Cliff

My mind veers between the mundane (Office moves, the view from my window, whatever I am listening to (Boards of Canada, since you ask) to the catastrophic (Brexit/Trump/Putin/Broader break down of world order and liberal tolerance/Climate).

Today's instalment is catastrophe. Brexit, specifically.

Charles Grant (Director, Centre for European Reform) tweeted* (I am obsessively following David Henig's Twitter feed, despite not being a tweeter myself)

"... EU may well be wrong to assume UK will cave in. Many of Britain's politicians don't put economically-optimal outcomes first. They are a Romantic lot who get emotional when faced with what they perceive as bullying." 

Which made me think that the basic issue we have here is that both sides keep assuming the other side will act 'rationally' while they themselves are behaving 'irrationally'. (I realise this is not a particularly profound thought, but bear with me).

The referendum itself was a triumph of an 'irrational' desire to be free of the EU trumping to obvious economic benefits that EU membership brings. A triumph of the political over the practical.

Since the referendum our entire negotiation strategy has been based on the assumption that, although our decision to leave was basically an emotional one, the EU would react with logic, rather than emotion, and we could easily end up with a compromise deal that suited both parties. The idea that the decision on what the relationship with the UK will be, post-Brexit, would be based on political rather than economic considerations seems to have entirely escaped us. Despite the EU repeatedly saying that the unity of the EU was a more important consideration for them than any short-term losses of €.

And if, as Grant suggests, the EU strategy is based on wishful thinking that May and co will, at the last moment, "see reason" and cave in, then the risk of No Deal Brexit is very high. Both sides are behaving politically/emotionally, yet believing the other side bases their decision-making on simple calculations. This shows a remarkable lack of self-awareness.

It is equally possible, of course, that the EU has genuinely come to the conclusion that "no deal" is less bad, in the long term, than Chequers, and therefore is willing for "no deal" to be an outcome. If this is the case then (a) they'd better be damm ready to take rapid action to deal with the consequences of this, particularly for the economy of Ireland and (b) this is, of course, a very bad state-of-affairs if you are British. Particularly British and working in a factory that exports stuff.

Finally, "everyone" seems to believe that global financial catastrophe is on the horizon. If that is true then presumably a no-deal  Brexit would be a more than big enough economic shock to trigger another contraction.