else. Someone on the EU side may start collecting customs duties or doing inspections next April. In the UK, that doesn’t seem ready to, or immediately likely to happen.

    2. Mickey Hickey

      The Irish should know that the descriptor “Perfidious Albion” first used by Marquis Ximenes early in the 19th century although versions of it date back to the 13th century was honestly earned. Don’t worry about Irish grocery supply chains, Aldi and Lidl will take care of it in the short term and Carrefour will enter the Irish market to replace the British operators. Stock up on Marmite and your favourite British Marmalade.

      1. PlutoniumKun

        I was being a little bit facetious, but there is an important point about the interrelationships of supply chains. and they supply Ireland really as a minor region of the UK. Their supply chains will be screwed. The others will be ok I think. I’ve no idea what will happen with things like frozen pizzas where they will have multiple sources of the ingredients. I doubt very much if any Irish grocery shop will be unscathed.

        1. Mickey Hickey

          Dr Oetker famous for its thin crust frozen pizza produced 27 million pizzas in its start up year 2014 in London, Ontario. The next nearest plant was Grand Falls, New Brunswick which recently closed down with 70% of its business going to London Ontario and 30% to New Jersey. The distance between the two plants was 1336 Km. The distance from London to New Jersey 850 Km. Ireland has little hope of supporting a frozen pizza plant. Kerry Group which has a reputation for getting things right has a vegetable processing plant 50 Km from London in Woodstock, Ontario.

    3. fajensen

      As it is, I’ll be stocking up on canned food (a lot of Irish grocery supply chains are centralised in Britain).

      Consider visiting an Asian shop and get some kg-sized bags of pasta, chick-peas, rice, risotto-rice, dried tomatoes, dried mushrooms, hard cheese (parmesan, f.ex), “hungarian sausages”, lentils, bulgur and some beans also – one can live for a long time (and cook some decent fod – in the meantime if “It” doesn’t happen) on those stables. They do not require refrigeration and are more portable than cans in case one needs to go for a walk.

      I use dry stuff like that a lot for hiking also. Cheap, light-weight and lots of energy, only some water and cooking required.

  2. makedoanmend

    “… The caliber of the political debate suggests that what passes for the British elite had better have some excuse like having contracted mad cow disease en masse…”

    Thanks for the chuckle. Was much needed.

    Just a note on BSE and trade from an article I read in the Farmers Journal (Ireland) stating that in 2015 the Chinese gave the ok for Ireland to export beef/beef products to China. However, it took 2 years of inspections from Chinese officials of processing plants, storage facilities and shipping arrangements before any individual producers were approved. In May of 2018 the Chinese are giving 3 particular processors approval with 5 others still awaiting certification.

    So the process took ~ 3 years for actual, substantive approval, thus illustrating how tedious and time consuming details and implementation trade processes can become. And, as PK has pointed out before, Ireland already has a well established relationship with Chinese officials through milk product exports for some considerable number of decades.

    But chuckles subside as reality bites:

    “But as usual, the people most responsible for this debacle will be largely insulated from its effects.

    1. PlutoniumKun

      Ah yes, beef to China. Its amazing how particular the Chinese are about imported beef compared to domestic food safety arrangements. But you are right about just how long these things take. I was reading a while back one of those ‘hey, Brexit ain’t so bad’ articles in a UK paper about the surging dairy exports from the Uk of items like mozzarella cheese for cheap pizzas in Asia. Brexit will apparently allow for a huge increase in this business from around the world as everyone will want British mozzerella, so much cheaper than Italian cheeses.

      1. makedoamend

        Yeah de beef, and I see the Clones plant received approval for May 2018. I do believe our Larry G. still has an “interest” in it. File under: some things never change.

        1. PlutoniumKun

          I’d forgotten about an fear maith, I didn’t know he was still around.

  3. PlutoniumKun

    Incidentally, my own theory as to why Barnier allowed the UK to persist with its delusions in December is that the EU didn’t want to take the blame for a premature failure of the talks. They want to be seen (within the EU, they don’t care what the British media think) as having done everything possible to do a deal, especially with regard to the Irish border issue. There must surely have been internal discussions within the EU on how to deal with Ireland in the event of a hard/chaotic Brexit as it will almost certainly require billions in protective investment to deal with the fallout, Ireland being the most geographically vulnerable country. I think the calculation is that December was too early to bring down the guillotine, and would have left them vulnerable to accusations (especially from East Europe) that they didn’t try hard enough. By placing the blame firmly on the UK, it will be easier for Brussels to get the emergency cash needed to deal with the fallout.

    There may also have been an element of wishful thinking too that maybe a political crisis in Britain in the Spring could have changed things favourably.

    1. vlade

      TBH, from what I hear in Central Europe (former USSR satelites) is that they are pretty fed with the UK anyways (as is most of the EU), although at the same time, most of people I talked to seem to assume it will all end in nothingburger, as in the UK will ultimately stay or it will be a BINO. Go figure.

      1. PlutoniumKun

        You’d know more than me about this, but I had the impression that reports of abuse and assaults on eastern Europeans after the Brexit vote had soured the anglophilia of a lot of Eastern European countries.

        I think the EU is aware that in the event of a crash out there will have to be emergency moves, including an increase in EU funds to deal with it. No country will be happy with a net increase in contributions but I suspect the East Europeans will be more reluctant than most, and of course relations are very poor now with Poland and Hungary. Thats why I’ve been thinking that a lot of the motivations behind the negotiations is to ensure that it can be argued that Brussels did everything it could to prevent it happening.

        1. Julian

          As a Pole I always wondered where did that Polish Anglophilia came from, but it is certainly getting soured by those xenophobic attacks in the UK.

          People in Poland at first were expressing shock and disbelief, some where even trying to argue that Poles were the politically correct target for expressing anger towards immigration, but now such incidents are treated as not surprising and people are getting angry, especially in context of the Second World War history (we have our version, a bit different than British, after all, we lost, so our “pop patriots” had to focus on the positive parts of the story)

          1. vlade

            TBH, Poles have a good reason for a grievance against the UK re WW2- after Battle of Britain and especially Market Garden, Polish soldiers were treated appallingly by the UK post-war, to not to anger USSR. (like being denied part of the Victory parade, when even Czechs were allowed). But then, on grievances against UK in WW2 Poles would have to get in quite a long queue (like Indian Bandgladeshi famine, Aussies being sent to Singapore when it was clear it will have to surrender, former Czechoslovakia with Munich, Kiwis for treatment of Keith Park, Canadians for Dunkerque etc. etc.)

        2. vlade

          What Julian below said – which contributes to being fed up with the UK (although recently the news on the xenophobic attacks abated a bit). The expectations of nothingburger is a bit of a contradiction, but well within normal Brexit parameters :)

  4. Peter Phillips

    Amazing to watch from afar ..(Australia) ..and see the UK being led, at a time when they need the best, highly competent and realistic leadership to navigate them safely towards a workable Brexit, having instead in the key posts of Prime Minister and Cabinet a group of individuals that can “generously” only be described as living in la la land.

    Their big bargaining chip..if we “crash out”..it hurts you (the EU) too!

    My sympathies are wholly with the ordinary citizens of the UK, who, if things proceed as now..and the UK “wastes” its remaining time to Brexit on “fantasy” options, will have to deal with some very serious negative impacts disrupting their daily lives and work.

    1. paul

      I think you can include the media in that description. The castle walls of la la will no doubt be shored up and fortified for the occupants, while those outside will be left to swing in the wind.

      I’m always shocked how few people realise with how much contempt the westminster cabal holds them.

      One cheery note was the huge turnout for independence in glasgow this weekend.

      Not very well covered in press,though.

      1. HotFlash

        A 63-yr old lady is quoted thusly, ” I lived through the Thatcher years and this lot are even worse.”

        Amen to that, and I am thinking that if I lived in England, I would be making a dash for the border about now.

