Tag: Brexit

The shape of Brexit is becoming clearer. Don’t write Theresa May off.

I’ve given Brexit it a well-earned rest over the last month. It remains Britain’s leading political issue, but the commentary from all sides is completely unedifying. Remainers are mainly just whingeing, angry that we are were we are. I agree, but where next? This lets the Brexiteers off the hook: instead of being forced to be more specific about how to solve the many problems thrown up by Brexit, they can simply moan about the moaning and promote an unconsidered hard Brexit. And this is what most of them are doing, betraying a complete failure to understand the predicament that country finds itself in. Still, a little reflection shows us how things are likely to shape up.

Not that the government is giving us much clue. The Prime Minister, Theresa May is staying tight-lipped, though she has been offering hard-Brexit mood music. This is partly because that is the type of leader she is: she likes to weigh things up in private before committing herself, a characteristic that she shares with the German Chancellor Angela Merkel. That Mrs Merkel is one of the most successful politicians on our continent shows that many commentators are too quick to dismiss Mrs May. I think she could last.

The fact is that the government’s silence is not just a question of Mrs May’s style. There are sound political reasons for it. The Conservatives command but a narrow majority in the House of Commons, and the party is hopelessly muddled on the issue, as are Conservative voters. Any clear declaration of strategy will create a storm. When that time comes the government needs to be ready. Mrs May became prime minister by picking the right moment to attack after years of patient build-up in which her potential opponents each self-destructed. She no doubt hopes for something similar over Brexit.

The eventual strategy will be the product of an alliance of three critical minsters. Mrs May herself, the Brexit minister David Davis, and the Chancellor of the Exchequer Philip Hammond. The alliance between Mrs May and Mr Hammond goes back a long way; they operate in compatible ways. Mr Hammond is putting the soft Brexit side of the argument – about the need to prevent disruption to the economy and to protect inward investment. Mr Davis is an interesting character. He is an ideological Brexiteer, but he possesses an integrity that few of his fellow politicians can match, while remaining an intelligent man. So far these attributes have not helped his political career; he has been too much trouble, and easily outmanoeuvred by smooth operators like Mrs May’s predecessor, David Cameron. Mrs May showed good judgement in picking him as her minister for Brexit. He doesn’t give much away, but from what I have seen, he is steadily working through the different issues and options and weighing the pros and cons. Meanwhile other senior ministers involved with Brexit, the Foreign Secretary Boris Johnson, and the International Trade minister Liam Fox, are showing themselves up to be political lightweights not suited for these difficult times.

Given this background, we can divine what the government’s strategy is likely to be: a soft Brexit leading probably, but not inevitably, to a hard one. First of all the government will push to activate Article 50 of the Lisbon treaty, giving two years notice to formal exit. This needs to be done by March, because that’s what Mrs May has promised. There are sound political reasons for this: first it means that there will be no awkwardness over the European Parliament elections due in 2019; more substantively the formal exit will be completed in plenty of time for the General Election due in 2020. Incidentally, there is no evidence that Mrs May plans to expend precious political capital on trying to get round the Fixed Term Parliaments Act to hold an early election. The Labour Party is stewing nicely in its own juice and this mitigates much of the government’s problem with a small majority. It is highly unlikely that they will stage a recovery by 2020, rather than being completely hollowed out. An election now would be a distraction from the problem at hand.

The problem with an early invocation of Article 50 is that it leaves a cliff face on eventual exit – the so-called train-wreck Brexit. Actually delaying Article 50 may not help by much – the real problem is negotiating alternative trading arrangements, which formally can’t start until after exit. But there is an obvious solution to this: a transitional period after exit. In this period much of the current trading relationship would be preserved, and the UK would continue to make budget contributions. The spectrum of possible solutions runs from full membership of the EEA (European Economic Area – like Norway, Iceland and Liechtenstein) to simply membership of the customs union (like Turkey). The EEA option would be by some distance the simplest solution, but it would involve continued free movement of labour. That is surely a red line for Mrs May (though, I suspect, not for Mr Hammond). She has always taken a hard line on immigration, and seems immune to the economic arguments made for it. The Turkey solution would leave many markets not integrated, with high potential costs to some parts of the economy. She will aim for EEA market access with Turkey levels of free movement. She won’t get it, but that is what negotiation is about.

How long will the transitional period be? My guess is five years (i.e. up to 2024), though her initial bid might be just two. That puts the ball firmly in the court of the next parliament. The government will paint a picture of full exit from the customs union after 2024 in terms that will warm the heart of ideological Brexiteers. In that way Mrs May will paint herself as a hard Brexiteer. But there will be a general election before then, and if public opinion swings away from Brexit, the transitional deal can be made into something more permanent.

That’s what I think. It will remain formidably complicated – but it gives ground to both sides, and she can claim be implementing the mandate from the referendum, while giving everybody more time to think about how a standalone Britain should work. There will be meat for both factions in the Conservative Party – and Mrs May can present herself as a unifying figure. It might even work.

 

Why did the dollar rise with Trump but the pound fall with Brexit?

If you are part of the conventional liberal “elite” like me, 2016 has been marked by two colossal acts of democratic self-harm: Brexit and the election of Donald Trump. It is easy to understand why the pound sunk after Brexit. By why has the US dollar being doing so well after the election of Donald Trump as president? It is a useful lesson in macroeconomics.

The first thing to say, though, is that the way most of the media cover such market movements is unhelpful. They talk of sentiment and emotional judgements made by anthropomorphised “markets”. These may provide a satisfactory story line for a journalist, but they yield no real insight and no predictive power. They are simply projections onto past events. But very often, and this is no exception, far more satisfactory explanations are available, based on the way money flows through economies and financial markets.

Take Brexit. The obvious explanation is that markets (sticking with the anthropomorphism for now) take a dim view of Britain’s prospects amid the confusion and uncertainty thrown up by Brexit. But by itself that explanation is inadequate. The fall in Sterling was not matched by falls in stock markets (after an initial wobble) and other markets which also depend on future economic prospects. In fact there seems to be much more of a wait-and-see approach by the people and institutions who set market prices.

But wait-and-see is not so neutral. The UK runs a substantial current account deficit (5.7% of GDP according to the Economist, the highest of the 43 countries in its data table – and the second largest in money terms, at nearly $150bn in the last year). That means that the country is consuming much more than it is producing, which in turn means that the country is spending more pounds than it is getting back from exports, etc (or spending more foreign currency on imports than it is getting from exports). This deficit must be made up from the capital account – by investors buying UK assets of one sort or another (or Britons selling off foreign assets). Wait-and-see means that foreigners are more likely to defer making investments, which reduces the demand for Sterling on capital markets, causing its price to fall. This makes UK assets more attractive, UK exports more competitive and imports less attractive. All perfectly textbook.

