No Brexit

Brexit Failure Looks More Likely Every Day
Too many things are lining up against the U.K. leaving the EU.
Bloomberg, April 27, 2018



Today, I will violate one of my favorite principles, and hereby make this prediction: No Brexit! 1 In other words, the U.K. will not exit the European Union. By 2023, we will look back at the entire ridiculous affair as if it were a rediscovered lost episode of “Fawlty Towers.” 2

Soon after the referendum in which Brits unwisely voted to leave the EU, I suggested there was a 33 percent chance that Brexit wouldn’t occur.3  Now, I raise that to 75 percent, and with each passing day of incompetence shown by Prime Minister Theresa May’s administration, the probabilities move higher.

With that disclosure out of the way, I’d like to explain the thinking behind this not-so-bold forecast.

From the very beginning, I have been a skeptic that a full Brexit would occur. The concept was simply so foolish and self-destructive that the reasonable expectation was cooler heads would prevail. But that was a modest assumption and didn’t anticipate the feckless May government making a bad situation even worse.

There seem to be several ways this can, and probably will, fall apart. In order of likelihood (recognizing a combination of any and all of these is possible):

1. Doing nothing

2. Snap parliamentary election leading to a May loss

3. New referendum

4. Ireland/Scotland make it too complicated

5. Europe makes it impossible

Let’s take a quick look at each.

• Doing nothing: Article 50 of the European Union agreement has specific rules for how members can voluntarily exit the EU. The U.K. will lose the membership in both the common union and its customs agreement; a negotiated set of replacement treaties and rules would be proposed, which then would require ratification by both the EU and the U.K. The key economic aspect is that all of the advantages of the EU treaties covering trade relations among members would be replaced by less-favorable covenants. How much of a disadvantage this amounts to is the subject of debate between all concerned. The bottom line it that whether the Brits get a full withdrawal agreement, or only a temporary transitional agreement,4 it is likely to be much less friendly to the U.K. economy then staying in the EU.

• Snap election: What else could derail Brexit? How about more cabinet members supporting staying? Then there is the issue of May’s popularity: a year ago she was considered a dead woman walking. Her support is recovering among her fellow Tories, but her polling is still underwater and an electoral loss would amount to a repudiation of whatever it is she thinks she’s accomplishing.

• New referendum: The British public has learned much since the initial vote. About half of Brexit voters have been supportive of a second referendum (you can guess which half), amid a chorus of calls for another vote on Brexit. A steady drumbeat of media reports revealed how much misinformation and outright disinformation U.K. voters were subjected to. Robert Mercer, the right-wing billionaire formerly of giant hedge fund Renaissance Technologies, and backer of political data firm Cambridge Analytica, wanted to bring the same level of mass discontent to the U.K. he helped foment in the U.S. The Guardian called it a “hijacking of the British democracy.”

• Ireland/Scotland complications: Back in 2014, Scotland voted against independence from the U.K. by 55 percent to 45 percent. The Brexit vote was a shocker to the Scots, who also voted to remain in the EU. Further complicating matters are reports that Northern Irelandwould be granted permission to stay in the single market. Resolving these issues makes the entire enterprise highly problematic for England.

• Europe makes leaving impossible: I don’t see any reason why the EU would do anything other than make this as uncomfortable for Britain as possible. Basic game theory suggests that the EU’s interests lie in the exact opposite direction, to make exiting as difficult as possible in order to discourage others from departing. There is no reason to expect the EU to reverse course.

Michael Bloomberg, owner of Bloomberg LP which publishes Bloomberg View, referred to the choice of accepting a bad deal, or admitting Brexit was a mistake in the first place.

Winston Churchill supposedly said 5 that “You can count on the Americans doing the right thing after they have exhausted all other possibilities.” I expect the same rule applies to the British as well.



1. An obvious pun on existential philosopher Jean Paul Sartre’s No Exit, on the absurdity and pointlessness of existence – the perfect metaphor for idiocy of Brexit.

2. I have no idea what the timeline is for when this falls apart, but as I have discussed before, predictions require specific dates and outcomes:

We can agree that a forecast involves describing 1) the price of an asset (or asset class) 2) at a specific date in the future. When someone says the Dow Jones Industrial Average is going rise to 36,000 in 2005, or gold will be $10,000 an ounce by 2015, those are specific predictions.”

In the Bexit case, price is the binary outcome (yes or no, 1 or 0) and date is 2023.

3. See Brexit happens. Know your investment plan, and stick to it. (June 24, 2016) and Given the Brexit brouhaha, how did your investments hold up? (July 22, 2016).

4.  Theoretically they could also negotiate a full agreement for the post transitional period, but let’s just keep it simple for now.

5. It was more likely Abba Eban.


Originally: Brexit Failure Looks More Likely Every Day

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