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Christmas Election: A Step Nearer To Brexit?

Summary:
Authored by Steven Guinness, Having closely followed Brexit since Article 50 was first triggered in March 2017, what has become apparent to me is how each subsequent extension to the withdrawal process has been met with increased political instability. Back in May I published an article on Nigel Farage’s Brexit Party just after they had won the UK leg of the EU elections. I wrote about how the rise of the party had coincided – by coincidence or otherwise – with Article 50 having been extended on two occasions. Briefly, the birth of the party originated prior to the first Article 50 deadline of March 29th. The day after the withdrawal process was extended, Farage was pronounced leader of the Brexit Party. When the second extension of just two weeks was ratified, this time on April 11th

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Authored by Steven Guinness,

Having closely followed Brexit since Article 50 was first triggered in March 2017, what has become apparent to me is how each subsequent extension to the withdrawal process has been met with increased political instability.

Christmas Election: A Step Nearer To Brexit?

Back in May I published an article on Nigel Farage’s Brexit Party just after they had won the UK leg of the EU elections. I wrote about how the rise of the party had coincided – by coincidence or otherwise – with Article 50 having been extended on two occasions.

Briefly, the birth of the party originated prior to the first Article 50 deadline of March 29th. The day after the withdrawal process was extended, Farage was pronounced leader of the Brexit Party. When the second extension of just two weeks was ratified, this time on April 11th for a further six months, twenty four hours later Farage officially launched the party – on the same day Britain had been due to leave the EU.

What has happened since, all within six months, has been threefold.

  • Firstly, Theresa May confirmed that she would step down as Prime Minister on June 7th. The announcement came just a couple of days before the Brexit Party were shown to have won the EU elections with over 30% of the vote.

  • Secondly, with May having resigned, it paved the way for Boris Johnson – the so called ‘populist‘ candidate – to become the next Prime Minister. When Parliament reconvened following the summer recess, MP’s voted to compel Johnson to request an extension to Article 50 until at least January 31st 2020 should the Commons fail to pass a withdrawal agreement by October 19th. After weeks of theatrics with the EU, Johnson brought back to Parliament a modified version of the deal that Theresa May had first negotiated. MP’s supported giving it a second reading, but it was ultimately pulled after the government’s timetable for getting it through Parliament inside just a few days to avoid another extension was rejected by MP’s. This made a further extension to the process inevitable.

  • Finally, the EU granted a three month extension with the option of leaving sooner should the Commons ratify a deal before January 31st. On the day they did this – October 29th – MP’s voted in favour of supporting a snap general election to be held on December 12th. This will, of course, take place inside the new extension window.

The trend of increased political disorder in conjunction with extensions to Article 50 is irrefutable. What is not yet clear is the scale of upheaval that may be about to occur over the next eight weeks.

We know that on the same day the election takes place on the 12th, the European Council will begin their final two day conference of the year. During the immediate aftermath of the election on the 13th, the council will be discussing Brexit and ‘preparations for the negotiations on future EU-UK relations after the withdrawal.’ There remains an air of finality in regards to the EU’s position on Brexit, insomuch that they expect the UK to shortly leave the union. The tone of central bankers within the EU is similar. Governor of the Bank of France, François Villeroy de Galhau, is now openly speaking about ‘beyond Brexit‘ and towards a ‘new European financial architecture‘ (which includes the vision of central bank digital currencies).

The Bank for International Settlements are also in conference on the 12th for the fourth workshop on ‘Research on global financial stability: the use of BIS international banking and financial statistics.’ The conference is in collaboration with the Committee on the Global Financial System (CGFS), who’s members include central bank deputy governors and other senior officials. According to the BIS, the CGFS ‘monitors developments in global financial markets for central bank Governors.’ Whilst the timing of this meeting may be a coincidence, I mention it because when the original EU referendum took place in 2016 the BIS were gathering in Basel for their annual meeting. They were also in session on the same day the U.S. election was held several months later.

As for how the election might pan out, I believe there are two leading scenarios, both of which could pave the way towards an eventual disorderly exit from the EU.