So, what about the US? This country has a current account deficit too (2.6% of GDP which is $488bn in money terms, the largest current account balance in any direction by some margin, in the Economist table). Surely there is a lot of waiting and seeing to be done here, as Mr Trump’s policies, shall we say, lack clarity? But there are a number of differences with the UK. The first of these is that the US is an economic superpower, which dominates global financial markets, with the dollar used as the top reserve currency. It is much easier for the country to draw in investment that the aging middle-ranking country that is the UK. It has much more secure access to liquid, short-term funding. And with a huge domestic market the outlook for its businesses look less precarious than that for British ones.

But the most important difference is that, for all Mr Trump’s lack of clarity, what is known about him, and the Republicans who control Congress, points to a loosening of fiscal policy. This mainly takes the form of tax cuts. This increases the demand for dollars, because it will increase spending in the US domestic economy. Exactly how remains to be seen. On one version US corporations will repatriate foreign profits and invest in infrastructure. This is all uncertain – but Mr Trump and the Republicans in Congress certainly agree on tax cuts, especially for the wealthiest. And this happens at a time when most people are convinced that the US is running at close to capacity – so there is no question of fiscal laxity being complemented by monetary laxity, which would allow the increased demand for dollars to be met by extra supply. Indeed the Federal Reserve is in the process of tightening policy, and increased interest rates this month.

This economic dynamic is often not appreciated – that in a world of freely floating currencies and open capital markets, loose fiscal policy leads to an appreciation of the currency. But there are plenty of examples if you look for them. When Germany unified in the early 1990s, it involved a considerable relaxation of fiscal policy – which caused the Mark to appreciate, and a crisis in the European Exchange Rate Mechanism in 1992 that forced Sterling to leave, shredding the credibility of John Major’s Conservative Government. My Economics lecturer at UCL used the British government of the mid-noughties as another example – the government ran a larger budget deficit than was warranted at that point in the economic cycle, at a time when banking laxity had already led to excess demand in the economy.

The effect of fiscal policy on a floating currency is part of what is known by economists as the Mundell-Fleming model, proposed independently by economists Robert Mundell and Marcus Fleming, leading theorists of floating currencies. It is one of the reasons that floating currencies are not quite the free lunch suggested by many Anglo-Saxon commentators. It means that a floating rate tends to neutralise fiscal policy (just as a fixed rate neutralises monetary policy). As a currency appreciates, the current account reduces (or deficit gets larger), and any increase in aggregate demand is lost across the world economy. Unless monetary policy operates in the same direction (including “printing money” to monetise the budget deficit), in which case you are in effect operating a managed exchange rate policy. This often ends in inflation or default.

This points to one of the tensions in Mr Trump’s economic policy. Fiscal laxity will lead to a widening trade deficit – exactly the opposite to what he promised on campaign. That will tend to force him into protectionist policies, which in turn could create a doom-loop of global proportions. Many believe that we have the makings of another global financial crisis, especially given developments in the Chinese economy – for example read this from Yanis Varoufakis.

But another tension could be that Mr Trump’s fiscal stimulus proves ineffective. The rich people and corporations that benefit from the tax cuts save most of their winnings; planned infrastructure spending is lost to political friction; and Congress insists on dismantling the social safety net, especially Medicare, sucking demand out of the system by hitting the less well-off. That would mean that growth is disappointing, breaching another Trump campaign promise.

But that’s in the future. For now participants in the financial markets are readying themselves for more demand for dollars, and weaker demand for pounds. They aren’t taking a view on the wisdom or otherwise of either Brexit or the new US regime.

Competence, cosmopolitanism and change. And fewer experts needed forthe liberal fightback

Liberals are traumatised by the Brexit vote in Britain and Donald Trump’s victory in the USA. The margins were very fine in both cases, but that is little comfort. Things weren’t meant to be that close. And more shocks could be to come. It isn’t too late to fight back. But how?

And here there is a lot of confusion. Some want to coopt the tactics of the populists and fight dirtier (like the Guardian’s Jonathan Freedland); others say that we should stick to the issues and avoid personal attacks (take this piece from Luigi Zingales, building on experience with Silvio Berlusconi); others again suggest that we follow a populist left agenda in the manner of Bernie Sanders; or perhaps stick with the centre right (such as France’s Francois Fillon or Britain’s Tony Blair). Or meet the populists half-way by conceding immigration controls and restrictions on trade.

All of these ideas are flawed. One striking feature of both the British and American situations is just how divided the public has become. Accommodating one side of the argument means creating resentment on the other. Bernie Sanders would surely have lost more votes from Hillary supporters than he would have picked up from Trump ones. Recent polling on Brexit voters show that very few on either side have changed their minds.

We should be careful about accepting the populist narrative: that they represent a rebellion by the public against an elite. Most of the people I meet are on the establishment side of the argument, and are passionately opposed to Brexit and Mr Trump. But they are very far from any elite establishment; we are as ordinary in our way as the rebels. And all any political process does is to exchange one elite for another. As Brexit and the Republicans take over, there are going to be just as many angry and resentful people as before – but they will be different people.

Two ironies strike me here. First is that Mrs Clinton was right when she accused half of Mr Trump’s supporters of being a “basket of deplorables”. Saying so was one of the biggest mistakes of her campaign, and it showed a complete lack of political judgement  because it reinforced the idea of a sneering elite. And yet it is hard to see that there will be any reconciliation with people who have convinced themselves that the problem with the US (and Britain) is that an essentially white heritage is being polluted by incomers, and that the country needs to return to the values of the past. But there is the other half of Mr Trump’s supporters, who simply lost confidence in the establishment and just want to shake things up.

The second irony comes from  a seminal moment in the Brexit campaign when leading Brexiteer Michael Gove said that people had had enough of experts – because so many experts were advising against change. And yet the liberal side of the argument was badly let down by experts – or those that were advising their campaigns.  In America those experts has parsed the 2008 and 2012 election campaigns in minute detail and thought they had cracked it. Poll analyst Nate Silver made his reputation by predicting the result with precision in 2012 long before polling day. And yet the expert strategies in 2016 amounted to picking up pennies from in front of a steamroller. They lost the wood for the trees.

What are the experts saying now? They are very quiet, but I think can I guess what they will be saying. Don’t panic. Use the confusion and resentment emanating from the new ruling elites to build up a protest vote. Normal service will be resumed.