  5. The Rev Kev

    Remember back in 1999 when the Millennium Bug loomed on the horizon? It was not a real problem for most people until they gradually became aware of how much computers were integrated in with modern systems. Airlines, banking, emergency services, water plants, the electrical grid – all of them became suspect as to their reliability after Y2K arrived.
    I am wondering if soon stories will start to circulate of how the EU is integrated with UK systems and that after Brexit, that they will start to fall over. Things like customs, air traffic control – do people really know what the knock-on effects will be post-Brexit? If the British are waiting for their Government and their media to inform them I would advise them not to hold their breath.
    Going by British history, I suspect that it will be a matter of treating the people like mushrooms and telling them not to panic – but then afterwards it will be all “emergency orders” with D-notices aplenty because of “national security”. The thing to watch for is what laws will be passed between now and Brexit that have to do with internal security. That will be the big tell.

    1. PlutoniumKun

      Thats a good point about the national security issue. D-Notices are a very powerful tool and no doubt they’ll be used with the excuse that they want to protect people from panic. And of course when supply chains start to buckle there will be an easy Russian bot army to blame.

      1. Quentin

        Does anyone here know of a D-notice has been issued on the Skripal case. It’s almost as if those two among the most famous Russians in the world no longer exist. Or is it that they never did?

        1. paul

          That’s the wonderful thing about d notices, they are not to be reported, though alex thomson (C4 news) did in this case.

  6. AbateMagicThinking but Not Money

    Prospect of Hard Border in Ireland:

    In a situation like this the EU has to be the adult in the room*. If they hang Ireland out to dry by enforcing the EU border, I imagine that it will not be the Irish who enforce it – given the history of the tactics of the Provisional IRA. If other member nations are required to enforce it, that would effectively be occupation. That would really smack of the Irish escaping the clutches of the British Empire back in the 20th century to become a very minor and very stressed part of another empire in the 21st. Irony of ironies!

    On a personal note, I hope EU countries will allow free movement of Brits, in the same way that Britain allowed the Irish to move freely after separation – but as the cultural links are not nearly as strong, I think the prospects are dim.

    Pip-Pip

    *I see little prospect on the Tories regaining adulthood until they split and have a quarter of a century out of power.

    1. Yves Smith Post author

      I think you are missing what is going on. The EU is not supporting a hard border in Ireland. The fact that UK decided to leave the Single Market, and more specifically, any European “internal market” means there has to be a hard border somewhere. All these fantasy UK fixes don’t work.

      So the “hard border” will be a sea border. Northern Ireland will have to comply with EU rules, including the jurisdiction of the ECJ over trade in goods and services. What the UK does with that is the UK’s problem.

      1. doily

        The EU does not support a hard border in Ireland, because of its obligation to support a member state and its commitment to the spirit and practical functioning of, if not the actual letter of (the border itself not being mentioned), the Good Friday Agreement. The present British government shares this commitment. But the EU must support, and enforce, a hard border somewhere to protect the single market post-Brexit.

        The present British Government does not support a border in the Irish Sea, because of the threat to intra-UK trade, the integrity of the Union, and the threat the DUP poses to that government’s existence. But it must support, and enforce, a border somewhere if it is to leave the single market.

        All reasonable people have dismissed the sparkle pony tech fantasies.

        So how can the EU protect the single market by leaving it to the UK to erect a hard border within itself? Alternatively, how can the EU support and enforce a hard border inside a country that has left it? How can the EU secure the jurisdiction of the ECJ and enforce EU rules in a territory that has left the EU, or police a border which is located outside the EU in airports and ferry terminals within a non-member state?

        I would like to make sense of this, but it is not at all clear to me what is happening.

        1. PlutoniumKun

          You are not alone in this. I don’t know the current situation, but as of late 2017 the Irish government had specifically instructed its security and customs services not to do any work on the border as it was felt this could inflame the situation. I would guess (and hope) this is not the situation now.

          The problem is, as Yves articles have so well expressed, modern border controls are very complex – its not just about tariffs and goods and immigration, its a multilevel series of controls that spreads well beyond the physical boundary. As one example, the ‘controls’ on dairy products (a very important trade item across the Irish border) are likely to be enforced primarily at the gate of processing plants, not the border. I’m not sure if anyone truly knows exactly what will be required in the event of an uncontrolled chaotic Brexit. The chaos will be made even worse by the likelihood that the controls will be implemented by rapidly recruited customs officers who have little idea of what is involved and won’t have the right IT backup.

          This is why I despair at the UK’s refusal to look at the Irish Sea border and the frankly stupid DUP’s rejection of it. A sea border is the only logical approach, and is the only one logistically achievable (nearly all trade goes through just half a dozen ports, all of which already have customs and security infrastructure). It could actually be an economic boon for NI, having its feet in two jurisdictions. Thoughtful Unionists have realised this, but they are a small minority.

      2. AbateMagicThinking but Not Money

        Prospect of Hard Border:

        There is still the prospect of a hard border in Ireland. My argument still stands. It has been demonstrated that the UK is in no position to negotiate, therefore the EU is in the position of being able to say exactly what concrete measures are to be taken. The fact that the EU has not done this demonstrates to me that their plans for Brexit are as uncertain as Britain’s.

        Border issues are the big problem of the EU as Merkel’s chaotic welcome of the fleeing masses a few years back demonstrates.

        Pip-Pip

        1. AbateMagicThinking but Not Money

          I wonder how many of the fleeing masses had Schengen visas.

          Pip-Pip!

        2. Yves Smith Post author

          Do not make stuff up. It’s against our site Policies. Please point to evidence that anyone in the Government is advocating a hard border.

          The UK has committed itself to supporting the GFA. In addition, it clearly regards as hard border as unacceptable and operationally isn’t even remotely prepared to put one in place. It’s going to be overwhelmed dealing with new customs requirements at its existing ports of entry. And there are a huge number of border crossing points, IIRC in the hundreds.

          1. AbateMagicThinking but Not Money

            Making stuff up:

            I rarely read fiction nowadays because non-fiction is much more interesting. I recently read Yannis Varoufakis’ book on his interactions with the EU during his time as Greek finance minister (Adults in the Room). I am sure Yannis would agree that ‘you couldn’t make it up’. His experience of the manner in which the EU operates is pertinent the current discussions about Brexit.

            A few years ago, I would have admonished myself if I had entertained for a moment the very thought that the president the USA would promulgate the arming of school teachers. I doubt that measure wasn’t in the Republican manifesto back in 2016 (if it had one that anyone would read).

            If one is going to have discussions about politics and power all the possibilities have to be discussed. That is surely the lesson of Brexit.

            Pip-Pip!

            1. Yves Smith Post author

              I covered the 2015 Greek negotiations extensively in real time. I don’t like tooting my own horn, but I was alone in calling exactly how it would play out, and got blistering comments from Europeans who romanticized that the plucky Greeks would prevail over the nasty Troika. They didn’t like my doing the equivalent of saying Greece had stage 4 cancer. Saying the survival prognosis is very poor does not mean the doctor is rooting for the cancer, but that was how my analysis was widely read.

              You and he refuse to see that Greece had no choice but to take the bailout funds. The Troika was very clear that it regarded Greece as committing again to the hated IMF memorandum in the February interim funding. It was crystal clear if you read the document. Everyone, including Varoufakis, insisted on denying what it said. Admittedly it was painful for a new government to be defeated that early, but the Greeks were the equivalent of kids with BB guns going up against Panzer tanks. The ECB was violating its own rules massively to keep propping up the Greek bank with what was supposed to be only a short term liquidity facility. It had to be reapproved every two weeks with the ECB falsely declaring the Greek banks to be solvent. It could cut off their air supply at any point and eventually did.

              Varoufakis also made a huge negotiation blunder. While his economic analysis was correct, the negotiations were never about economics. Greece was small enough that the EU could continue to engage in exercises that would cost it more in the long run. And he failed to understand or even consider that debt writeoffs would be treated as immediate losses for national budget purposes. That would make them politically explosive AND require that the governments cover for the losses recognized immediately, as in make massive budget cuts and/or big tax hikes. I guarantee that critical set of facts is nowhere in his self-exculpating book.