The first is a Conservative majority which gives Boris Johnson the numbers to ratify the withdrawal agreement prior to January 31st, meaning no further extension to Article 50. Instead, the Brexit process would advance to the transition period that is set to run until the end of December 2020. Between now and then the UK and the EU would attempt to negotiate a trade deal as part of the ‘future relationship‘. The transition could be extended beyond the end of 2020, but only if both sides agree to do so by July 1st. Unlike with Article 50, Parliament would not have the authority to intervene to force the government into extending the transition. Therefore a Tory majority would potentially set up a no deal scenario a year from now.

If by the time we arrived at December 31st 2020 there was no agreed extension and no trade agreement in place, the transition period would end and the UK would be completely out of the EU and all its institutions on ‘no deal‘ terms (no deal in the sense of no trade deal). December 31st is significant for another reason, as it marks the end of the EU’s seven year budget cycle that began in 2014. So far a further seven year budget has not been agreed.

A potentially ominous sign that the transition period could be used to manipulate a no deal eventuality is how Boris Johnson recently declared that the possibility of no trade deal with the EU ‘simply will not happen.’ This is the man who pledged ‘do or die‘ to the UK leaving the EU on October 31st. The EU themselves have raised misgivings about the limited time available in signing off on a trade deal before 2021. The preparatory narrative for a no deal event in twelve months has gradually been developed.

Should globalists want the UK to leave the EU as I suspect, prolonging the process through a transition period would bring it directly into line with the 2020 U.S. election, where Donald Trump may secure a second term just as Brexit is about to happen. Both Brexit and Trump have been couched within the terms of right wing ‘populism‘ and ‘resurgent nationalism‘ ever since 2016. In their communications central bankers continue to single out the rise in ‘protectionism‘ as one of the main risks to global financial stability. And rather tellingly, they are talking up the prospect of introducing central bank issued digital currency as a future necessity in order to combat a global downturn and fulfil their goals for an economic ‘new world order.’

The second scenario for the election is a hung parliament with the Conservatives as the largest party. Brexit Party leader Nigel Farage has quietly been campaigning in Labour constituencies that voted to leave the EU over three years ago. Every opinion poll throughout the campaign has indicated that the party will win no seats in the election. But polls have proved a notoriously unreliable indicator since the EU referendum. Farage’s own prediction is for a low turnout, a small Tory majority and a ‘Brexit Party voice to try and keep Boris honest.’

Assuming Farage is wrong about the Tory majority, we would then have a scenario where Boris Johnson would again fall short of gaining sufficient support in parliament for ratifying the government’s withdrawal agreement. Of interest to me will be the parliamentary dynamic after the election. When Article 50 was extended back in September, the bill requiring the Prime Minister to seek delay had a majority of 28 MP’s. But if the Brexit Party did manage to defeat Labour candidates in the north, the dynamic could quickly shift the other way.

Right now the House of Commons is regarded as a ‘remain parliament‘. If Johnson does not secure a majority, the overriding expectation is for Article 50 to be extended again prior to January 31st. This is possible but not assured. I would expect a minority Conservative government to try and fail to push their deal through parliament following the election. A Brexit Party presence in Westminster could in the end prevent the deal from passing. Whilst on first glance this would set the Tories and the Brexit Party into conflict, where they would likely be united is in preventing any further extension to Article 50.

If the group of remain MP’s that return to parliament no longer had the numbers over leave MP’s, then a no deal outcome would become a genuine possibility next month.

In the end it comes down to whether the UK’s exit from the EU is a short or longer term objective for globalists. Whichever might prove the case, I would fully expect the process to persist under a Conservative government and by extension a right wing identity. As I have spoken about before, the moment Britain leaves the EU will be seen as a political decision, led by the supposed ‘populist‘ Boris Johnson. That decision could be taken either through rejection of extending Article 50 or through no trade agreement by the end of a transition period.

Whatever the outcome, the UK economy remains feeble and has on several occasions since the EU referendum been skirting with recession. I have no doubt that a volatile exit from the EU would be used to identify the next major economic downturn as the ‘Brexit Recession‘, and serve to protect the central banking community from any culpability.

Tyler Durden
Tyler Durden (a pseudonym) represents the idea that a return to truly efficient markets is a possibility and a necessity. After having experienced the inner workings of capitalism at various asset managers and advisors, Tyler believes that the current model is flawed and a deleveraging at every level of modern society is needed to reinspire the fundamental entrepreneurial spirit.

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