Well the Trump administration and the Brexit-supporting Conservative government will offer plenty of ammunition to opponents. But it isn’t enough. The British Labour Party thought it had the Conservative-Lib Dem coalition on the ropes in the years up to 2015 – such was the popular anger against austerity policies. And yet they lacked a convincing alternative, and all they succeeded in doing was pushing Lib Dem voters into the arms of the Conservatives, while being unable to contain the popular backlash in Scotland. Labour are trying something different now, with a lurch to far left – and the signs are that this will be even less successful. The populists are absolute masters of blaming anybody and everybody else for their problems, and they know how to stir up their supporters and create doubts among the uncommitted.

So what to do? I think that three things need to be at the heart of any fightback: competence; cosmopolitanism and change. Competence because that is what people will soon be yearning for, especially in America as the Trump regime takes control. People like the idea of somebody that creates chaos more than the fact. So any alternative must look like a cool, safe pair of hands. And, I would add, because this goes alongside it, somebody that cares about truth, and can admit awkward facts.

Cosmopolitanism because that really is the only way forwards. The genie is out of the bottle. We are going have to get along with people of different nationalities, races and cultures. There is no future in harking back to cultural distinctiveness. We must grow more confident in our own cultures and learn more from others. Ironically even the populists are doing this amongst themselves. If there is anything that unites the half of the population that is resisting the populists, it is a belief, at some level, in cosmopolitanism. Rallying this group is critical.

Well, Hillary was competent (except at campaigning) and cosmopolitan; and that was not enough. We also need to show that we believe in change. We must accept that the establishment orthodoxy of the 2000s was wrong in many respects. The relentless quest for a narrow vision of economic growth and the crushing of human control in the name of productivity and modernisation must end. All they do is enrich a few lucky people. We need a new vision of modernisation that takes to heart that most successful of Brexit slogans: “take back control.” And our experts won’t be much help here: we need new vision.

So we need new leaders that stand for competence, continuity and change, and are able to see beyond the myopia of experts. Justin Trudeau has done it in Canada. Who will do it in Britain and America? Oh how I wish I knew the answer to that!

 

 

 

The government has made an error by not condemning attacks on the rule of law

Last Thursday the British government suffered a shock defeat in the High Court. It ruled that the government could not invoke Article 50 of the Lisbon Treaty, launching the process of exit from the EU, without parliamentary approval. Reaction to this has split along partisan lines, depending on whether you think Brexit is a good idea. But the reaction of some Brexit supporters is pure hysteria. This posed a challenge to the government that it has handled badly.

The case itself arises because Britain lacks a written constitution – so constitutional principles evolve in a rather haphazard way. The government’s case was founded on a curious combination of a brand new constitutional principle, and an ancient one.

The new principle is that sovereignty rests with the people, and that the referendum result was a clear expression of the will of the people, to which the state executive may conform directly, bypassing parliament. This is a perfectly viable idea. But it is not one that has been established in British law – and, indeed, it did not form the basis of the government’s legal argument, though it served to give it moral authority. The current principle is that parliament is sovereign, not the people, though parliament is subject to popular election. I am no fan of parliamentary sovereignty, though it makes some people misty-eyed – ironically it was much invoked as a precious British institution by Brexit campaigners during the referendum. Actually I see the sovereignty of parliament as a potential threat to freedom, and it should be subject to constitutional constraint, like all other parts of government. These restraints include such things as the Human Rights Act, and, indeed, the country’s treaty obligations to the European Union, which I view as a helpful restraint against corruptible power, rather than a dilution of democracy. One of my fears for Brexit is that it reduces the checks and balances of our constitution.

Still, parliamentary sovereignty is the rule, and it should only be changed through a due democratic process via parliament itself. And parliament has been very careful not to subordinate itself to referendums, which are an increasingly important part of our democratic system. They are always described as “advisory” – an act of consultation rather than authority in themselves. There is an ancient debate here between the virtues of direct democracy (such as referendums) and representative democracy (where elected parliaments have primacy). We haven’t resolved that debate properly – or if we have, it is in favour of the representative sort of democracy.

The ancient constitutional principle invoked by the government is that sovereignty derives from God to the anointed King or Queen, and from them to the Cabinet, a committee of the Privy Council. Parliament, or the People, are mere subjects of the royal whim (and, revealingly, “subjects” is the word commonly used in place of “citizen” in government language). This constitutional principle was heavily compromised by the Glorious Revolution of 1688, when parliament sacked King James II and passed the crown to William III and Mary II jointly; parliament further invoked its supremacy to secure the succession of Queen Anne in 1714 to George I. But the principle lives on under the Royal Prerogative, which is the basis of much executive power, including, relevant to this case, the making of treaties with foreign powers. The court decided that Article 50 would in fact involve a breach of Acts of Parliament rather than just the termination of foreign treaties, and so the government could not use the royal prerogative. Anybody who remembers the fraught parliamentary debates, from 1972 onwards, at each stage of the evolution of Britain’s membership of the EU, will not be surprised that it can’t just be unmade at the whim of the Queen’s representatives.

The court case isn’t over. There is an appeal to the Supreme Court, as is only proper in a case of such importance. But most think the judgement will be upheld. Talking to a senior lawyer when the case was brought originally, I was told that the High Court was likely to find for the government, but that the verdict stood a good chance of being overturned by the Supreme Court. So the government’s case looks weaker than it first appeared. You will gather than I am not particularly surprised.

So here we have a constitutional challenge being resolved in a civilised and proper way. That makes the reaction of some Brexit supporters very striking: they are saying that it is outrageous for unelected judges to intervene to thwart the clearly expressed will of the people. Suzanne Evans, a Ukip leader, has been particularly voluble, suggesting that the judges concerned should be sacked. But the Brexit newspapers, the Telegraph, the Express, the Daily Mail and the Sun in particular, are no better. The Mail sought to undermine the authority of the court by pointing out that one of the judges was openly gay.

This attitude reflects the views of much of the pro-Brexit public too, to judge by some vox-pops on the radio and social media comments. But it is in contrast to the equivalent populists in the US. These treat the US Constitution as holy writ, and nobody challenges the right of the Supreme Court to limit the actions of politicians or the state, or even to overturn the results of referendums, which happens frequently. Such is the difference that history makes.

What we have instead reminds me a lot of fascist attitudes in Europe before 1939, as practised by Hitler, Mussolini, and others, and advocated by a number of political groups in other European countries. The referendum was a favourite device of these dictators: a way of proving that they derived their authority from the will of the people. They saw the law as an instrument of executive power.

