To think badly …

To think badly ...

said Andreotti, we often take it. And so what I had written in the previous article happened: Boris Johnson swept, or rather they strained Corbyn and the Liberal Socialists or Liberal Democrats, anything absurd and contradictory this abbreviation indicates.

There are plenty of predictions about how this Brexit thing can proceed, and everyone says that Brexit will now be shipped more. I think it's one of the most likely options, but it's not completely taken for granted.

First of all, we need to understand that Brexit has been broken into TWO operations: the first (the one we are discussing) is to discuss the conditions for abandonment. The second (which begins IF the treaty is signed) serves to define future relations. What we have so far is the first segment. Which is not the whole Brexit, for many reasons.

First, the first segment of the Brexit agreement requires that the British remain bound to the EU for as long as it takes (ideally, a couple of years) to negotiate and resolve all the technical issues related to the "divorce".

When Trump deludes himself that January 1 will begin to negotiate a trade agreement with the British, he actually dreams. A time set by the agreement must first pass. Same thing for those who dreamed of avoiding the recent tax rules.

And this makes me think there is some surprise below. In the sense that Johnson could ask the parliament to sign the treaty already discussed, or he could simply say "since I am stronger, I can now negotiate a better treaty".

Having little time to negotiate, and not being able to go beyond December 31 because he promised, and having the pressure of the USA and the most notable tax evaders of the whole kingdom (including nobles), it is still possible that Johnson go for the no-deal.

You will say that this scenario would be the most feared in Europe, but in reality things are not exactly this way. If the British sign the treaty, the EU will be dealing with future relations with a rather strong British government. And at that point, the risk is that the internal divisions within the EU will emerge.

On the contrary, if a no-deal arrives, the EU would be there to resist the financial shock, and there would no longer be the problem of dealing with future relations from the perspective of a quasi-intra-European policy: it would become a matter for some European commissioner .

Thus, it is possible that the EU also seeks to obtain a no-deal, and that in some way it "cooperates" for the purpose.

Brexit no-deal, that is, is a better prospect for both parties. Economically it is more challenging, but politically it is appropriate for the EU and the British. I would not exclude, therefore, that Boris Johnson pulls out a rabbit from his hat to blow up everything, and the EU goes after him catching the ball.

There is also another reason for the dispute: the euro bond clearing houses. This is a round of around ~ 900 MLD of euros / year that today takes place in London. Obviously, now everyone in the EU would like this activity to move to the continent. They have received an extension of one year that is about to expire, and I say "extension" because, as these are securities in EURO, the EU would have the right to request that the activity take place in Frankfurt or Paris.

As you can imagine there is a queue to get those pennies, and Lagarde is too filofrancese to leave them across the Channel. Also because it is a strong enough argument to cause its resignation: 900 billion / year weigh more than the Lagarde's head, and also that of Macron if necessary.

In the case of Brexit no-deal for the EU (and for the ECB) it would be very simple not to renew any extension and request a European license to operate with European customers. In this case, even if operationally they could perhaps remain in London, in reality they would be under the control of the European regulator, with all the obligations (also fiscal and accounting) that this implies.

On this subject, Boris Johnson agrees with the Brexit Deal, while the EU agrees with the No-Deal: it is clear that treating such a thing to the EU is not worthwhile because there are TWO European contenders (the Paris and the Frankfurt Stock Exchange) ) against a single politically united government. No European negotiator would like to find himself in that situation, and would much rather prefer a "drastic" solution: first impose that the clearing houses obey the European regulator (thanks to a "providential" Brexit No-deal), and then decide between Frankfurt and Paris .

Another important point is the military industry. France and Germany would like a continental one to feed their domestic industry, while the British will press to keep weapons development alive. Also in this case, the British would consider the Brexit + Deal because they could negotiate later, while France and Germany would find it easier to impose a "continental" position with the Brexit No-Deal.

Moreover, the British have two questions to solve, and in a heavy manner:

  • The Scottish question.
  • The Northern Irish issue.

The Scots could, in the next two years, shake the waters during the negotiation by clamoring for a referendum to remain in the EU, which implies secession from the UK. They could also be less, asking the EU that different conditions apply to Scotland.

The Irish knot will be resolved instead, and will fade for all the post-brexit treats (ie the second section, when future relations will be discussed. Johnson would gladly do without them during future negotiations, so London would prefer the brexit with no-deal.

So ultimately we have a fairly complex situation. The strategy is about this:

Theme EU convenience UK convenience
Tax evasion and local interests of English nobles Brexit Deal Brexit No-Deal
Clearing House Brexit No-Deal Brexit Deal
Arms market. Brexit No-Deal Brexit Deal
Existing trade agreements. Brexit No-Deal Brexit Deal
Internal politics. Brexit Deal Brexit No-Deal.
Territorial question. Brexit Deal Brexit No-Deal

The outcome, that is not at all obvious. Whoever thinks that the road to the agreement has already been traced is wrong: on the contrary, today as today, everything has become indistinct. Both parties have many advantages both in the case of No Deal and in the case of Deal.

So whoever celebrates Johnson's victory in the elections as "the victory that solves the problem and leads him to a certain conclusion" is only deluding himself.

The situation is now more confusing than ever.


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