Thursday 25 June 2020

The storm clouds are gathering

Quite a lot happened yesterday, as we began the fifth year after the 2016 referendum and the fog of rhetoric and empty promises started to lift They were all relatively small things in themselves but you can see how the storm clouds are coming together over this government, storm clouds of their own making and on top of the ongoing coronavirus pandemic.

First, Sammy Wilson the red-faced DUP MP for East Antrim told Johnson during PMQs that this week the port of Larne had received a letter - he didn't say from who, I assume it was an arm of government somewhere - advising them that they had to prepare to become a Border Control Post, "and 14 acres of land has been looked at for car parking, for lorry parking and for construction."

I assume Larne is in East Antrim where they are just starting to 'larne' what Brexit means.

Wilson asked sarcastically if management should tear the letter up.  Johnson replied that although he hadn't seen the letter:

"I can tell him absolutely categorically that there will be no new customs infrastructure for the very simple reason that, under the protocol, it is absolutely clear in black and white that Northern Ireland is part of the customs territory of the whole of the United Kingdom. We will be joining the whole of the United Kingdom in our new independent trade policy and doing free trade deals around the world."


When the history of Brexit is written Johnson's part in it will be a large one. For not only did he start off not knowing the consequences, after four years he has still not grasped them. Fourteen acres is a lot of land if you're not planning any "new customs infrastructure."  An expert in trade matters tweeted:

And this is from a BBC NI correspondent who seems to think Johnson is playing with semantics:
If trouble breaks out it will all be down to Johnson who has never even tried to sell the sea border idea to the unionists in Northern Ireland. In fact he has added to the problems by denying - in the face of the growing reality - that any changes will be made at all.  I assume when he is shown pictures of the new BCPs at Larne and Warrenpoint or he is asked to go an cut the ribbon, he will still be denying they are new or connected with customs or represent infrastructure.

Next, the FT reported what analysts at Bank of America think about Sterling and it isn't very good.The headline is: Pound is becoming an emerging market currency, analysts say

BoA say:

"We believe sterling is evolving into a currency that resembles the underlying reality of the British economy: small and shrinking with a growing dual deficit problem."  This is because since the Brexit vote, "uncertainties over the relationship between the UK and the EU have made investors less willing to take views on the currency, resulting in a drop in liquidity. That means that the pound can no longer be analysed according to the same framework as other major currencies, said Mr Kamal Sharma."

And quoting another analyst, Vasileios Gkionakis, global head of foreign-exchange strategy at Lombard Odier:

Failure to reach a deal on Britain’s future relationship with the EU within the next six months would be “disastrous” for the pound, he said  Sterling could fall to $1.10 or below, from $1.25, while the euro could converge to parity from £0.90.

The dual-deficit problems are in trade and public sector borrowing. The money markets are a lot of hard-nosed financiers who are not impressed by all the talk of 'global Britain' being able to look China, the USA and the EU in the eye as world leaders.

If the government thought a sterling crisis might be manageable, they might also look at the car industry in the event of a no deal Brexit. Yesterday the Society of Motor Traders and Manufacturers published their Annual Automotive Trade Report which contains this stunning graphic:



The lower pale blue line represents the huge fall in output if a FTA is not agreed. Even with a deal (green) and with a boost from new models, we are not going to see the production that we saw in 2018. 

The report says: "UK Automotive is built on firm foundations with a rich heritage of innovation and cutting-edge engineering. It is agile, flexible and fundamentally competitive, with world-leading levels of efficiency. In 2019 the sector generated more than £100 billion in total trade for the third consecutive year, highlighting its role as a global trading powerhouse, and held the lead as Britain’s biggest exporter of goods by a considerable margin. Exporting vehicles, engines and components to more than 150 countries worldwide across all continents, the sector is key to the UK’s international trade agenda and supports thousands of highly skilled, high value jobs across all regions."

Finally, (although there was plenty of other things going on including the Jenrick/Desmond affair) Michel Barnier gave an interview to the European Policy Centre. The EPC is a Brussels based think tank. His words have not yet been transcribed but Thomas Cole, a political analyst at City University London, summarised it in a series of tweets starting in the thread below:

In it Barnier apparently said the UK often tells the EU that it is in their interests to stick to the status quo. But he asks, "Is it?"

"For example, UK car companies could source products from around the world to produce a car and then sell into the EU tariff and quota free. But why make it easy for the UK when 80% of UK car manufacturer parts are already sourced from the EU?"

"We want to find deal but we will never sacrifice the EU's interests for the benefit of the UK...Our duty will always be to protect the interests of the EU citizens and businesses"

Brexit was all about being able to act independently, to run our own trade policy unconstrained by the EU. The government is now finding that the other side of this coin is that the EU can do exactly the same - but from a considerably stronger position. It holds the key to our parts supply and our biggest market.

Barnier says a few other things too:

"Our problem does not relate to timings or methods but to substance - the UK keeps on backtracking on commitments made in the political declaration. Yes, it is not binding but it was agreed at the highest level, every comma, with @BorisJohnson"

"The ball is in the UK's court but the UK has shown no willingness to engage. The real moment of truth will be in October, which is when we will have to put a draft deal to the European Parliament and Council if we want ratification by end of year"

"We need the UK to implement the withdrawal agreement in all its areas. Progress on Northern Ireland remains unsatisfactory. The UK needs to move beyond good intentions to operational measures" 

And in a final warning:

"In a no deal scenario, there will be checks for every good entering the single market from the UK from 1 January and it also means tariffs and quotas. If we have a deal, there will be no tariffs and no quotas. This is a huge difference."

A huge difference indeed. You can watch the whole 55 minute Barnier interview HERE.
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