Of course we should not make the mistake of assuming that all Brexit supporters share such fascist tendencies, and we should remember that another key ingredient of fascism, the advocacy of a superman leader, is absent. Indeed pro-Brexit Tory MP Stephen Philips disagrees with the government on this, and has resigned in disgust at his party on this and other issues. But there seems to be a hard core, represented by Ukip, many Tory hardliners and a group of right-wing newspaper owners that are happy to undermine the independence of the judiciary. And that hard core holds the initiative, largely because the government lets them. The government response to the attack on judges has been limp; indeed one minister, Sajid Javid, actually joined in. Belatedly the Prime Minister and the Lord Chancellor affirmed their respect for the judgement, but failed to condemn the attacks made by their colleagues and the press, or create any kind of media splash.

This is a tactical error. The government’s best hope in pushing through Brexit is to take the heat out of it all. They had a major victory when Japanese carmaker Nissan was persuaded to keep investing in their British factory. This supported the general idea that the Remainers are stoking up a fuss about not much. Now the Remainers have something new to be angry about: the government’s complicity with an attack on the rule of law. Many liberals will be taking the Brexit slogan “We want our country back” for their own, so disgusted are they about the rise xenophobic and intolerant attitudes. Liberal Democrat campaigners trying to make the Richmond Park by-election about Brexit must be delighted.

Still, Remain supporters need to be careful. As yet there has been no major shift in public opinion. Most of the public will be unmoved by this rather abstract debate about the British constitution. That shift will only arise when there is a concrete threat to jobs, living standards and public services. Most voters assume the country will muddle through without too much damage. The government’s victory on Nissan was so important because it staved off one such concrete threat.

Incidentally that leads to an intriguing question. How was the government able to make the assurances it did to Nissan? It suggests that it is in fact aiming to achieve a version of “soft Brexit” with the UK staying in the EU customs union, and remaining subject to some EU jurisdiction – while the mood music is pointing to “hard Brexit”. This would explain why the government is so reluctant to say much about what it is trying to do.

But raising the political temperature on Brexit is a bad idea. The government needs to tread a middle course between the Brexit extremists and those that seek an opportunity to reverse the referendum result. A firm rebuke to those attacks on the judges would have been just that. And now it is too late.

 

Leave and Remain liberals will need to heal their rifts or the conservatives will take over

If we ever imagined that June’s referendum on Britain’s membership of the EU would end the arguing, we would have been much mistaken. I have taken part in this arguing enthusiastically, but it is time to take a step back. Where are we heading?

Let’s start with the Remainers. A recent poll has shown that few people who voted to remain in the EU regret their vote. They mostly believe that the results of Brexit will be highly detrimental, and many continue to protest. But what for? The vote for Brexit was narrow, but decisive within Britain’s political system. Most English and Welsh MPs have seen significant majorities for Leave in their own seats. The Remain vote was inefficiently distributed, with majorities mainly in London and Scotland, which is now politically marginalised by the rise of the SNP, a process that is likely to lead to that country’s breakaway. The vote is widely seen as an English and Welsh revolt against London, and the bulk of MPs are minded to heed it, and no general election will change that. The chances of stopping Brexit look thin – and would entail an ugly fight with Leave supporters that would do nothing to heal a divided nation. Only if the cohesion of the Leave side starts to break could alternative possibilities emerge – and there is no sign of that. Some leave voters express regret or apprehension, but this is very soft and is not a political move of any significance.

So why can’t Remainers move on and make the best of it? Because so many of them regard it as a matter of values. Remainers really don’t like the values of the stereotypical Leave supporters, whom they see as being illiberal – though not all are, of course. They get the anger of white working class voters, but blame it on national government failure not EU membership, and do not find that it is an excuse for narrow-mindedness or, as they see it, stupidity. Real venom is reserved for the many middle class supporters of Brexit – seen as a combination of the awkward squad, who always criticise and never take responsibility, and people who can’t accept that the world moves on. The rise in hate crime since the vote only convinces Remain supporters that they should stand up for their values. One way of looking at this is the popular model of grief, which sees denial followed by anger, bargaining, depression and only then acceptance. Remainers are stuck somewhere between anger and bargainings. They know that moving on means depression, and we are scared of the abyss, so are stuck on anger and bargaining.

What of the Leave side? It is possible to have some sympathy for them. The boot is on the other foot now. They are the ruling elite, receiving all the brickbats instead of giving them. Much of what is said against them is spurious or speculative, with an intention to stir up trouble rather than anything constructive. They find that nearly half the population is angry about the cause they support, and they don’t know how to handle it.

What Brexit supporters need to understand are the dynamics of change management: any disruptive change is going to be stormy. On one model I was taught in management training, change in an organisation goes through four distinct phases (clearly related to the five phases of grief). First there is denial. People think that the change doesn’t really affect them – it is about other people. Inexperienced managers mistake this calm for acceptance and think things are going well. Then comes anger, as the effect of the change sinks in and people realise that their comfortable ways will be threatened. Management is often accused of being clueless by people who haven’t understood what the management is trying to do. The next phase is chaos. As the change moves into implementation, things start to go wrong; people feel lost in an unfamiliar environment. Management’s reputation remains low. Finally things settle down and we have renewal. You have to understand that this pattern is inevitable in any meaningful change. In a well managed change there is still anger and chaos, but they are short-lived. In a badly managed one the change can be derailed, even if it is ultimately a good idea.

This is what is happening over Brexit. Brexit was always going to be disruptive: if you supported Brexit, this is what you signed up for – there’s no point in being annoyed about it. We have moved on from denial to anger: that’s progress. But the next phase is chaos – this has to be embraced rather than deferred, because otherwise we will never move on. The chaos phase will probably start with the invocation of Article 50 of the EU Treaty, which makes departure all but inevitable. But how to minimise the downside? The process has not been well planned (or planned at all, some would say), so getting through it quickly will be impossible. Brexit supporters need to keep moving things on so that things can start to settle down in a new reality. This requires a relentless focus on problem-solving, and not arguing about why you are doing it. But Brexit politicians tend not be strong on problem-solving – they are the disruptive types who like to blame others for anything that goes wrong, rather than sort things out themselves.

But within this chaos, there is a clear threat to liberals. Liberalism does not command majority support, but neither does its antithesis. If liberals form the right coalitions they can be politically dominant, as they often are. But the Brexit coalition is dominated by conservatives. Liberalism has been split. Most are Remain supporters, but many supported Leave. Leave liberals see the EU as an institution whose flaws are so deep that they threaten its avowed liberal values. They seek to combine liberal values with stronger self-determination.

