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Brexit Comedy of Errors Includes a Resilient Pound

John Authers

(Bloomberg Opinion) -- A reminder: Amid all the hubbub in Parliament, Boris Johnson is still the U.K.’s prime minister and the country is still due to leave the European Union on Oct. 31, deal or no deal, unless someone does something to change it.

The Supreme Court’s decision, barely a decade after its forming, to invalidate Johnson’s attempt to use monarchical privilege to close Parliament may well prove to be Britain’s Marbury v Madison; but it still leaves Johnson in power, and the EU leaving date unchanged. Yet the pound is somehow barely shaken by this hectic premiership. Immediately after the supreme court’s stunning ruling, it was back to $1.25, stronger than when he took office. Even the pound’s dive Wednesday – which owed more to strength in the dollar than anything else – still left sterling near where it was when Johnson took over from Theresa May.

What is going on? It is customary to view the Brexit saga as some kind of Shakespearean tragedy of betrayal, from the playing fields of Eton to the dreaming spires of Oxford and thence to the corridors of power in Westminster. The better Shakespearean analogy, however, might be “The Comedy of Errors.” Players on all sides have made egregious errors in the Brexit process since Johnson took over as prime minister. The market judges that these errors render it much less likely that Britain exits the EU with no deal – considered the “nightmare scenario.” That may be the biggest mistake of all.

Here are some of the key tactical errors:

Johnson’s strategy to force through a “no-deal” exit by closing Parliament and denying MPs the opportunity to come up with an alternative backfired spectacularly. As a result, so many of his Conservative Party’s MPs have either resigned or been expelled that he no longer has a majority. And he has now, of course, suffered a defeat at the hands of the courts. Johnson’s team also misjudged the difficulty of the Irish border issue, which proved an insuperable obstacle for Theresa May. His proposal to allow agricultural goods to flow freely across the Northern Irish border appears to have been poorly thought out. Leaks that Johnson expressed surprise when EU interlocutors informed him that his plan would still require intensive physical border checks were damaging and made him look under-prepared. Without a resolution to the Irish border issue, the U.K. needs to stay in the EU customs union – which realistically makes it impossible to reach a negotiated settlement that Parliament can accept. Opponents of Brexit made what may be a critical mistake by leaving Johnson in power as prime minister, rather than forcing him out with a vote of no-confidence, or acceding to his wish for a general election. As the executive, he still has great power – he is the one who will negotiate with the EU. Johnson’s refusal to tone down his language, even after the Supreme Court defeat, and his decision to instead come out fighting harder than ever in remarks to Parliament Wednesday riled up the opposition in a visceral way and will make it that much harder to find a compromise. The stratagem that opponents of a “no-deal” Brexit used against Johnson may also backfire. Under the legislation that passed the Commons, Johnson must present a letter to the EU asking for a three-month extension. No reason is given for such an extension, and there is no hint as to how the U.K. might use the extra time. Previous letters by May asking for an extension went into great detail. This might look like a nasty piece of internal British politics to EU eyes. Many are inclined to get the issue over with and let the U.K. leave without a deal. Any extension must be cleared unanimously by the EU’s remaining 27 members. It is quite possible that one of them will refuse. Last week’s dramatic set piece, the decision by Luxembourg’s prime minister to continue with a press conference next to an empty podium and a British flag, after Johnson had decided not to attend due to nearby protesters, almost certainly backfired. It came across as rude and unnecessary, and gratuitously disrespectful from the leader of a far smaller nation than the U.K.; it played to all the worst British stereotypes of the EU. The U.K. opposition to a no-deal Brexit has no common strategy. The Liberal Democrats (current slogan: Bollocks to Brexit) would now cancel Brexit altogether should they win a general election, rather than call a second referendum. Other opposition parties strongly disagree. Labour wants a second referendum, on a deal that does not yet exist but that it hopes to negotiate. Some Labour MPs are trying to thrash out a new deal to leave the EU (without another referendum). A general election within months still appears inevitable, and the anti-Brexit vote will be deeply divided – which gives Johnson a strong chance to win a mandate for “no-deal.” Finally, the issue has morphed from Britain’s long-vexed relationship with Europe, to the far deadlier terrain of Britain’s unwritten constitution. Both sides have accused the other of a constitutional “coup.”  The referendum was a poorly thought through experiment in direct democracy, but it now allows Brexiteers to position themselves as defenders of “the people.” The home page of Nigel Farage’s Brexit Party doesn’t mention Europe, but instead implores: “Democracy is under threat, support the fightback … Stand up for democracy and the future of British politics.” The party says that it intends to “make the people sovereign,” implying that they aren’t already. 

Add all these errors together, and the risk of a “no-deal” Brexit remains potent. The possibility of a populist insurrection that changes the nature of one of the world’s most politically stable countries has also risen greatly. Among many more important consequences, these outcomes would be bad for the currency. Sterling is holding up far too well.

To contact the author of this story: John Authers at jauthers@bloomberg.net

To contact the editor responsible for this story: Beth Williams at bewilliams@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

John Authers is a senior editor for markets. Before Bloomberg, he spent 29 years with the Financial Times, where he was head of the Lex Column and chief markets commentator. He is the author of “The Fearful Rise of Markets” and other books.

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