🔎As the 🇬🇧 government is set to introduce its widely debated Internal Market Bill, Britannia seems to have moved from 'ruling the waves' to 'waiving the rules'. Why and what lays ahead? (Alert: long thread)1/
As we wrote in this ⬇️piece last year, the NI Protocol negotiated by Johnson achieved the remarkable combination of leaving the Prime Minister in a better political position at home, while putting the country in a worse economic position vis-à-vis 🇪🇺2/ algebris.com/policy-researc…
The NI protocol negotiated by Theresa May foresaw a temporary arrangement (the backstop) where the need to avoid trade-related checks at the Irish border was met by setting up a single EU-UK custom territory. For this to be possible ... 3/
...🇬🇧 would have needed to commit to level playing field in areas including State aid, environmental regulation and labour regulation, as well as to harmonisation of its commercial policy with 🇪🇺. The deal never passed b/c opponents feared a permanent loss of sovereignty. 4/
New Protocol forsees a permanent set-up with NI part of UK custom territory. This is achieved through a dual tariff regime with customs checks between GB and NI ("in the Irish Sea"), which treats goods differently depending on whether they are intended to stop in NI or transit 5/
This new set-up always had 2 key implications. First, 🇬🇧 remains outside 🇪🇺 custom territory and NI would be taken into 🇬🇧 custom territory. So 🇬🇧 is immediately free to set its own external tariff, and the trade deals it will negotiate will immediately apply to NI. 6/
Second, while NI would still be subject to EU customs rules to ensure that no border is needed on the island, these requirements would not 'spill over' to Great Britain. Accordingly, the commitments to level playing field only remained in (non-binding) political declaration. 7/
All this set the stage for a more competitive 🇪🇺-🇬🇧 trade relationship. As 🇬🇧 clearly wanted to retain more flexibility, 🇪🇺 would be less willing to offer deep trade concessions. In particular, the services bits in CETA would hardly have been on offer⬇️ 8/ algebris.com/policy-researc…
All these tensions are now coming to a head: following months of inconclusiveness it is dawning on Downing Street that they won't be able to extract the deal they want from the EU, unless they give up on level playing field (which would be a political suicide for the PM). 9/
Moreover, even the best deal the UK could extract compatibly with all its red lines would not liberalise much in services (worth ~40% of UK global exports). Britain is not getting the best deal it could get, and even the best deal would not make #Brexit economically viable. 10/
As rightly pointed out by @EuroBriefing in ⬇️, once you factor all these elements into the equation, the attractiveness of pursuing the "Singapore on Thames" model of regulatory competition on the EU's doorstep increases significantly. 11/ ft.com/content/460870…
...except that model necessarily implies a border on the island of Ireland! Does the UK government not care about that? I think the short answer is 'no'. The long answer is: the Northern Ireland Act of 1998 allows for unification referendum (at simple majority)...12/
...which was fantasy for many years, but may be closer to reality today. NI voted remain (like Scotland), the demographic trend in Northern Ireland have been evolving in a way that would soon favour the Nationalists ⬇️ and #Brexit may accelerate it 13/ newslab.ie/nuigddj/?p=389
So NI may no longer be part of the UK in a few years' time. If you were a cornered UK PM would you put Global Britain's only chance of post-Brexit economic success at risk for the sake of NI? Probably not, except throwing the Irish under the bus wouldn't help your ratings. 14/
So you raise a major fuss on a fishing, stall negotiations for months, get ready to blame the EU's uncompromising stance for no deal. You also know the EU prides itself as a peace project, and cannot accept playing an active role in the resumption of violence in Ireland ... 15/
... so chances are the EU will have the Irish carry out the customs check that the UK committed to do in the Irish sea well into Irish (and the EU) territory instead, to avoid building a border. Who knows: you may end up getting Singapore on Thames + Smugglers' Heaven. 16/
So, I think the erratic behaviour of the UK government signals they are past wanting a deal because they realised they won't get the best deal they could get, and even that deal would not be a good one. What they are doing now is political ring-fencing for deliberate no deal. 17/
What could not have been factored in is the Hogan-gate, which resulted in 🇮🇪 getting the Financial Services Commissioner, who will oversee the discussion on whether 🇬🇧 should be granted equivalence (a file that will matter a lot to post-Brexit 🇬🇧). That'll be an interesting one!
*lies ahead (obv)