              Varoufakis is not a reliable reporter. Greece would not have come out well regardless, but his mishandling of the negotiations (failing to recognize Greece had lost as of February and refusing to adapt in light of that) only united the normally very divided EU against Greece and made Greece’s bad situation worse. He continues to invest huge amounts of energy into obscuring that fact.

        3. ChrisPacific

          The EU already tried this with the December agreement, which effectively put the burden of proof on the UK to demonstrate that their fantasy solutions for the border would be viable, gave Ireland veto power over any proposals, and asserted the EU solution as a backstop.

          It didn’t work. The UK either didn’t read the agreement, refused to look at what was in it, or some such foolishness. They persist in thinking that their impossible solutions are in fact possible, and are making no effort to either realize one of them and get Ireland’s approval on it or to prepare for the backstop option. Eventually they will reach the point where it’s too late for either, possibly without realizing they have done so. At that stage the only option will be chaotic Brexit, which will require Ireland to impose a hard border if they want to remain compliant with EU law. All the EU accomplished was to reinforce the UK’s false hopes and run the clock down some more.

          The fundamental problem for the EU is that the only framework in which they have any influence over the outcome is in the context of a negotiated agreement, and the UK government has shown no signs of being able to commit to one. Even if the EU dictate terms and it becomes the only non-disastrous option due to lack of alternatives, the UK is quite capable of failing to recognize that fact and muddling along with their fantasy solutions until it’s too late to implement anything. Essentially the EU has the power to force chaotic Brexit, and anything more than that requires the UK to come to the table.

    2. PlutoniumKun

      On a personal note, I hope EU countries will allow free movement of Brits, in the same way that Britain allowed the Irish to move freely after separation

      The Brits didn’t really ‘allow’ free movement – it was a mutually agreed thing. As a proportion of population, there were always more UK citizens in Ireland than vice versa so it worked both ways. And of course there are many dual passport holders in NI.

      I don’t think there is any question of removing relatively free movement of people, but the Schengen has already brought in a new requirement for pre-approval for ‘third country’ citizens for security reasons. So there will be bureaucratic obstacles, but those are mostly a by-product of Brexit and the UK refusal to be part of Schengen.

      As Yves points out, its not the EU advocating a border in Ireland. The security issues that will inevitably arise will not likely be directly led by ex (or current) terrorists/guerillas, it will be local people upset at the impact on local communities and jobs.

    3. bold'un

      I still think that the logical solution is to have the Single Market border along Hadrian’s Wall. This could suit both the SNP and the DUP as it recognizes the Brexit Vote result in Scotland and Ulster. Although this may cause constitutional ructions in England, there could be scope for creative arbitrages so the UK as a whole profits from different parts being in or out of the Single Market. Provided that the UK does not become a platform for non-European imports to sneak into the EU by a backdoor, this could end up as a pragmatic win-win.

  7. Ed Walker

    I think as Yves Smith says that EU member governments have decided that protecting the EU is worth the costs to EU business upon the inevitable crash-out. Fortunately they are still in a position to make such decisions. I can’t imagine a case where the US government would make a decision on a principle that hurt its dominant corporations.

    1. PlutoniumKun

      I don’t think its a ‘principle’ in the sense of an ethic as much as a purely pragmatic calculation that Brexit can’t be reversed, but the long term strategic good for Germany, France, etc., is to maintain the EU as its constituted. The huge miscalculation made by Brexiters is that they assumed that German industrialists would be horrified by the immediate impact on their businesses and so insist on good trade deals with the UK. They are horrified – but they are far more horrified at the potential loss of business all over Europe and the world which could occur if the EU fell apart. Thats why big business is on board with Merkel/Macron on this and the UK is entirely isolated.

      1. Yves Smith Post author

        Also, at least for the auto and transport sector (airplane and truck parts), the European and Japanese manufacturers can shift some production to European factories relatively quickly (they have ample excess capacity) and more over time (literally moving specialized machinery out if that were to make sense, or allowing the UK facilities to depreciate, reinvesting only for production for UK end product). So the net impact is lower that it appears looking at current exports and imports.

    2. RabidGandhi

      The Cuba embargo. Corporate US has long understood the blockade locks them out of a major market, but it is kept in place solely for ideological purposes.

  8. BillK

    Re: Stock up with 3 months supply of food and necessities –

    That’s easier said than done! Look at some of the prepper websites for examples.
    You need a LOT of planning and probably at least a spare room to store all the stuff.

    Then there is the problem that if the supply lines break down then you will have gangs looting everywhere in desperation. So you need to protect your storage.

    Though it is probably a good idea to stock up with some extra cans of corned beef and baked beans, just in case! :)

  9. Pavel

    I happen to be passing through London for a few days just now. It is glorious sunny weather and a Bank Holiday. Last night the pubs and restaurants here in Pimlico were full of people, everybody having a good time.*

    What’s strange is that there seems to be very little discussion let alone sense of urgency about Brexit. I meet with very bright and talented people in a large organisation and I don’t hear anyone talking about it or raising concerns. Perhaps it all seems so depressing that they are in denial or prefer to remain oblivious.

    Of course there are other distractions e.g. the ludicrous, fictional Skripal “poisoning” affair, the Windrush scandal (another Theresa May screwup and coverup), and of course royal babies and weddings. But it is like some science fiction film where the population just goes on with normal life whilst an asteroid is hurtling towards them.

    Rather melodramatic, I know, but at the rate things are going and as Yves and others have patiently and expertly explained on this site for some time now, the UK is heading for an absolute economic disaster, and IMHO a probable eventual breakup.

    *Ha ha, reminding me of the excellent U2 lyrics from UTEOTW:

    We ate the food, we drank the wine
    Everybody having a good time except you
    You were talking about the end of the world

    Quite apt.

    1. hajo

      From my own experience, people just don’t want to talk about it. Generally the thought seems to be that some deal will be bodged, or that crashing out won’t be all that painful. I’m not entirely surprised as the media here really doesn’t give one much clue as to the possible consequences, or even the current state of negotiations. It’s all just a jolly game of “May vs the Ultras”.

      Personally I’m quite depressed about it. I can’t emigrate. What can I do apart from stock up – buy dollars?

      1. PlutoniumKun

        Giving financial advice is beyond my skill set, but if I lived in the UK I would certainly be liquidating as much of my assets as possible and putting it into dollars, swiss francs and euro (but not bitcoin :-) )

      2. Mickey Hickey

        From a true blue Conservative viewpoint the preservation of the Square Mile is the most important consideration. There are obvious indications that Britain is placing a large bet on becoming a Switzerland or Singapore. On the ground this means a stable pound is of the utmost importance. How high will interest rates be allowed to rise to protect the pound. High enough to throttle manufacturing in my view. This will be a short term gambit 90 day terms will be optimum. Again based on signs that Brexit may collapse or crash out there is a lot of uncertainty and investing in GB is not for the risk averse.

    2. doily

      Well Pavel you are definitely witnessing the weather-induced euphoria happening over here. Its a bank holiday weekend and it hasn’t rained in four days. What’s that sound? A lawnmower? The Belfast Marathon is in full swing, and the pubs and coffee shops along the route are overflowing with people. Brexit? Schmexit.

    3. visitor

      Perhaps it all seems so depressing that they are in denial or prefer to remain oblivious.

      I just wonder whether people have been now so used to the fact that the EU is built around “policies without politics at the EU level, politics without policies at the country level” that they view everything related to the EU as something that is imposed on them, that they are powerless to shape anyway, and therefore must just be fatalistically endured.

      As for the elites, perhaps they are counting on something big (a renewed financial crash, a major conflict with Iran, whatever) to cause so much trouble that they can hide their ineptitude behind the tangle of confused disruptions caused by their Brexit handling and the impact of an unexpected external crisis ( major crises enable them to resort to exceptional measures, state of emergency, D-notices and whatnot).