So the threat is that conservatives dominate the ruling coalition, while Remain liberals absent themselves in a sulk. The result will be illiberal measures such as: excessive immigration curbs, which in turn limit the opportunities for Britons in the rest of Europe; conservative social policies, such as selective school admissions; and, in all probability, increased austerity as government finances come under pressure. Worse than all this there will be a prevailing political culture of blaming outsiders for the country’s mounting problems, resulting in a rise in intolerance of ethnic and religious minorities. Liberals of all stripes must resist this.

In the short term the anger of the Remain side may serve a useful purpose for liberals. It will weaken the Brexit conservatives, many of whom vastly overestimated the ease of transition, and certainly played down the difficulties during the campaign. But at some point Remain liberals will surely have to admit defeat and team up with the Brexit liberals to define a liberal Britain (with or without Scotland) outside the EU, and appeal to Brexit voters sceptical of the conservative political establishment.

How will this come about? Not by refighting the referendum. The two sides will simply have to agree to differ on the wisdom of leaving the EU. But liberals should find common ground in political and economic solutions that will make the country a better place. Political reform; devolution; improved education for all; better public services; and better support for communities disrupted by changes to technology and trade. Reconciliation will be hard, but if liberals don’t the conservatives will set the agenda.

 

Does the fall in the pound presage a financial meltdown?

The British pound is now at its lowest effective (i.e. trade-weighted) level ever, according the Bank of England’s 168 year index. There was a sharp initial fall after the referendum to leave the EU, and then a further fall over the last week after the prime minister’s conference speeches pointed toward a quicker and harder exit than expected. Is this just a routine fluctuation that can be shrugged off, as bigger falls have been in the past, or does it portend something nasty? It is, of course, too early to tell.

The pound’s fall has been seized on by supporters of Remain as the sole piece of substantive evidence to support their prediction that exit would make Britain worse off. Leavers are predictably unimpressed. Of course both sides seek to gather every scrap of evidence to justify the stand they took in the campaign, and this argument leaves us none the wiser. This blogger is not beyond such things, of course, but I do try to set a higher standard.

The first question posed by the depreciation is what was the pound doing so high before the referendum anyway. The country has a large current account deficit. In other words, as a nation we are spending more foreign currency in imports than we are getting in exports and investment income (or persuading foreigners to accept more sterling than they want to spend on British imports – it boils down to the same thing). In theory this suggests that the currency’s real exchange rate is too high. This has been a persistent and to me perplexing phenomenon since the late 1990s. Demand for sterling has remained high, notwithstanding the deficit. Investment by foreigners in property and business assets (or Britons selling off overseas assets and repatriating the proceeds) has kept the pound afloat for 20 years – though at a much higher level before the financial crisis of 2007-09.

This is, literally, a confidence trick. Investors have had sufficient confidence in the British economy to think that their assets will grow in value in terms of their home currency, rather than ours. It is hard to pin down why for sure. Britain is an easy place for foreigners to do business – we don’t have a xenophobic attitude to foreign investment, sometimes seen in countries as close as France. That encourages footloose capital in our direction. We have seen many takeovers of great British businesses (notably this year the chip designer ARM). Buoyant high-end property values have no doubt encouraged investors too, though it is hard to quantify.

Britain’s membership of the EU is doubtless part of the charm of Britain, for business investors at least. They can set up operations here with ready access to European markets, free of tariff and non-tariff barriers. Leaving the EU, and its single market, must surely dent the country’s attraction. But we don’t know by how much. It won’t change the ease with which foreigners can buy assets here. By itself it should not affect high-end property either.

There is, therefore, a clear case to keep calm. As sterling takes a fall, it makes British assets cheaper. This should be a compensation enough for British exit to the EU, though you might be wise to stay clear of some businesses, like motor manufacturing. A lower exchange rate should help rebalance the economy, reducing the current account deficit, and the country’s dependence on foreign investment flows. This is all self-correcting. And if you are a true Brexiteer you will be confident that a more efficient, better balanced economy will eventually emerge from any transitional wobbles. That may be right – I always thought that the hair-shirt case for Brexit, as I called it, was intellectually their most persuasive argument (referencing a post I made in March which stands the test of time). Could EU membership have caused that current account gap, or allowed it to persist, leaving us with an unbalanced economy?

There is a problem, though. Capital markets are not rational. Nobody really understands how they work, and they are at least as influenced by a complex game of second-guessing short-term movements as they are by cool, calm assessment of long-term prospects. They are prone to bubbles: excessive periods of confidence followed by excessive pessimism.

You can see this by the way market observers talk about movements in prices being persistent trends, rather than asking what the right price is. This is at its most striking in the property market, where price movements are talked as “performance” rather than finding an appropriate level. A long view investor might say that the pound has simply found a new and more appropriate level. A short view investor might suggest that the pound has been performing badly, so that further falls are to be expected. In the former case you have would expect the fall to be limited, in the latter the fall becomes a self-reinforcing trend. And the difference comes down to a not entirely rational quality: confidence.

Confidence is not a nice, mathematically well-behaved quantity. It is prone to behaving in a very non-linear way. It can disappear suddenly. Confidence in Greek government bonds used to be nearly as rock-solid as German ones. And then it disappeared. Could confidence in the pound, and then other British financial investments, like government and corporate bonds, disappear just as quickly? Could the 20 year bubble burst? It doesn’t have to be rational. If it does the wider consequences would be severe. Inflation could take off as the monetary floodgates are opened (by the government funding itself directly through the Bank of England); bank lending could simultaneously dry up causing a recession. Back to the 1970s in other words when, amongst other things, a massive rise in oil prices caused a rapid rebalancing. Is Brexit a similar shock? (even accepting, as with high oil prices in the 1970s, we end up in a better place).

It is hard to believe that things will turn out like this. There are some signs of vulnerability: property prices are high; the budget deficit remains high by historic standards, and so is the level of the national debt. There is little scope to restore financial markets by cutting interest rates. Gilt yields have been rising recently – suggesting that confidence in government finances is starting to fade. And yet the overall statistics do not suggest alarm – foreign exchange reserves, for example, look plentiful. But ultimately if the country has a current account deficit, and if foreign investors don’t want to finance it, there will be defaults or inflation or both.

As the FT’s Martin Wolf points out, a financial meltdown is not likely, but the risk of it has risen in the last week. The capital markets have given Britain an easy ride through its recent troubles, but that could change quickly. The government needs to be very careful about how it handles Brexit. Sovereignty in an interconnected world is always incomplete.