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More from @SMerler

5 Sep
Il problema di #BrainDrain italiano in 2 grafici (ht @Tagliapietra_S). I ricercatori 🇮🇹 sono i secondi più premiati con grants ERC, ma meno del 40% dei vincitori è di stanza in università 🇮🇹. Di questi temi abbiamo scritto con @APRForum e @Tortugaecon qui media.algebris.com/algebris_polic…
🇮🇹 storicamente ha una bassa % di popolazione con istruzione terziaria, e in particolare sotto-produce capitale umano nelle aree che guideranno crescita e sviluppo in futuro (e.g. STEMs ICT). Ciononostante spendiamo solo ~0.3% PIL su istruzione terziaria
Inoltre, in Italia fare l'università "non paga": dati OCSE mostrano che il tasso di rendimento interno dell'investimento in istruzione terziaria in 🇮🇹 è molto basso. Per questo indicatore siamo penultimo nell'OCSE (appena davanti alla Turchia)...
Read 8 tweets
26 Aug
📊 There has been a lot of talk about #COVID19 summer 2nd waves in Europe. But I think the country we should look at as a leading indicator of transitioning into winter is Australia 🇦🇺. Two words on why (usual caveat applies: I am not a virologist nor an epidemiologist) 1/
What we are seeing in European summer 2nd waves is a big increase in cases with (for now) stable deaths numbers. This is unlike what we had in March/April and there are a lot of factors contributing to it that have been explained by experts (age profile, better knowledge etc). 2/
The 2nd wave in 🇦🇺 however has come with a significant increase in daily new deaths, which are currently 4x where they were at peak 1st wave (see 📊 above). Differently from Europe, 🇦🇺 had its 1st wave in summer and is having its 2nd wave in winter (being southern hemisphere) 3/
Read 5 tweets
21 Jul
🔎After reading the 68 pages of Council conclusions, here are m 2 cents on the #EUCO #NextGenerationEU deal 1/
The total amount of funds available under #NextGenerationEU remains 750bn as in the original EC proposal, but the composition changes: grants fall from 500bn to 390bn while loans increase from 250bn to EUR 360bn. But the composition of cuts matter 2/
⬇️Here is a comparison of program allocations as per the original proposal and the current deal. While the grants in the Recovery Fund (RRF) has been preserved, the cut in grants has concentrated on programmes that would have financed truly European public goods. 3/
Read 15 tweets
29 May
🔎Due parole in italiano su #NextGenerationEU, su cui mi pare di vedere nel dibattito italiano ancora più frustrante confusione che sul tema del MES (se possibile). Non mi guadagnerà simpatia, ma certe cose vanno dette. 1/
#NextGenerationEU è un pacchetto composto da vari strumenti che trovate elencati qui. Il riassunto è che si tratta di 750 miliardi (di cui 500 miliardi di grants) che la Commission finanzierà con l'emissione comune di titoli Europei sul mercato ⬇️ ec.europa.eu/commission/pre…
Si tratta di una iniziativa storica per 2 motivi. Primo, benché non si tratti della prima volta che l'UE emette titoli, le dimensioni non sono neppure paragonabili: nel periodo 2010-19 l'UE ha emesso in tutto 69mld, con #NextGenerationEU l'emissione sarà più di 10 volte tanto.
Read 14 tweets
19 May
2 parole anche in italiano sulla proposta 🇩🇪🇫🇷 per il EU recovery fund, su cui mi pare di vedere nel dibattito italiano una certa confusione 1/
1) Molti lamentano la dimensione (500mld vs 1000mld prospettati da Von der Leyen), ma non guardano alla composizione. I 1000mld di Von der Leyen erano pensati a leva come misto di loans e grants, in cui la grande incognita era la misura della componente grants.
2) Qui abbiamo un accordo trasparente su 500mld tutti in trasferimenti dal bilancio UE (quindi per capirci come i fondi strutturali, di fatto grants), che non contano come debito nazionale e che sono finanziati con emissione comune grazie a un aumento delle risorse proprio UE.
Read 10 tweets
19 Apr
🔎Quale sarà l'effetto del #COVID19 shock sull'economia e le finanze pubbliche dell'Italia? Proviamo a rispondere in questo nuovo paper @APRForum (per ora in inglese ma a breve avremo anche qualcosa in italiano). Avvertenza: il thread è lungo ⬇️ 1/ media.algebris.com/algebris_polic…
Tra i settori più colpiti ci sono ovviamente ristorazione e alberghiero - e già da inizio anno (complici il disastro di Venezia da un lato, e i minori arrivi dalla Cina dall'altro). Queste le nostre stime di impatto sull'attività economica in questo settore a Marzo 2020. 2/
Anche il settore dei trasporti ha chiaramente sofferto molto (almeno per quanto riguarda il segmento passeggeri che, al contrario del trasporto merci, è stato oggetto di significative limitazioni via DPCM e ordinanze regionali). Vari indicatori di traffico lo mostrano bene. 3/
Read 16 tweets

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