      1. AbateMagicThinking but Not Money

        Re Pavel and Visitor:

        My reading of the situation in the UK is that the British government is widely known to be owned by business. If business isn’t panicking and making moves to get rid of the Tories by whatever means so as to halt Brexit, the general perception is that prospects can’t be too bad.

        lf the political system were better suited to represent the people, the situation would almost certainly be different, and the Brexit vote would never have come about. There are few signs that the political system is going to be changed any time soon as the major players know how to game the current set-up so well. In that regard the Brexit referendum was a major aberration caused by a split in the Tories that goes back decades. The division in the party is blatently apparent to those who follow politics in the UK. Unfortunately most voters do not follow politics in detail.

        The failure of the protests against the Iraq war prior to its commencment showed the British public that the physical manifestation of public opinion is severly limited in its ablitiy to change government policy.

        In the 17th century England had its revolution and a large proportion of the population were killed along with King Charles. Perhaps there is a subliminal cultural memory of that terrible time which shows itself in the current shrug of the shoulders.

        Why worry about that which you cannot change?
        Democracy is an elected dicatorship after all.

        Pip-Pip

        1. Clive

          Few business have made detailed plans for dealing with a crash-out Brexit. Planning costs both time and money and business will not spend either unless there is a perceived realistic possibility of the events being planned for coming to pass. But this creates a vicious circle of complacency — as a crash-out Brexit’s likelihood increases in proportion to the amount of time which passes without a transition period deal, it’s not until too much of the (very limited) window to put in effective countermeasures (and there’s limited countermeasures available) has elapsed that business owners and managers wake up and smell the coffee.

          Both the U.K. government’s worldview and the expectations of business are in a self-reinforcing codependent delusion. Government — certainly the government we have — ideologically cannot believe that the great forces of The Market won’t make the necessary adaptations within the necessary timeframes. Business thinks that government will wave a magic wand over any and every intractable problem (we saw plenty of evidence of this in the GFC — in a crisis, all businesses expect a bailout).

          1. PlutoniumKun

            Interestingly though, Irish industry is, on its own initiative, doing far more to Brexit proof itself than I think its UK counterpart. They are n a quite desperate attempt to find new markets to replace the UK. They are even replacing cheddar plants with Jarsberg plants because they see a bigger market in the US for the Norwegian cheese.

            1. Clive

              Yes, definitely — it’s the U.K. where government thinks there’s nothing to worry about. Everyone else is starting to realise in earnest. Unusually for the Japanese, a troup of Japanese senior managers from their big U.K. manufacturing arms (e.g. Hitachi, Mitsubishi Heavy Industries) got a meeting with the PM earlier this year — they were accorded the courtesy of being invited to Downing St. and met Theresa May. Who promptly seemed to do nothing whatsoever. That was a big, big hint by Japanese standards.

  10. David

    I said when we discussed this last year that I thought Barnier’s decision to give the UK more time was the right one, and I agree with PK that the internal EU optics are important. In addition, not foreclosing options and letting time work to your advantage are both good negotiating tactics. The EU will have reasoned that, as the deadline approaches, the UK will more and more be forced to work on the EU agenda, and this is pretty much what has happened. With Ireland, I don’t think there is a choice: if I were Brussels I would be hoping for a last-minute climbdown along the lines of the EU proposals, and stuff the DUP.
    More generally, I think we forget just how routinised and banal the EU has become, not just for the UK but for everybody. Nobody under about 50 has much recollection of how things were before the EU took on its current form, and its mysterious and impenetrable workings just don’t interest the vast majority of people, except for tiny areas that concern them personally. For many elites in Europe (the French are an example) Europe is a religion more than a set of institutions (the idea that the EU is the Holy Roman Empire reborn isn’t entirely a joke) and it permeates everything they do at an unconscious level. The idea that things could be different, and there could be a crisis, is just outside the normal range of thinking. This accounts not only for the very limited coverage of Brexit in the European media (which I can confirm at least for the countries I follow) but also the insouciance with which elites are treating the coming crisis. It’s just outside their experience. The French media, for example, is full of stories about Macron’s first year in power, and the demonstrations and strikes, and embarking on saturation coverage of the fiftieth anniversary of May 1968. The elections in Lebanon have received more coverage than Brexit.

    1. Ignacio

      I concur. When I watch the incompetence of UK institutions to deal with brexit my secret thinking is that Spanish elites aren’t more competent than those. On the contrary! So it is very disturbing. I wouldn’ say that the EU or the Euro is a religion but in general people tend to think of it as a fixture that cannot go backwards under any circumstance.

    2. David Swan

      The EU is not “the Holy Roman Empire reborn”, it’s the HRE in incubation. Once Europe joins in a true fiscal union and the pope places the crown on the new emperor’s brow, then talk about the HRE. The EU in its current form is simply a route from point A to point B.

  11. Ignacio

    Readers of the Continental press are welcome to correct me but I have seen no evidence of anything of the kind.

    Not at all indeed! First, Brexit does not get much coverage in Spain. The media I check publish something like once a week. And basically “brexit news” are treated like “UK news” and generally with the same degree of ignorance as in the UK: garbage in, garbage out. I’ve read for instance about the parlamentary negotiation on “customs union” with exactly the same level of ignorance and lack of explanation as in the examples above. Only one outlet mentioned the failure to agree on the customs union and the issue of fee collection.

    Another issue i’ve read about is how brexit changes “power equilibriums” within the EU and how some small countries, like the Netherlands, are much worried about a strengthened franco-german axis.

    1. Ignacio

      Not to mention the degree of stupidity diaplayed by all sides on the Catalonia issue. For instance, independentists believe that by becoming independent they automatically become a new EU member.

      1. Eustache De Saint Pierre

        I must give ” Idiocracy ” another watch, in order to check on our progress.

  12. The Rev Kev

    OK, there is one question that I have. Let’s go with the idea that the UK/Ireland border will be in the Irish Sea, namely because there is no other workable option. And let’s assume that Northern Ireland is told that there is no choice in the matter so get use to it. Is there any path where both the Republic of Ireland and Northern Ireland size the whole situation up and decide on reunification again as a single country?
    Ireland was only split back in 1921 so it would be fitting if the reunification was set for 2021. There would be a lot of screaming from some Northern Irish and cries of betrayal but being outside the EU, I can’t see Northern Ireland having a good future. If the complaining got too loud (likely), I am sure that some bantustans could be set aside for them or maybe Belfast and Londonderry could be set up as Free Ports (disclosure – I have Northern Irish ancestry).

    1. Clive

      Yes, a United Ireland provision was built into the Good Friday Agreement which allows for a “border poll”. The subject of which is being (again…) in NI (this I know from following the media here, not sure how much play this is getting in the Republic itself).

      The calling of a border poll is required when the U.K. Secretary of State for NI “…if at any time it appears likely to him/ her that a majority of those voting would express a wish that Northern Ireland should cease to be part of the UK and form part of a united Ireland.” (see footnote 284)

    2. PlutoniumKun

      A key problem with Unionism is it can’t quite make up its mind how to deal with the demographic facts that NI will soon be majority catholic/nationalist. The DUP’s usual response is to put their hands over their ears and go ‘nah nah nah, it’ll all be ok, God will help us’. But more thoughtful Unionists know its something they will have to deal with.

      The DUP don’t have a strategy – they have lots of tactics, but no strategy. Deep down, they would probably opt for doing everything they could to change the demography – i.e. force nationalists out if they had to. But they don’t have the strength to do that.

      More thoughtful Unionists know that a significant percentage of catholics/nationalists are bourgeois and would vote for the Union if they felt they would benefit personally. On a rough calculation I would say around 20% of ‘catholics’ are what are often described as ‘castle catholics’, i.e. catholic Unionists. Moderate Unionists have long known that the Union depends on keeping them ‘onside’, or at the very least, voting ‘stay’ in the privacy of the polling booth if a border poll is called.