Can Brexit be reversed?

First was the shock. It seemed as if Britain had driven off the edge of a cliff. Then denial. The dust settled and nothing much seemed to have changed. But now, among those that follow politics and business, there is a slow, creeping realisation of just how big a mess Brexit is. This isn’t so much that the country has ruined itself in the long run (many believe that to be true, but a cogent case can be made otherwise); it is the sheer extent of short-term disruption.  So we might ask: can it all be made to go away?

What has woken people up to the depth of problem is the government’s proposal to trigger Article 50 of the EU treaty in the first quarter of 2017, which leads to the country’s departure two years after that. That is not near enough time to put in place new trade treaties, and handle a host of other issues (who pays for British nationals’ medical bills in Spain? How do we manage the Irish border? And on, and on) all at once, given that this is all a matter of negotiation, and negotiations always go to the wire. That means that many businesses with an international dimension (not just exporters – anybody using imported parts or services from anywhere outside the UK) could hit a wall of confusion in 2019.

What makes this worse is the realisation that the split is going to be more “hard” than “soft”, for the reasons I explained in my recent blog. Remain supporters desperately argue for some sort of middle way that protects trading relationships – but no compromise deal looks anything like as good as the real thing, membership with the layers of concessions that Britain had accumulated for itself over the decades. So can we call the whole thing off?

The problem is that as soon as Article 50 is triggered (which astonishingly the government claims does not require a parliamentary vote), then it becomes very hard to come back. The government would have to negotiate re-entry from a very weak position. Such concessions as Britain’s contribution rebate would become an obvious target. So something needs to happen before that. Any hopes must largely rest on a court case challenging the government’s right to invoke the article under royal prerogative. If the government loses, then parliament has the opportunity to throw a spanner in the works.

Could the government fail to find a majority to push through Article 50, if it was forced to? Its majority is small, though some of the Irish parties would support it on Brexit. A rebellion from its backbenchers, or even ministers, is certainly feasible. But would Labour turn up with enough numbers to back them up? In the old days that would have been quite a safe bet. The party in opposition loved nothing more than to make mischief for the government, regardless of the rights and wrongs of the case at hand. But the current party leadership seems little interested in such games. There would need to be strong political reasons to galvanise both Labour and any Tory rebels.

What might those political reasons be?   Remainers are trying to build a case around the idea that the Brexit vote did not amount to a mandate for the “destination”, or what replaces EU membership. This is weak. It suggests consultation just on the question of what type of Brexit we want – a choice between a miserable compromise or a highly disruptive major break. But the best alternative to hard Brexit is to overturn the referendum result itself. For that, something needs to happen to shake confidence in the referendum mandate.

Alas there is little sign of that. The lies peddled by the Leave campaign (most notoriously the idea that £350M would be available to spend on the NHS if we left) are being shrugged off, and set against some of the Remain campaign’s claims, such as that a Leave vote would lead to a draconian emergency budget. But something might blow up in the next six months and catch the public imagination. Or it could be financial instability, which is surely a possibility given the huge uncertainties and the country’s dependence of foreign finance. The wobbling pound is so far the only real sign of trouble – what if it keeps wobbling?

But these are thin pickings for people who support UK membership of the EU. It seems that the slim majority for Leave in the referendum, now routinely described as “overwhelming” by its supporters, has been the basis of a coup, which disenfranchises people like us. The people were consulted, and now the political elite has reasserted full control. The irony, of course, is that the Leave campaign was based on the slogan “take back control”, and appealed to voters who felt disenfranchised by political elites. No student of political history will be surprised that it is being used to consolidate elite power, albeit with some change in personnel.

There seems to be little that Remain supporters like me can do. It will take a feeling of betrayal from within the Leave camp, and a split, in order to give the idea of reversing the referendum result any traction. Unfortunately, if this ever happens it is likely to be too late.

So we must channel our anger into rebuilding the forces of liberalism for the long term. And we need to focus on two problems in particular. How can we give people a greater sense of political control over their lives, while enjoying the opportunities that global connections provide? And how should European institutions be reshaped so that they better serve European people, and so that one day, we may persuade the British people to rejoin? Meanwhile we must watch helplessly as a slow-motion disaster unfolds. “Told you so,” are the most unsatisfactory words in life, but I fear that it is all we are left with.

The Tories take possession of Brexit; the Lib Dems will benefit

Theresa May, Britain’s prime minister, closed the Conservative Party conference yesterday with a striking vision of her political direction, which was consistent with speeches made by other members of her government. This is a marked change of tone from her predecessor, the rather liberal David Cameron, and his Chancellor, George Osborne. Brexit is at the heart of it.

Earlier this week, FT columnist Janan Ganesh suggested that the stream of social policies coming out of the Conservatives were an attempt to deflect the politicians’ obsession with Brexit. But this is to misunderstand what these policies are about – they are an attempt by the Conservatives to tell people that voted for Brexit that they “get it”. The vote to leave the EU is the starting point of the whole thing.

What Mrs May is trying to do is to adopt what I will call the “Brexit coalition” as a political base. This starts with her hinterland: the non-metropolitan middle classes – most especially their older members, as their children are going to university and becoming more metropolitan in outlook. This group has a nostalgic view of the past, and feel threatened by the cultural aspects of globalisation. All the talk of patriotism, the hard line on immigration and the attacks on liberal elites (Oh how sick I am of being told that I am part of a ruling elite when all I am is a school governor!). Other nostalgic policies, like promoting grammar schools are in the mix too.These are bedrock Conservatives, largely taken for granted by Mr Cameron.

What is more interesting is that Mrs May wants to add the disaffected working classes, who voted in droves for Brexit, notwithstanding the advice of the Labour Party. They share the cultural biases of the non-metropolitan middle classes, but add to this resentment about economic insecurity. Mrs May is making a particular pitch for this group: emphasising the struggles of people at the margins, though failing to observe how much austerity policies, such as changes to tax credits, have added to their hardship. For these people she made a strong pitch for “fairness”, and indicated that she would act on a series of economic problems, like housing costs and poor infrastructure. She also rounded on unscrupulous businesses. In parts she sounded not unlike Ed Miliband, Labour’s previous leader, allowing her to claim the “centre ground”. Strikingly she also included a pitch for ethnic minorities, acknowledging discrimination. Ethnic minorities make up large sections of the working class, after all – though the Brexit voters tend to be “I’m not racist but…” types who think it is them who are the victims of discrimination.

