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No-deal Brexit is 'highly improbable'

The most likely scenario is that the next Tory leader will refocus on the 60 million UK citizens he or she will need to satisfy to survive in office.

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While the damage would be greatest in Britain, a no-deal scenario could also be devastating to the EU.

AFTER British Prime Minister Theresa May's resignation announcement, several of the candidates to succeed her have proclaimed their desire for a "no-deal Brexit". In response, European leaders are ramping up preparations for a total rupture with the United Kingdom, financial analysts are revising their forecasts accordingly, and sterling is collapsing.

The fears about a no-deal Brexit are understandable. Such an outcome would eliminate the 18-month transition period that both sides considered essential for an orderly realignment of Britain's relationship with the European Union. This would mean a sudden stop in Britain's commerce with its largest trading partner, and the EU's with its second largest (after the United States). As the world learned in the aftermath of Lehman Brothers' collapse in 2008, a sudden stop in trade and finance, even if it lasts only a few weeks, can cause years of pain.

To emphasise the dangers, the head of Britain's civil service presented a 14-page dossier to the Cabinet (which was promptly leaked), describing not just potential economic and financial damage, but also the risks to national security and healthcare. Even more significantly, the Cabinet Secretary insisted on including this dossier in the Cabinet minutes, to demonstrate that ministers, rather than their civil or military advisers, would bear full responsibility for taking such risks.

While the damage would be greatest in Britain, a no-deal scenario could also be devastating to the EU. Owing to its dysfunctional macroeconomic policies, Europe ended up as the biggest victim of the American-made 2008 financial crisis. With Germany, France, and Italy again now teetering on the brink of recession, the same pattern could be repeated in the event of a sudden and disorderly breakdown in cross-channel supply chains and trade.

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Luckily for both Europe and Britain, the most likely scenario is that the next Tory leader, after pandering to the Conservative party's 120,000 members to get elected, will refocus on the 60 million UK citizens he or she will need to satisfy to survive in office. Regardless of any promises made to the Europhobic Tory membership, the next prime minister will ask to reopen the Brexit negotiations and seek a further extension. In the end, Mrs May's successor will probably come back with some variant of her deal, which will either be approved by Parliament or provide a pretext for a second referendum to decide whether Britain still wants to leave the EU.

To see why a no-deal Brexit remains highly improbable, consider how exactly it could happen. There are three possibilities. Britain could leave the EU on Oct 31 with no agreement, because Parliament votes neither for Mrs May's withdrawal agreement nor to extend the deadline. Or Britain asks for an extension, but the EU refuses to grant it. Lastly, Parliament could seek an extension, but Mrs May's successor refuses to submit this request to the EU.

The first possibility - the UK simply crashing out of Europe - was the main concern ahead of the original March 29 Brexit deadline. It turned out to be a false alarm, because a clear majority of MPs showed they were prepared to outlaw a no-deal Brexit, and Mrs May bowed to their will.

Because the composition of Parliament will be unchanged on Oct 31 (apart from four Tory MPs' defection to opposition parties), it is inconceivable that it would deliberately allow a no-deal Brexit to happen. John Bercow, the speaker, has confirmed that parliamentary conventions normally giving prime ministers sole power to introduce new legislation would be suspended again, as they were in March and April, if that proved necessary for a parliamentary majority to outlaw leaving the EU with no deal.

NO-DEAL DIVORCE?

The second scenario, in which the EU denies an extension, is equally implausible. Although French President Emmanuel Macron may denounce any further extension, his European partners will have even less reason than they did in April to indulge him and risk the economic devastation of a no-deal divorce. With the European Parliament elections over, the new European Commission appointed, the German and Italian economies struggling, and UK budget contributions more important than ever, the cost-benefit analysis of another extension would be more favorable than it was last time.

This leaves the third risk - and the one that is genuinely worrying. With Mrs May gone and Boris Johnson or another fervent Europhobe almost certain to succeed her, could the prime minister find a way to bypass Parliament and unilaterally impose a no-deal Brexit?

A truly determined Brexiteer could have two ways of achieving this. He or she could trigger a general election and win an outright parliamentary majority, or else try to block parliamentary efforts to force an extension of the Brexit deadline.

On closer inspection, however, these options are also highly implausible. The idea that a new Tory leader - especially one as ambitious as Mr Johnson - would jeopardise his lifetime goal and risk becoming the shortest-serving prime minister in history by calling an election before Oct 31 is a non-starter. The next British election probably will be held well before the constitutional deadline of summer 2022, but any new prime minister will want to show some achievement (especially on Brexit) and restore the Tory's abysmal poll ratings before taking this risk.

A similar precautionary principle will block the last possible route to a no-deal outcome: a new prime minister deciding somehow to bypass or overrule Parliament. Even without any change in parliamentary procedures, there is a clear mechanism to prevent a prime minister from defying a majority of MPs: the opposition can call a vote of no confidence anytime. After recent Tory defections, only five or six additional rebels would be needed to bring down the government and force the general election that the new prime minister would be desperate to avoid.

Fanatical Brexiteers argue, however, that a prime minister genuinely determined to deliver a no-deal Brexit could, and should, go nuclear: suspend parliament and refuse to call MPs back until after the Oct 31 deadline, when Brexit will happen automatically under current law. If you believe that the UK is turning into Zimbabwe or Venezuela, you should expect a no-deal Brexit. Otherwise, forget about it. PROJECT SYNDICATE

  • The writer is chief economist and co-chairman of Gavekal Dragonomics and the author of Capitalism 4.0: The Birth of a New Economy in the Aftermath of Crisis