      The problem is that since the Good Friday Agreement NI has become more divided, not less. The so called ‘moderate’ parties have been more or less wiped out by Sinn Fein on the one side and the DUP on the other. The antics of the DUP have driven bourgeois Catholics into the Republican camp. Moderate Unionists see the danger, but have no idea what to do.

      From my occasional reading of NI blogs (I don’t really have the stomach to follow NI politics in detail), plenty of Unionists have seen the danger of Brexit making Unification a much more attractive option to many, and not just catholics. There is also a realisation by many that the EU’s proposal of an Irish Sea border is actually an incredible potential boon to NI and even the Union if handled correctly. A Northern Ireland which is in the UK, but also in the EU could finally, after 100 years of its existence, have a ‘purpose’. It could become like a mini HK for the UK, an ideal investment area for businesses needing a foot in both camps. Its a huge opportunity, one that the DUP refuses to see, but plenty of Unionists do indeed see it. They also see that a NI that prospers in that situation is not one that would vote for reunification.

      Sinn Fein likewise see the Irish Sea border as an opportunity for forcing through a united Ireland, but they are not saying so, as they don’t want to make this into a Republican vs Unionists issue. They are content to lie low for now, confident that demographics are on their side. They just wish the whole Brexit thing would go away as it raises as much problems as opportunities for them. Their focus now is on the Republic, where Brexit has raised sympathies for northern Ireland nationalists, and they see this as an opportunity to force themselves into government in Dublin. All the polls suggest that in the next election no party will have a majority, and SF will be the only third party big enough to be a coalition partner. Everyone expects they will do a deal with FF, but there could be surprises in store, as they are getting on surprisingly well with Varadkar (they’ve even been doing quiet deals in the background with Varadkar getting moderate Unionists into the Irish second chamber, the Seanad).

      I’ve no idea what the EU thinks of all this. On the one hand, I think they’d see a United Ireland as a very pleasant revenge on London for Brexit, and an excellent message to Eurosceptics everywhere that they could endanger the future of their entire countries. On the other hand, a united Ireland would be a very expensive, and potentially explosive (in all ways) project. NI is an economic basket case and frankly, the Republic can’t afford it. So it would be handouts allround. Certainly not on a Korean or German scale, but it would still be an expensive process.

      1. The Rev Kev

        Thanks for that analysis, PK. By the sounds of it, reunification would have happened in the course of time due to demographics but now Brexit has pushed all these questions into the present. Another generation may have seen all the hard liners from both the DUP and Sinn Fein gone or bundled off to a retirement home. I was wondering if NI could be a sort of Hong Kong but also wondered where the money would come from to finance all the infrastructure to make it all possible. Ireland – both north and south – my find it fortunate to have a sea border, unlike Scotland and Wales where relations may be a bit more problematical. After reading your comment, I think that Ireland bears watching more over the next twelve odd months when Brexit kicks in. It sounds like that there will be a very important story written there.

  13. David

    Not easy to sell in the current climate, though, since it will be argued to be a “victory for the IRA,” given that the British government spent a generation trying to stop it, at the cost of hundreds of British soldiers dead. Yes, it’s in the GF agreement, but there’s a difference between a theoretical point in the future when a calm decision can be taken, and a rushed job in response to economic pressures.

  14. AbateMagicThinking but Not Money

    United Ireland Troubles:

    I am not sure who the British were more afraid of – the Provisional IRA or the Loyalists, but if I had to choose, I’d plump for the Loyalists.

    Given that the Tories rely on the Loyalists for their slim majority and they obviously are clinging grimly to power come what may, how is unification going to happen in the time-frame of Brexit?

    Realpolitik: Walls have been built between the warring communities since the Good Friday Agreement.

    Pip-Pip!

  15. doily

    To repeat, AbateMagic, at no point since the referendum has the EU supported a hard border on the island of Ireland. What is the evidence for the argument that the EU will go ahead and construct one, having consistently dismissed the idea, and also clearly aware of how damaging it would be toi its neoliberal allies presently in power in the Republic? On the other hand, the UK’s self-inflicted lack of negotiating leverage does not put the EU in the position of saying exactly what concrete measures will be taken to build a hard border in the Irish Sea, inside a third country, after a crash-out Brexit. So, apparently, the EU has been waiting for the UK to figure out that a border in the Irish Sea is the only workable way to leave the EU and come up with some “back stop” details. The clock is ticking.

    A word then about the DUP, the only agent in this tragedy that supports a hard land border in Ireland. This political party bitterly opposed the Good Friday Agreement. But once the Agreement was signed, the DUP destroyed the Ulster Unionist Party — the party that negotiated the deal with Sinn Fein –at the polls, and also wiped out all the small loyalist parties aligned with paramilitary factions who contributed to the negotiations. The DUP adopted a strategy of “include us out” of the Agreement, persistently obstructing its functioning for two decades now, and continuously bolstering its grip over its constituencies. This party has Thoughtful Unionists over a barrel, because the only choice they have at the polls is to vote DUP or risk losing another seat to Sinn Fein. Politically retrograde, unaccountable and untouchable, drunk on their current Westminster power, they will be a key ingredient in the unfolding chaos. And if they were to be somehow side-lined by the results of a new election, and put on the defensive by post-Brexit arrangements that create further political distance between Belfast and Westminster, and further integration of NI into the RoI and the EU, the chaos could be much worse.

    What has happened before: ( ).

    So, Rev and Clive, I think the idea that the DUP might be involved in some kind of smooth, border-poll-justified, evolution towards a United Ireland in the coming decade is highly unlikely. Meanwhile, the institutions of the Agreement have yet to be fully engaged with.

    1. Clive

      Erm, I didn’t say that I thought the DUP would do anything in particular vis-a-vis a border Poll. I merely explained the mechanism by which one is initiated.

      On the broader point of the totally and utterly crazypants-ness that is NI politics, there’s no argument there from me. But nevertheless, the politics there are the politics that they are.

      And trying to figure it all out via media reporting is making the almost impossible completely impossible. To give one example, the notion that you can have non-sectarian (i.e. Catholic) unionism is a theory which is sometimes bandied around, but there’s precious little evidence for it outside the imaginations of the Belfast elites and the confines of metropolitan good thinkers. Similarly the construct of the enlightened nationalist who might be willing to have a devolved NI within the sovereignty of the Republic. There may well be some — many, even — such people. But there are also not a few republicans who cannot even contemplate the idea of unionism as a state of being, let alone any airy-fairy ideals of a power-shared-in-reverse solution for the north.

      I do sometimes wonder if the EU knew what it was getting itself into when it wandered into the politics in the gothic revival style that is practiced in the island of Ireland. It does rather remind me of my mother-in-law’s parking. Getting into spaces is no problem whatsoever. Getting out of them again without the possibility of an awful scraping sound, not quite so easy.

      1. doily

        Yes, and to follow the analogy, the parties that negotiated the Good Friday Agreement did one heck of a job pulling the car out of the parking space it had been stuck in for thirty years (plug in links from Fintan O’Toole et al about this profoundly imaginative resolution of conflict and remarkable departure from the gothic crazypants stereotype), but thereafter the car needed two drivers to go anywhere, and it has only had one. Meanwhile the local media s on division, housing and education as sectarian as ever, etc. etc. The blind hope is that Brexit is not the fuse to another bomb.

  16. David

    Just to add, there’s no doubt at all that, during the Troubles, the British were much more worried about the Loyalists than the Republicans. They could and did, more or less, contain the Republicans, but could never have managed the Loyalists. Successive British governments would have secretly been happy to hand Ulster back, but they were deathly afraid of the political and military backlash, including support for Loyalism from influential quarters in the UK. I don’t know how far things have changed (or what the government’s appreciation now is) but it must still be a concern. And the lesson of history is that you only need a tiny number of extremists to ruin everything. How many active members did the IRA have in 1969?

  17. Oregoncharles

    “Recall that Barnier once said that it wasn’t the EU’s job to solve the UK’s political problems.”