But one part of the Brexit coalition is being left behind by all this: the businessmen who called for a bonfire of regulations to make businesses more competitive. On the one hand Mrs May’s tough line on sovereignty, immigration and foreigners points to a hard Brexit, and so little need to heed EU regulations. On the other the threatened policies to limit immigration would add a very hefty layer of extra bureaucracy on businesses, and the appeals to “fairness” suggest a strong role for regulation and government intervention too. Regulation and democracy go together like a horse and carriage. They may be jumping from the frying pan into the fire. But this part of the Brexit coalition always mattered more for its money than its voter appeal.

It is possible to admire the political cleverness of this. Ukip, who had been harrying the Tories on their nativist flank, are struggling at the moment, and this sort of thing should see them off, in Conservative constituencies at least. One might ask what the point of Ukip is. It also takes advantage of Labour’s disarray. At their own conference Labour failed to discuss Brexit. Their leader, Jeremy Corbyn, seemed to embrace it – but (admirably) failed to bang the drum on immigration. Other Labour big hitters want it the other way round: oppose or soften Brexit, but wave the flag on immigration. This leaves muddle at the core of Labour’s message on the top issues of the day. The party will no doubt maintain its iron grip on public sector workers, and those vulnerable to government reforms (students, benefit claimants, etc.). I would also be very surprised if their grip on ethnic minority communities was seriously dented. But this falls way short of an election-winning combination. It is not clear what is their appeal to grumpy working class voters, to say nothing of the non-metropolitan middle classes that former Labour leader Tony Blair made inroads on the last time Labour won an election.

But speaking as an ordinary decent liberal and proud citizen of the world (subject to a sneering jibe in Mrs May’s speech), I am aghast at the direction the Tory Party has taken. The are stigmatising foreigners and implying that I am unpatriotic. Many of us are friends, neighbours and work colleagues with people who are not British citizens, and we look on them as equal human beings who have earned our respect and a place in our society. I find that impossible to reconcile with some of the rhetoric coming out of the Conservative Party. And it gets worse. The EU referendum unleashed a wave of hate crime and anti-social behaviour aimed at people who are seen as not belonging here (not just foreigners of course). Much as the leaders of the Brexit campaign claim that this is nothing to do with them, Conservatives run the risk of allowing these attitudes to take root, even as they claim that it is not their intention. In the same way Mr Corbyn will not call off the misogynistic hard left thugs that are part his own coalition, contenting himself with mild disclaimers.

This is now becoming a real political opportunity for the Liberal Democrats. The party is now the best home for open-minded people who do not have a nativist outlook – or those of them appalled by developments in the Labour Party anyway. It becomes easier for the party to take credit for the better bits of the coalition years – which had accrued to Messrs Cameron and Osborne – rather than just the blame for the bad bits.

That opportunity for the Lib Dems will grow if the Conservatives fail to deliver on their new promises, as seems almost certain. As soft Brexit turns into a mirage, and hard Brexit turns out to be highly disruptive, and as the Tories fail to deliver economic gains, such as lower rents and better paid jobs, to working class and other struggling communities, and as the party’s small parliamentary majority bogs it down, then the appeal of Mrs May’s government will diminish. With Labour looking like an empty bubble of hope (or a pyramid scheme as suggested by the Economist’s Bagehot column), there is reason for the Lib Dems to gain.

Of course, the Lib Dems themselves have many serious questions to answer. But it may be easier than people think for it to double its vote share to 15-20% before coming under more serious scrutiny. As the keener Lib Dem activists travel to the latest by-election in Mr Cameron’s old seat in Witney, Oxfordshire, it is impossible not to notice the spring in their step. The bookies are already giving them second place (from fourth in 2015).

But this is a small shaft of light in a very gloomy British political landscape, as the wonton act of self-harm committed by its electorate in the referendum pushes events on a seemingly inevitable course.

Soft Brexit is a mirage

Centrist politicians are hard-wired to look for a middle way when confronted with difficult problems. So after absorbing the shock of Britain’s vote to leave the EU last June, it is only natural that so many have sought one on this most perplexing issue. It goes by the name of “soft Brexit”, to contrast with “hard Brexit”, which refers to an uncompromising break. But is such a solution viable?

This question revolves around one issue above all: membership of Europe’s Single Market. The Single Market allows for the free movement of goods, and some services, across Europe’s borders. This came into being in 1990 as intra-European trade was stagnating, and restored momentum. The problem was that Europe’s free trading arrangements at that time did not go far enough. There were no tariffs, but plenty of scope for non-tariff barriers. There were many such barriers – I remember a particular story about all French imports of one particular type having to be sent to Poitiers to be inspected.

The Europeans had a clear model in front of them: the United States of America. This towering economic power was so successful  in large part because of its huge domestic market, which gave businesses time to develop products before having to tackle export markets. But here we bump into a famous trilemma, first articulated by US economist Dani Rodrick in his book The Globalization Paradox. People must choose between democracy, national self-determination and the benefits of global integration. You can have two of these, but not three. To achieve global integration means setting global rules. If nation states choose to participate in globalisation, they will sacrifice their voters’ rights to change the rules. The only way to make it democratic is to make it so at the global level, which means losing national autonomy.

And so forming the Single Market meant that the members of the European Union sacrificed significant sovereignty – albeit with the creation of some democratic structures at European level: the European Council of heads of state, and the directly elected European Parliament. Critics of the EU say that it is undemocratic – but the only ways to address this are either to dissolve it and lose the Single Market, or strengthen its union-level democratic structures, undermining the nation-state further. The problem with soft Brexit is that it attempts have all three elements of the trilemma at once.

Brexit means British withdrawal from the European Council and Parliament, to say nothing of its influence in the European Commission, the EU’s executive arm. But taking part in the Single Market, or even aspects of it, means leaving the rule-making to these European institutions. This cannot be acceptable. Norway, and to some extent Switzerland, suffer this indignity already. It is hard to see it working for such a big country as Britain. Voters would rightly ask what the point was in leaving the EU. “EU rules”  would still be the bureaucrats’ excuse of choice for badly implemented regulation, alongside that British favourite “health and safety”. Political suicide, surely?

Neither will it be easy to pick apart the structure of EU regulations so that the country opts out of bits of it. British politicians often assume that there is a deal to be done to limit EU migration into the UK. Businesses want to tackle EU labour regulation and various other things, like regulation of poisonous chemicals. The trouble is that the other EU countries will see this as trying to get an unfair competitive advantage – which could undermine the entire edifice.

