Thread by @komileva

A UK Brexit Update: A Prime Minister of Opposition

If you are here, then Congratulations! This is all the summary on Boris Johnson's new UK government that you’ll need to connect the dots on the outlook for Brexit from an observer market practitioner perspective.

Enjoy! 1/

The UK has a new kind of government - A Government of Opposition:
Despite the logic of economists, parliamentary observers and pollsters, a no-deal Brexit is the most likely government policy. This remains, as we've consistently argued for the past 3yrs, the default scenario. 2/

How did we get here?
The EU Referendum on 23/06/16- a day of torrential rain, flash floods & thunderstorms that caused transportation chaos across the UK, leaving thousands stranded & unable to vote– delivered a Leave result, w/ a margin of 2.73% (1.3m votes) of the electorate 3/

Ever since the Referendum, the UK’s two major parties, Tory and Labour, have been headlocked into a (losing) struggle for the marginal Brexit voter. 3 years on, both have now realised they can't win an election this way but they can lose one if they don’t try. N.B: This is key 4/

To this end, PM Theresa May’s attempt to capitalise on the Brexit campaign by holding a snap general election on 8 June 2017 - a day of perfectly uneventful overcast weather – backfired, as the government lost its (thin) majority in Parliament. 5/

A hard anti-EU/globalist/immigration platform wasn't enough to win an election. But the hard Brexit faction was critical to PM May’s survival, via the ERG’s ‘red lines’ on severing all political ties w/ the EU and the government’s “confidence & supply” arrangement with the DUP 6/

The ideological parameters of power were clear: Neither of the two main, Brexit-supporting parties won the election, but the Conservatives lost by a smaller margin than Labour, and managed to hold onto power via the “hard Brexit” axis, with support from the ERG and the DUP 7/

Labour’s track record is no better. An ambiguous position of not surrendering the “winning” Brexit ground to the Right, given high-risk constituencies in the North, but also claiming to represent the broad liberal &economically vulnerable layers on the Centre-Left, has failed 8/

A strong (but fading) economy, internal culture wars & the class politics of Brexit - the skillful, campaign-led “England First” radicalisation of the traditional working class voter, + nationalist echoes across Scotland and Wales - have upended the Left’s electoral strategy. 9/

The result: Today Labour has 247 seats in Parliament. That’s 15 down on the 2017 election result due to the defection of centrist MPs supporting a People’s Vote. And it is just 15 higher on the previous general election result in 2015. 10/

Another important fact: In 2016, 148 Labour constituencies voted to leave the EU.

So again, Labour too cannot win a UK election by claiming the marginal Brexit vote, but it can lose one if it didn’t.

11/

Indeed both Labour and Tories had a dismal showing in the European Elections results in May. The only party that benefited from its Brexit-supporting stance was Nigel Farage’s Brexit Party, though without increasing the total Brexit vote: it mostly cannibalised Tories support 12/

This explains the main parties’ current election campaign positions – a term used deliberately here.

(Spoiler alert: Besides the thwart electoral math of the marginal Brexit voter mentioned earlier, this is another key link in the UK policy outlook.)

/13

For the Labour leadership: Support for the least economically damaging of “soft Brexits”, under a Left government, safeguarding the welfare state against the exploitative tax-haven instincts of a Tory Brexit, with an Opt-Out option of a People's Vote as a democratic safeguard /14

It is a breath-full, and it leans on the hope that elections, unlike referendums (but very much like economists) are not single-issue entities. So Labour will rely on Brexit but also the issues behind Brexit when campaigning on voters’ doorsteps for the next General Election. /15

This brings us to the appointment of Boris Johnson as Tory Leader and Primer Minister, by 92,153 Conservative party members, or 0.13% of the British population. The power arithmetic is clear: 85% of BJ’s support base wants a no-deal Brexit; this was his ticket to the PM job. 16/

Plus, as the past 3 years' history shows, the only way to power for the Tory party is by: 1) ‘out-Brexiting’ the Brexit Party, 2) putting “clear blue” Brexit water between the Tory and the Labour party, and 3) not going to a another public vote without having delivered Brexit 17/

Despite EU and market sensitivities, the economic damage of, and the lack parliamentary support for, a hard, no-deal Brexit are simply not part of the governing arithmetic: 1) There’s no alternative route to power for the Right 2) And that’s where the Brexit voter momentum is 18/

All this explains why BJ entered No10 in full campaign mode, with a “do or die” message for Hard Brexit on 31 October. Article 50 will not be extended. The new hard-core Cabinet is formed to deliver this but with the broadest appeal in the election optics (women, race, class) 19/

Since general elections, unlike referendums, are not single issue events, more liberal messages on immigration & public spending are also now aired, in parallel to war-like Commons statements against the Opposition, devising a clear Right Hard-Brexit / Left Anti-Brexit divide 20/

This is not about profiling Boris Johnson’s mercurial nature as a politician. This is the politics of personal power and the party’s winning election campaign. 21/

In effect, the Tory and the Labour party positions have now converged on the single main issue of party politics since the Referendum: Brexit can only happen via a General Election. 22/

For the Right, the only strategy that makes sense is to force Brexit before a GE. This means manipulating the parliamentary schedule, by losing a no-confidence vote if necessary and dissolving parliament, to keep the current law on leaving the EU on 31 October in place. 23/

For the Left, the only strategy that makes sense is calling a no-confidence vote in BJ’s Hard Brexit strategy. But avoiding going over the 31 October cliff would be harder, if a General Election supplants the Brexit parliamentary schedule. 24/

In summary, Hard Brexit is the politics of Boris Johnson's government survival and the Tory party’s policy of winning the next early General Election, likely this year, which is not – based on current voter intentions - in the power of the Labour Party to stop. 25/

Markets are nowhere near prepared for this level of political uncertainty and volatility, or the reality of a forced (accidental) Hard Brexit. The political current of opposition to the status quo is now UK government policy. Markets have yet to price in an autumn of discontent E

And here we go. My early Boris Johnson forecast of the UK political economy becoming realised: The making of a Brexit election and a Hard Brexit winter of discontent. Disaster is now national policy.

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