    Varadkar said something similar. It’s typical politician-speak, technically true but misleading. A hard Brexit means a hard border in Ireland. Who will suffer the most from that? The Irish – and the Republic, most of the Irish, remains part of the EU. It’s the EU’s problem, and it behooves them to find a solution even if they have to do it “for” May.

    It gets worse. We’ve been told, with considerable local color, just how porous that border is and always was. Even a “hard” border will be pretty ineffective. That means the EU will need enforcement BETWEEN Ireland and the rest of the “Union.” (It isn’t, but that isn’t the problem here.) Just as the “United” Kingdom will need enforcement between N. Ireland and the rest. They can pretend it’s just law enforcement, but chances are it will look a lot like a customs border. That’s assuming the UK manages to have an effective customs service after Brexit. They might just ignore the stuff dribbling across the Irish Sea, as long as it doesn’t include bombs.

    Come to think, it’s a lot like the US’s problems with the Mexican border.

    Messy, at best, and that’s before the political repercussions.

    1. AbateMagicThinking but Not Money

      Abrogation of responsibility for Political Problems.

      Despite the running sores of Gib (UK/Spain) and The Troubles (UK/Ireland) all three were accepted into the European Economic Community.

      Administrators of relatively simple (but violence prone) set-ups such as night-clubs know the benefits of having gate-keepers and chucker-outers and are practised in instant analysis.

      The move from the EEC to the EU solved neither of the problems I outline above. The politicians who engineered the EU had no need to make instant decisions about who to let in, but somehow (you couldn’t make it up) here we are five decades later chewing on the same old bones of contention.

      Given that we are told one of the reasons for for the founding of the EEC was the avoidance of war in western Europe how did the politicians allow these minor conflicts (which can flare at any moment) in?

      Pip-Pip!

      1. Clive

        The EU didn’t create the problems inherent in Brexit. Goodness knows, I’m no fan of the EU and voted Leave. But the messed up Mad Hatter’s Tea Party we have masquerading as Brexit is a betrayal not only of Remain’ers who obviously weren’t that enamoured with the idea in the first place, but also of Leave’ers.

        If the outcome of the referendum was Leave, this did not give the U.K. government a mandate for incompetence. A properly executed Brexit needed 5 years of detailed planning and another couple of years of implementation — as a minimum, if run as a BAU programme of government. Article 50 should not have been triggered until the implementation phase was well under way and running as expected. If the U.K. could not or would not sustain this kind of popular support for the effort required, then so be it — Brexit would have been cancelled or kicked into the long grass indefinitely. Instead, the U.K. government swayed by the Brexit ultras got scared that this couldn’t be sustained (and the true cost and effort required would prove unpalatable) so did the electorally cowardly thing and committed to A50 thereby it dumped the entire country into a fait accompli. A fait it couldn’t then actually accompli in practice.

        If the U.K. government had wanted to conclude Brexit in two or three years, it needed to marshal every resource nation had available and run deficit spending accordingly. Again, not a option for the small government balanced budget delusions of the Conservative party.

        The U.K. government is trying to have its ideological cake and eat its expensive policy jam filling and chocolate sprinkles too. It is not going to work.

  18. Matthew G. Saroff

    While I do think that there will be hardships that result from a hard Brexit, particularly for the City of London (I consider that a ), I do not think that it will be the Sta-Puft Marshmallow Man end of the world foretold by the people who don’t want Brexit.

    Worse, to my mind, and where the Tories are headed, is a situation where the UK keeps all the restrictions that the EU has, and it has no voice in their policies.

    Jacobin (of course) : They argue that remaining under the neoliberal rules of the EU will prevent someone like Corbyn from reversing the privitization of the past few decades in transport, healthcare, etc.

    Indeed: a democratic socialist government led by Corbyn is the best option for the majority of British citizens and for the British economy. This leads to an obvious conclusion: that for a Corbyn-led Labour government, not being a member of the European Union “solves more problems than it creates,” as Weeks notes. He is referring to the fact that many aspects of Corbyn’s manifesto — such as the renationalization of mail, rail, and energy firms and developmental support to specific companies — or other policies that a future Labour government may decide to implement, such as the adoption of capital controls, would be hard to implement under EU law and would almost certainly be challenged by the European Commission and European Court of Justice. After all, the EU was created with the precise intention of permanently outlawing such “radical” policies.

    1. Yves Smith Post author

      I suggest you bone up on Brexit. There is going to be chaos at customs. This means food shortages. And the few sectors where the UK has export strength, namely, transportation goods and parts, are part of global supply chains run by non-UK multinationals. They have excess capacity in Europe. They will move product manufacture for non-UK end consumers out of the UK, further hurting employment. The UK’s poor trade balance will fall further. The pound will fall considerably. That means much higher costs for imports, particularly fuel. The general rise in inflation, which will be even higher in food costs, will hurt the poor.

      And as we’ve also documented, in the past, even when the UK was in the EU, a fall in the value of the pound didn’t lead to an increase in exports. It will be worse this time due to disadvantaged access to its best export market, the EU. The UK will be mired in chronic high inflation. It will become a third world country with remarkable speed.

      And a crash out Brexit will be worse.

      Regarding that Jacobin piece, it is badly informed. The UK is far more neoliberal than the EU. The UK will gut labor and environmental regulations. The reasons UKIP and the Tories pushed for Brexit is to reduce labor rights and costs even further. And as regards immigration, the false selling point of Brexit, non-EU immigration was greater than EU migration.

      Mitchell was wrong on Greece and he is wrong here too. He has a pathological hatred of the EU that blinds him to the fact that in lose-lose situations, some things are worse than the EU.

      1. Joe

        Just wondering, might the idea of a “hard border” between North Ireland and the Republic be the one piece where the UK holds a strong hand in the whole crash out Brexit scenario? I mean, if there is a crash out with no deal, the EU would seem to have three poor options to keep the flow of British goods from entering the EU—1) they could try to block goods from moving from Britain to North Ireland , 2) they could build their own hard border, or convince the Republic that this would be their task, or 3) they could require that all goods leaving Ireland (including those of their loyal member state, the Republic) pass customs before entering another EU country. It strikes me that on this issue, the EU would want badly to make some kind of a deal.

        1. andrew d blatchford

          In a hard crash out then goods would still flow but and it’s a huge but they are third country imports and all regulations from a third country apply (contrary to popular belief that isn’t customs, as customs is really about revenue, it’s all the other stuff sanitary, pyttosanitary etc) and paperwork, inspection heavy.

          3. What you are suggesting is to make Ireland a third country, they do not want it and TBH a pretty outrageous statement, the UK leaves so in effect suggesting Ireland leave to.

          1. Joe

            Fair enough about customs. I concede.
            But still, the day after a crash Brexit, if I am a merchant in London who wants to ship chlorinated chicken to a merchant in Belfast, nothing will stop me from doing so. And what is to stop her from shipping them to a merchant in Dublin? And what is to stop him from shipping them to a merchant in Paris? My basic point is that the EU will have to be the party to deal with this in the event of a rash out or no deal Brexit.

            1. PlutoniumKun

              There doesn’t have to be a physical border to stop a load of chlorinated chicken. The receiving merchant in Dublin will be in breach of a series of laws, both EU and domestic. Without its correct standards mark you would need a series of merchants and processors and retailers willing to break the law. This is entirely possible of course, as the horse meat scandal showed, but the reality is that the Irish government would have no incentive to turn a blind eye as it would seriously endanger the domestic chicken market.

              So in reality while there would undoubtedly be some smuggling, it would be relatively small in scale, and would be subject to a hierarchy of laws and regulations from the border to the shop display counter. It would be a straightforward regulatory matter if it was a case of simple criminality among merchants. However, if the EU had evidence that the UK was actively facilitating the trade, then under WHO rules it would be entitled to take retaliatory action (by, for example, blocking the import of Welsh lamb), which could be aimed to cause maximum pain. If it suspected the Irish government was facilitating the trade, then it would take action through the ECJ.

      2. andrew d blatchford

        “Some things are worse than the EU”

        Quite, and I really don’t fancy living in Jabob Rees-Moggs Ancapistan.

