Brexit: In the divorce proceedings, the Irish border just became the kid

(Foolish?) Predictions for 2019 and 2021 after the events of this week.

The most important Brexit signpost from this week may turn out not to be the Juncker-May agreement of Friday morning, but the rhetoric from Brussels and London earlier in the week raising the Irish border from a question of trade to a question of peace / geopolitics. This seems to now make the Irish border the one issue preventing a ‘no deal’ scenario. It just became the 2018/9 block, preventing either side walking away from a deal – it reduced both their BATNAs to geopolitical pariah.

In the divorce proceedings, the Irish border just became the kid.

It means the EU must give the UK a transition, even if the bridge to a future trade deal hasn’t been (fully) worked out. What’s the Brussels alternative? The EU lets the UK crash out in 2019, saying they’ve run out of time, rather than extend trade talks by two years? Thereby leaving the UK able to blame Brussels for a hard and sudden Irish border?  The Irish won’t wear it.

And the UK would have to agree to such an arrangement, a transition and continuation of talks, if offered by the EU. What’s their alternative? The UK is offered a 2 year transition but says no deal, we’re walking away? Not possible, UK would be the parent to blame. And Irish reaction to the British throwing up a border with no deal, would bring down May’s government, because of the DUP.

‘Brexiteers’ best strategy now is to de-couple in terms of timing the exit (2019) from the realisation there’s no good outcome (2021).’

Brexit cartoon Oillic Dec 2017 small

 

Cartoon by HLC’s Maxime Oillic 

 

Brexiteers will focus on the UK leaving in March 2019 as their only red line. And they will get it

Brexiteers will support a transition, as long as they get the UK to formally leave the EU in March 2019.

Remainers will have some momentum in making the argument, ‘what’s the point in leaving, we now have to follow the rules but not co-decide’. However, they won’t gain momentum soon enough to stop exit by March 2019. Partly because Brexiteers will realise that now everything is at risk, so they will accept continuation / transition and privately focus 100% on only one red line – formal leaving under article 50 at 23.00 etc.

Brexiteers will know the time that public opinion will really shift is when the British public realises Canada means losing services, Norway means freedom of movement, and there is no Canada + + on offer. But that won’t happen till 2021, two years after formally leaving. Brexiteers’ best strategy now is to de-couple in terms of timing the exit (2019) from the realisation there’s no good outcome (2021).

Without planning it that way, Brexiteers have now cemented formal exit in March 2019. So arguably a good day for Brexit, if you’re into that kind of thing.

Brussels knows now it will offer transition, but won’t suggest it until late 2018 when bankers have already moved to Frankfurt, Dublin, Paris and Luxembourg

A transition with continuation of current rules will happen as of 2019, but it will be difficult to spot in 2018.  It will be slow to come from Brussels in 2018 because a brinkmanship strategy will emphasise UK political weaknesses and maximise transfer of City jobs in quarters 1,2 and 3 2018.

Conclusions on scenario likelihoods

A transition of two years while talks continue is now the overwhelming favourite scenario with 80-90% likelihood. The risk of a 2019 cliff edge scenario has receded because neither Brussels or London can afford to be blamed for a hard Irish border situation. The kid. In the long-term we are no closer to sorting out what the deal will look like (Norway, Canada, or Canada + +). This will now be a conversation until the mid-2020s. As will, ‘what was the point?’