Let’s All Take A Minute To Marvel At The Train Wreck That Is ‘Brexit’

I don’t spill a lot of digital ink documenting Theresa May’s seemingly endless quest to secure a Brexit deal with Brussels.

To be clear, it’s not that this isn’t important (it obviously is). Rather, the problem with writing about Brexit is that nobody even knows exactly what “Brexit” means.

In fact, it’s not even clear what part of speech “Brexit” is. Is it a noun? If so, is it a proper noun, or is it just capitalized by default because the first two letters denote the name of a country? Or maybe it’s a verb. If that’s the case, how does one “Brexit”?

Well, as it turns out, one doesn’t – “Brexit” that is. Because it’s hard to do something when nobody can clearly define what it is one is trying to do. Brexit is an amorphous concept that had symbolic meaning to the extent it conveyed something about public sentiment, but had little to no practical applications at the time of the referendum.

Effectively, Britain voted to do something and then left it to policymakers to figure out what it was they had voted to do.

“Brexit was offered as a single liberating proposition, when in fact it involved multi-layered consequences and implications that require negotiation with others”, The Guardian’s Martin Kettle wrote in July, summarizing one of the more absurd manifestations of the semi-global populist upsurge that swept Western democracies beginning in 2015.

If we’re all being honest, nobody involved has a clean read on what the implications of a “hard”, “soft” or “moderate” Brexit would be for the U.K. and/or for the E.U. And again, the confusion stems directly from the fact that nobody knows what Brexit even is. It’s pretty difficult to evaluate the relative desirability of multiple variants of something when you don’t even know the meaning of the thing in the first place.

Given all of that, it comes as no surprise that May was forced on Friday to admit that talks with the E.U. have reached a stalemate. The admission that the two sides are at an impasse comes after what was variously described in the British press as a “humiliating” defeat for the embattled PM at the Salzburg, Austria summit, where European leaders essentially vomited on her Brexit plan. The flat rejection from the E.U. comes ahead of May’s annual party conference, so the timing here leaves something to be desired. Let’s go to FT for a minute, first from a piece published Thursday:

It was almost midnight on Wednesday and the EU leaders seated in the orange hue of Salzburg’s Felsenreitschule auditorium were beginning to flag. But Theresa May had one last message to deliver: I can do this if you help me.

[…]

While paying lip service to the spirit of compromise in Europe, Donald Tusk, the European Council president, laid down an unexpected ultimatum on Thursday: make a decisive move on the Irish border within weeks or talks will break down.

The “moment of truth”, he said, would be a summit on October 18. Seen from London, it was a gamble to press Mrs May in the negotiating room at a moment of high vulnerability for her at home, coming days before a Conservative party conference where her enemies are circling. To some EU diplomats, by contrast, it was merely a case of misplaced expectations.

Now, consider this bit of additional color from a separate FT post out today:

To be fair, the Salzburg debacle seems to be the result of last-minute mistakes by the UK more than strategic miscalculation. The expectation had always been that the summit would see EU leaders praise parts of Mrs May’s Chequers plan in order to give her an easy ride at the Conservative party conference.

But Mrs May misjudged the mood by giving a kind of “Chequers or nothing” speech to EU leaders on Wednesday night.

“The plan was to set May up for conference, but her argument that ‘we’ve done our bit, now you do yours’ was counterproductive,” says Mujtaba Rahman of the Eurasia Group consultancy. “Not a single member state tried to defend the economic underpinnings of Chequers.”

Oops. So, backed into a corner and apparently at something that approximates wit’s end, May had this to say in an address on Friday:

Throughout this process I have treated the EU with nothing but respect. The U.K. expects the same. A good relationship at the end of this process depends on it. At this late stage in the negotiations it’s not acceptable to simply reject the other side’s proposals without a detailed explanation and counter proposals.

For those of you who enjoy watching someone at the end of their rope ramble through a tacit admission of defeat, here’s a clip from the same address:

 

Sterling, which was sitting at a multi-month high, dove the most in 10 months.

1M implied vol. jumped to its highest since February.

(Bloomberg)

Meanwhile, 3M touched the highest since March and the options market (3M risk reversals) is now the most bearish on the pound since January of 2017:

(Bloomberg)

For those interested, below is a full Brexit timeline from Goldman that gives you an idea of what’s up next in terms of critical dates:

(Goldman) 

Stepping back a bit, the problem for May in this standoff with the E.U. is the same problem Trump is bumping up against in his trade dispute with China and the same problem Italy’s populists are having in the budget battle with Brussels. These populist agendas all depend on an implicit (and in some cases explicit) promise that “we are holding all the cards” and therefore “we can secure a great deal for our people”. That sounds good when you’re trying to marshal support from disaffected voters by playing on their fears and prejudices to push a far-fetched nationalist agenda, but when the rubber hits the road, the car stalls.

What you’re seeing in 2018 are multiple manifestations of populist agendas colliding with reality. The Brexit contingent in the U.K. cannot simply dictate the terms of a break with Europe just like Donald Trump cannot dictate the terms of a trade relationship with China and just like Italy’s populists cannot simply flout E.U. budget rules. That’s not how this works.

Now, here we are, with the U.K. and the E.U. at a stalemate on Brexit, with Trump at a stalemate with China on trade, and with Italy’s new populist government in a state of rolling internal turmoil as the various players attempt to reconcile the unrealistic promises they made to voters with budget reality.

In case it isn’t clear enough, Brexit needs to be overturned or at the very least, they need to hold another referendum and hope people have come to their senses over the past two years.

This is, frankly, yet another example of how populist sentiment can go horribly awry once the initial appeal wears off.