        There is a Times piece today that’s obviously a set up to blame Corbyn and too many on the left are retweeting to show the EU are bad, walking straight into a trap. The shambles is going to be blamed on Corbyn (Not that he has been good on the subject).

    2. vlade

      Cogent? It’s about as cogent as Moggie’s deluded ravings.

      the “EU would stop us from nationalisation” meme has been debunked ad-absurdum. At the worst, it would make it more bureaucratic, as there would be formalities to be observed.

      Most of the EU nations are much more SocDem-like (so far, anyways) than UK ever was, and that includes various national champions, as often as not owned by the state. FFS, Budvar, the Czech brewer, is owned by the Czech state – how “strategic infrastucture/industry” is that??? And I didn’t notice any lawsuits from the EU that would challenge that, or an insistence from the EU to privatise it before CZ joined EU.

      The main problem of the UK politician, left, right and centre, is that they still believe the UK is the centre of the world (with some exceptions for China and US), and that they don’t have to understand the rest of the world at all – because it’s convenient for them to blame the Johnny Foreigner in front of equally clueless UK public for their own lack of actions, inabilities and inadequacies.

  19. rtah100

    Several comments on the comments:

    1) In the Westminster act for the creation of the Irish Free State (or possibly the Republic). Ireland was specifically held to be “not foreign”. The Irish and British have free travel and can vote in each other’s parliamentary elections since the separation.

    2) Yves, please stop saying there will be food shortages in the UK. it undermines the high quality of your analysis. The one useful thing that should be common about running your own customs policy and phytosanitary regulations etc. is that you can elect to disregard them if there are bread riots. There might then be food sures (or rather food rotting at the docks) because non-adherence to the rules means they cannot be exported to the EU but there cannot be food shortages (except as a deliberate own-goal) because one simply lets it all in and damns the re-export trade (to the extent the UK has one).

    If the Irish supply chain is integrated with the UK supply chain, they are in a very different position because the EU will not let them waive its rules if the UK lets any old chlorinated chicken in, so they might have food shortages until the EU can resupply them….

    1. Peter Phillips

      In regards to your Point 2..I raised this issue with Dr Richard North of EUReferendum and he replied as follows:

      “The cross-Channel ferry system will be choked, so even if the UK does waive the checks, there will still be massive delays. Food shortages are almost inevitable. Furthermore, I don’t see the government being able to sustain a no-check policy in the event of unsound food being found on the market.

      One must not, however, neglect the effect of exports being held up. For certain commodities (such as Welsh lamb) there could even be a short-term sur arising from diversion of export stocks onto the domestic market. That leads to another dynamic. We could see farmgate prices crashing, with substantial number of operations going out of business. This could lead to medium- to long-term shortages.

      Another dynamic we will probably see is “panic” buying. Local shortages of some commodities could trigger this phenomenon, which has the capacity to strip shelves even when there is no actual shortage – thereby creating a self-fulfilling prophesy.”

    2. Peter Phillips

      Additional back received from a contributor on the EUReferendum blog that you might take onboard rtah100 to temper your comment that Yves is somehow “undermining the high quality of her analysis”….

      “Everything Doc has just said and perhaps partially repeating.

      RO-RO ferries upon which much of UK bound food is conveyed roll in two directions. If trucks are delayed from disembarking at one end due to inspections then trucks are delayed from embarking to make the return journey. The UK may decide to throw their rule book in the Channel but the EU won’t. So a blockage at one end is a blockage at both much like a tube. Or the Channel tunnel. Which is a tube. Through which a lot of UK bound food also travels.

      Additionally a fling open the borders and let anything through policy will increase the risk to those importing UK goods thus increasing the rate of their inspections on UK exports exacerbating the problem.

      There are other food supply issues this fling open the borders policy doesn’t address.

      Customs IT systems and those of operators and port authorities interfacing with them will not be updated in time for the new rules of business and increase in declarations adding to the delay and chaos at ports.

      The food produced in the UK (as per a presently modern and prosperous economy) tends to be made of more than one ingredient and produced in stages in more than one place. For any one food those places of production and sources of ingredients may well be scattered across the globe but mostly across the single market. Production depends nowadays on just-in-time logistics with the rules these systems are built on predicated on availability. This can’t change overnight or even in the time available. So supply chains will break and thus production will halt.

      In the chaos and disruption sterling will crash thus increasing the cost of imports, not much point flinging the gates open when much of what you want to let through can’t be afforded.

      Food production and distribution in the UK is highly dependant on migrant labour. As sterling crashes and the UK descends in to anarchy they will flee.

      UK farming is highly dependant on subsidies (on average 40% of income) to which UK right wing politicians are generally unenthusiastic and whether the same level can be sustained post brexit is questionable. Additionally DEFRA’s systems for calculating and disbursing payments are already in trouble and won’t be updated in time.

      Even if everything the UK exports is instead consumed at home, UK produced food will meet only 60% of its present requirements. So assuming UK gov’s current trajectory in talks with the EU there will be famine martial law and civil unrest.”

      1. gallam

        I’m not quite sure where to begin with this. You seem to be suggesting that panic in the UK is inevitable at a known date in the future, that sterling will crash and the UK will be depopulated.

        That is a bet that I’m willing to make with you. Your pessimism would presumably lead you to be willing to sell all UK assets at, eg. a 75% discount to current market prices, thereby at least ensuring a 25% recovery. If you are not willing to make that bet, perhaps you should consider whether or not your analysis and forecast accurately reflects the information currently available.

        By the way, as I have noted several times on this blog, cutting off a country’s food supply is an act of war, no matter how it is done. Keep in mind that the UK is a nuclear power able to completely destroy eg. the continental United States five minutes after the order is given. It also maintains a standing army more than sufficient to, for example, take over the whole island of Ireland if required. The EU may have fantasies about having an army and real military power, but at present it is the member states that are in the firing line in the event that the EU creates a situation in which a war is inevitable. I hope that that is more than sufficient to concentrate the minds of the politicians in the relevant countries.

        1. Yves Smith Post author

          Puhleeze. The UK is the one that will damage its own food supply by not making even remotely adequate preparations for Brexit, and refusing out of its thick-headed pride not to back out when Barnier has said the EU would almost certainly be willing to do that up to the very last minute. You can’t blame other parties when you decide to play Russian roulette and didn’t even check that the revolver you picked up has every chamber loaded.

          The UK will have a permanently lower GDP by 10% in 10 years in real terms in the event of a hard Brexit, worse in a crash out Brexit. He never spoke in terms of asset values. only real economy impacts.

          1. gallam

            Puhleeze, I am quoting directly what was stated:

            “In the chaos and disruption sterling will crash”

            Baldy asserting that “the UK will have a permanently lower GDP by 10% in 10 years in real terms” is heroic. Perhaps it will, but that is something that will be very difficult to test even in retrospect. Of course if there is a war then things will be a little more obvious.

            1. Yves Smith Post author

              You’ve just demonstrated your unfitness to comment on this topic. Italy, which has more diversified economy than the UK and world competitive manufacturers in the North, has had its GDP fall more than 10% since 2008.

              And I suggest you check my track record on the calls I’ve made, such as the outcome of the Greek negotiations, the start of the great credit contraction in early July 2007, the failure of Paulson’s SIV bailout scheme, the fact that the crisis was not over at the end of each of its first three acute phases, or that Lehman had a huge hole in its balance sheet. That’s just for starters.

        2. vlade

          Do you really mean that he should sell you the UK assets at 75% of the “current market price“??? I don’t think the rest of it needs to be read after a start like that, where you’re suggesting a bet that someone would immediately take 75% hit and if he doesn’t, he’d “reconsider his analysis”. I’ll take a bet where someone sells me an asset at 75% of the current market price 99.9% of the time.

