Featured Image Credits: Ala z on Wikimedia Commons
Regardless of your opinion on whether the above is waffle or a genuine threat of a no-deal Brexit, it seems pretty logical for both sides of the UK-EU negotiating table to see this as an avoidable scenario. Unfortunately the world, and most certainly geopolitics, is not exactly replete with magnanimity. Whilst public perception of politicians as a swarm of Machiavellis can be seen as a tad harsh, politicians, like regular people, in general tend to act in their own self-interest. Numerous groups, though, across the UK are unceasing in their attempts to stamp out a no-deal Brexit from the list of potential outcomes of the negotiation. However, previous attempts have fallen flat and so for the moment the blocking of no-deal from potentiality seems unlikely. Given this probability the potentially destructive no-deal black hole is coming closer and closer to Europe. This is not because it wouldn’t hurt both sides greatly but because if either side is seen to be the one to give ground, it could have dramatic implications.
First, a brief description of the issue: the Irish backstop.
To maintain the seamless transfer of goods, services and people across the border separating Northern Ireland and the Republic of Ireland, the agreement reached between the May administration and the EU involved a so-called “backstop” in the region. In this case, Northern Ireland would have to comply with some rules of the EU single market, thereby necessitating the whole UK acquiescing to the EU rules. Given one of the major concerns for the UK populous in the very beginning was the claimed iron fist of the EU strangling the great British will to be free, the deal is hardly likely to curry favour with them. But forget the public, it didn’t even make it past the politicians, even after four tries! This is the essential bone of contention here.
Let’s firstly look at this from the UK perspective. PM Johnson already knows he cannot even consider bringing any deal with a backstop involved to the House of Commons, lest it be rejected for a hysterical fifth time. He now has two alternatives: a no-deal and an alternative to the current backstop arrangement which is acceptable to both the Commons (so the deal can actually pass) and the public (unless he wants to become May 2.0 and plunge the Conservatives into a deeper rut). He could, of course, revoke Article 50 altogether, but unless he wants to be known as the man who caused civil unrest, he’s going to stay well clear of that route. Now although both parties have indicated a willingness to explore alternatives to the traditional backstop (for example, the technology-driven border mechanism frequently espoused by many UK MPs), there has been precious little detail on the matter. As of now there remains no workable solution to the border issue and so the only option left on the table for Johnson is a no-deal.
What about for the EU? A backstop certainly isn’t the preferable outcome for them either, given the many benefits to the Republic, and thus the EU economy, of free trade between themselves and Northern Ireland. If there is no backstop (and no alternative arrangement) and the EU agrees to no hard border on the island of Ireland, they are essentially allowing the UK access to the EU single market without the UK “giving” anything in return, for example, through membership of the customs union. This sets a dangerous precedent because the EU has numerous times said that it will not give the UK such preferential treatment. Countries like Norway and Switzerland have had to give substantial ground with regards to contributions to the EU’s budget and accepting the free movement of workers.
Now, don’t get me wrong; politicians are commonly hypocritical and go back on their word often, and I’m not for a moment suggesting that EU politicians such as European Council President Tusk aren’t capable of this. The issue is that this issue is extremely high profile and contentious. If the EU secedes this issue to a country that is, even slightly, anti-EU, it is capable of reigniting anti-EU moments driven by politicians such as Geert Wilders in the Netherlands and Marine le Pen in France. Once these movements are bolstered, the very fabric of the EU is under existential threat. If this sounds sensational, ask yourself this: how many people would have predicted Brexit in 2010? Hence the EU cannot be seen to give the UK any sort of preference in this negotiation, otherwise it opens up a Pandora’s box of potential difficulties for the bloc.
It’s clear to see then, that taking an elementary game theoretical stance on the matter a clear Nash equilibrium is the UK crashing out of the EU with no deal. While not the optimal solution, given what is at stake for both parties it seems the most likely outcome unless a viable alternative to the Irish backstop is found.
While this presents a rather melancholy view, it seems to me as if it’s pretty realistic. The market may have to price in much greater odds for a no-deal than 50% soon.