And furthermore, Britain’s bargaining position is weak. One of the key arguments made by the Brexiteers was that because Britain imports so much from the rest of the EU, the EU (German car makers, and French cheese makers in particular)  will be desperate to give us an advantageous deal. That looks optimistic. Take the motor industry. This has significant economies of scale, and a single national market, even the size of Britain or Germany, is not enough to sustain a domestic industry. Before the Single Market, Britain’s motor industry was dying. After it Japanese and other carmakers invested in factories in Britain as an export base for the whole of Europe. Britain’s car industry revived, though it is still in deficit. If Britain withdraws from the Single Market, this industry comes under threat. If it withers, then surely other EU countries will gain. Why should Volkswagen press for an easy trade deal that would save their Japanese competitors? Britain can’t sustain its own motor industry, so it will have no alternative but to keep importing cars from its nearest neighbours in the EU – and perhaps in even greater quantities as Nissan and others are forced to divest.

I am tempted to suggest that angling for soft Brexit is just the bargaining phase of the five stages of grief from Remain supporters, coming after denial and anger. Depression comes next.

Of course the real situation is not as black and white as I am painting it.  But if Britain has to be outside the EU, its best bet is to start with hard Brexit, and then negotiate arrangements sector by sector – much as Switzerland does. Except that we would not go anything like as far as Switzerland. But we have to acknowledge that the UK will lose its comparative advantage in industries that benefit from the Single Market – like the motor industry. That will mean quite a bit of dislocation.

But it won’t be the end of the world. Basic economics teaches us that where comparative advantage diminishes in one sector, it emerges somewhere else. The country may be poorer as a result, but it need not be a disaster. Where will this new comparative advantage lie? We cannot do a Singapore, a favourite of some Brexiteers  – which exploits its strategic position on key Asian trading routes. But industries that are not subject to Single Market rules will be at a relative advantage. This may help Britain’s successful service industries – though making headway in this highly protected arena will be hard. The county’s geographical position should help wind and tidal energy – though not solar energy, presumably. We also need to look for areas where EU regulations look badly implemented.

But just how big any short-term disruption will be is unclear. It is also not clear that the British public actually intended to sign up to it. If they didn’t the only way back is to reverse the Brexit decision itself. That is the true alternative to hard Brexit. But that is another matter.

Where do Remainers go from here?

Last Saturday I joined the March for Europe in LondonIMG_1114. These are the hard core of people who voted Remain in June’s EU referendum. By my estimate between 10 and 20 thousand marched from Hyde Park to Parliament Square, with Liberal Democrats prominent among them. The anger of these marchers was evident. Where to go next politically was not.

It is worth considering what the feelings of the protesters is, as media types and professional politicians attempt to move on. These people feel that a part of their birthright has been taken away – that the result is an assault on their very identity. They were not pro-EU because, as the Remain campaign emphasised, they thought they would be a bit better off economically. They feel part of a bigger Europe. And if there is one single thing they feel most acutely about, it is freedom of movement, because those rights to move and work around the Union are the most tangible and beneficial to them. Some were citizens of other EU countries who have settled here, having felt secure in rights to do so. Many more were British but want the right to move around the rest of Europe – or more strongly, they want that right for their children. It was an Australian, with a British daughter, that made that point most forcibly to us; Ozzies are acutely aware of the difference that an EU passport makes in freedom to move around, and they prize that freedom.

This is significant because British politicians have rightly identified that the issue that bothers Brexit voters the most is precisely freedom of movement – or fear of immigration from other EU members, especially the less developed countries or the less skilled workers. Many are searching for a compromise whereby much of the single market is preserved, but freedom of movement is restricted. This would cut no ice with most of the protestors, though the umbrella Remain organisation, Stronger IN, has hinted at compromise, while renaming itself Open Britain.

It is easy to understand the politics of the compromisers. The Brexit majority was small, and within that 52% there was a clear divide, between those who reject globalisation and want to adopt protectionist policies (echoing Japan perhaps), and those who chafed at the EU’s slow engagement with the rest of the world, and want Britain to embrace free trade (echoing Singapore). If you detach the latter group, and attach it to the Remain 48, you might get a majority behind a “Swiss” solution, with one foot in the EU, but nevertheless outside. Except it would not be like Switzerland, because the UK would need to be able to restrict immigration from EU countries, perhaps severely.

This would not satisfy the hard core Remainers. So what do they want? They want to stay in the EU, and to ignore or reverse the referendum result. A number of arguments are made. The Referendum was merely advisory: parliament can take a different view. Only 38% voted to leave the EU (even if 36% voted to stay) and therefore isn’t a strong enough mandate for such a drastic change. The Leave campaign was deliberately misleading. They might give credence to reports of buyer’s remorse immediately after the result. Alas these arguments carry little weight in the current political landscape. Most (estimated at 421) English and Welsh MPs will have found that their constituencies voted Leave. Under a first past the post constituency vote there would be a majority to leave of  getting on for 220. That strengthens the mandate. The aftermath of the vote has turned to anticlimax, allowing Brexiteers to say that the economic costs of the vote were highly exaggerated by Remain supporters, neutralising the “lies” argument somewhat. There is little hard evidence to show that buyer’s remorse adds up to anything substantial. There is no basis to call a repeat referendum.

And what would a second referendum be about? A popular proposal is to have one on whatever new deal for exit is eventually struck. The trouble is that we will only know what that is long after Article 50 of the EU treaties has been invoked, by which time the situation will be nearly irretrievable. The UK would in effect have to re-enter the EU: but on what terms? The danger is that we have yet another referendum whereby a loss by the government will create uncertainty and chaos.

Still, the political situation may change. A backlash by Brexit supporters against the claims made by leave campaigners would start to build the case for a reversal. The trouble is that even if they wake up in time, they are likely to blame the Remain politicians anyway. This is clearly the narrative that Brexit politicians are now trying to build. The government should have prepared the ground for Brexit better, they say. The politics of anger and resentment is like that. Admitting you are wrong is as hard for voters as it is for politicians.

So do we hardcore Remains give up and shout abuse from the sidelines? Not yet. The government’s majority is small; it will find it hard to form a consensus around a new vision for Britain. A constitutional deadlock could yet unfold. In that situation things could change.

That is a small hope at the moment. Otherwise we must await a generational shift of voters’ attitudes. Brexit is almost bound to disappoint a large number of its supporters, if only because they want so many different and incompatible things . Younger people are more international and open in their outlook; their views will increasingly become mainstream. Re-entry to the EU, or perhaps a reformed successor is still something to hope for. But this time the case needs to be made on identity and emotion, and not by pretending that such things don’t count.