          Your other argument is just plain dumb. Yes, if EU cut UK’s food supply, it may be considered an act of war. But the UK problems would be entirely self-inflicted. UK could raise restrictions on any food imports – but as has been pointed above, it would still not solve the problem, as food would still have to be processed through clogged ports – there’s just no infra to deal with food in a separate channel. And if you have five mile queue in front of your food truck, it makes little difference that the 5 miles + 1 truck doesn’t need inspections.

          Not to mention that dropping the inspections has to be total – i.e. you let in not just EU food, but ALL (that’s WTO for you) – or you pay the costs in WTO sanctions. Doing this would kill all UK food exports too (and I don’t mean just things like Welsh lamb, but any processed food too).

          And, if you want to bring in the nukes, French have them too, and a larger army (and I think navy and airforce too) than the UK.

          1. gallam

            If I have inside information about a company that is about to go bust, I would be more than willing to sell shares in that company at a 75% discount. In fact I would be willing to sell at a 99.99% discount assuming no chance of recovery for those holding equity. Alternatively, if I am very certain of my point of view about any financial matter I might be more than willing to trade at what appear to be off-market prices to create liquidity. So when you say ” I’ll take a bet where someone sells me an asset at 75% of the current market price 99.9% of the time.” it may be that you are being plain dumb, or maybe not. Only the future will answer that one for you.

            As far as the other argument is concerned, consider the situation in Eire and pretend that it has no food production, only imported food. The UK has it surrounded and could cut its food supply by making ludicrous regulatory demands on exports for example. De facto the food supply would be cut, the UK would know that, and that is an act of war. Is that thought experiment clear enough for you?

            By the way, in relation to WTO sanctions, the cases take years and even when there is an overwhelming case with obvious damages payments often never happen. Go and ask Antigua.

        3. Ignacio

          By the way, as I have noted several times on this blog, cutting off a country’s food supply is an act of war, no matter how it is done. Keep in mind that the UK is a nuclear power able to completely destroy eg. the continental United States five minutes after the order is given. It also maintains a standing army more than sufficient to, for example, take over the whole island of Ireland if required. The EU may have fantasies about having an army and real military power, but at present it is the member states that are in the firing line in the event that the EU creates a situation in which a war is inevitable. I hope that that is more than sufficient to concentrate the minds of the politicians in the relevant countries.

          Wow, just wow! Gimme your address and in case of food supply shortage I send you scottish biscuits from Madrid! Anything to avoid nukes!

        4. Clive

          Pre Brexit — and therefore free of the tainted output which is characteristic of pretty much everything the U.K. government issues now — this into U.K. food security gives the facts of the matter.

          The U.K. food supply is extremely vulnerable to interruption — even a few days due to bad weather — at the channel ports. Accompanied transport (i.e. trucks) are the only modality available for fresh produce outside of hugely expensive airfreight. You cannot use shipping containers for temperature controlled distribution outside of a very few niche shipping operators — the need either s fuel supply which poses a flammability risk or else a 20+ kW electrical supply which is huge electrical loading and challenging engineering task to provide on a shipping environment.

          An entire transport and market system is built around non-stop refrigerated truck transportation from the EU to the U.K. — unpicking that will be at a vast cost and a time consuming task.

          I am already seeing the costs of the — now creeping essentialism — of food supply logistics and supply chain changes to accommodate a crash-out Brexit. I studied in depth the produce section of a large U.K. supermarket just now. British grown carrots and potatoes were the only items I would describe as affordable (50-60p / kilo). Everything else — which would have last year come form the EU — such as green vegetables was from South Africa, Central America or Zambia / Kenya / Egypt. These would have been air freighted. This was reflected in the costs — broccoli and sweecorn were nearly £10 a kilo. These were pre- packed and pre- prepared, but that was the only form which would be suitable and cost effective for air freight. You could — rightly — say that the high cost was my “fault” for eating those vegetables out of season. But most food consumed in the U.K. is processed and these pre- cooked dishes require the ingredients which the recipe stipulates. So these higher raw material costs are what is creating the food price inflation we are seeing already.

          The same limitations on substitute transport modalities are even worse in fresh chilled meat, as noted in the report linked to above.

          Anyone who thinks that a) shipping won’t be affected by a crash out Brexit and b) those effects won’t flow immediately into pricing only needs visit a supermarket today to see evidence to the contrary.

          1. PlutoniumKun

            Do I understand you right in saying that UK supermarkets are already substituting vegetables from Europe? I know there were some changes last year, but I thought it was mostly down to the terrible Spanish crop of last year.

            1. Clive

              Yes — I never normally take much notice of Country of Origin or, I have to admit, price either. But I was genuinely shocked by both when I went out foraging just now and actually looked at labels for both. I like you thought it might’ve been weather related but outside of wine / grape production, it does seem like vegetables were late but otherwise not hugely affected. It wasn’t just vegetables either — fruit / berries were almost all non-EU. The only EU items I found were tenderstem broccoli from Spain. The shelves should have been groaning with Spanish cauliflower and broccoli heads by now.

              Pretty much everything — and I mean everything — was either large quantities of cheap U.K. root vegetables (and so limited to only carrots and potatoes at the moment) or non-EU grown out-of-season type produce. The costs of the latter were very high.

              I can’t prove it, but I am convinced the supermarket was trialling out non-EU supplies for this growing year to test out the supply chains (airfreight) reliability and buyer tolerances for higher prices ( the uptake of the low cost carrots and potatoes from the U.K. which was all anyone on any kind of food budget would have been able to afford; I could not have stumped up what I paid for my Kenyan broccoli, sweetcorn and baby carrots if I’d a family of four to — 6 portions of vegetables cost £4.80 and then only because I got £1 off on a multi buy).

    3. Yves Smith Post author

      Based on having read over a million comments each, Lambert and I have ample evidence that concern trolling is never done in good faith.

  20. The Rev Kev

    I wonder if we will be seeing a return to the Ten Pound Poms () once more as I am willing to bet that those who can will bail. In short, the scheme was that those in the UK could go to Australia for £10 but had to stay for 2 years or they would have to pay full fare back to the UK. I met people in the 70s that came out on this scheme. Most stayed but many got homesick and went back to the UK but it happened that half of them after returning couldn’t go back to their old lives so saved up and came back out on their own. Must be all the effect of all the hot beaches and cold beer.

    1. Yves Smith Post author

      Australia was keen to let more immigrants in staring about a dozen years ago. But even then, they didn’t reinstitute the Ten Pound Poms. But the Aussies had visas that facilitated them getting permanent residence. Things are way stickier now.

  21. Ignacio

    Food staples including lettuce, tomatoes and beef could be in short supply or even disappear from supermarket shelves after Brexit because of disruptive checks that will need to be conducted at ports, Eurotunnel and freight industry chiefs have said.

    Keefe said the phytosanitary checks legally required on both sides of the border were a bigger challenge than the high-profile issue of customs checks that is currently dividing the cabinet.

    Keefe said the phytosanitary checks legally required on both sides of the border were a bigger challenge than the high-profile issue of customs checks that is currently dividing the cabinet.

    Keefe said one problem was there were no existing border inspection posts to serve Folkestone and Dover, the gateway for the majority of fresh food supplies. It is estimated it could take between five and 10 years to put enough posts in place to deal with the volume of freight requiring phytosanitary inspection.

    “One of the things the government is significantly behind the curve on is the whole border inspection posts. We have the cabinet talking about different customs partnerships, but what we haven’t seen yet is any kind of progress out of Defra [the Department for Environment, Food and Rural Affairs] in particular to provide us with some clear guidelines about how [border inspection posts] might develop,” he said.

    Several executives at the conference poured cold water on the government’s current proposed solution for the borders. Peter MacSwiney, the chair of Agency Sector Management, a freight specialist, described the proposed customs partnership as “ridiculous” as it would require French, Belgian and Dutch authorities to reciprocate.

  22. Troutwaxer

    I’ve come to the conclusion that the British upper class has a terrible guilt complex about their earlier dealings as a colonial power, and that they believe the only way to expiate this guilt is for the U.K. to also become a starving, third-world country. Is there any other interpretation of the facts which makes this much sense?

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