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The Calm After Britain’s Brexit Election
By Anatole Kaletsky

If Boris Johnson wins the United Kingdom's upcoming vote, as expected, Brexit will go ahead and cause the country long-term damage. But for the next several years, almost nothing about the UK's relationship with the European Union is likely to change, because Johnson can – and almost certainly will – extend the transition period.

With less than two weeks to go before the British election that will finally settle the question of European Union membership, anxiety is rising on both sides of the English Channel. With opinion polls pointing to a clear win for Boris Johnson’s Conservatives, many financiers and media commentators have started worrying again about a chaotic no-deal Brexit. This would damage not only the United Kingdom, but also the rest of Europe, which exports almost twice as much to the UK as it does to China. Others still fear an electoral upset that could make Jeremy Corbyn, an unrepentant Marxist, prime minister in a Labour government bent on re-nationalizing industries, reviving the class warfare of the 1970s, and undermining NATO.

Both these anxieties are unjustified. The possibility of an EU-UK economic rupture of the kind that caused understandable anxiety when Johnson was elected Tory leader in the summer, has become negligible. And, in the unlikely event that Corbyn wins out, there is literally zero probability that any of the radical policies in the Labour manifesto will be implemented, because the only conceivable alternative to a Tory victory is another hung parliament, in which Labour falls far short of a majority and must rely on other parties to govern.

Moreover, this government would exist solely for the purpose of negotiating a new “soft” Brexit deal, similar to Norway’s membership of the European Economic Area, and then holding a referendum to endorse the new agreement or cancel Brexit altogether. Once this “final say” referendum was completed, another election would become inevitable, because there are no other Labour policies that other parties would support.

What about the election’s more likely outcome, that Johnson will win? The fears now are about a new kind of “no deal” crisis, stemming from concerns about the post-Brexit transition period, when the UK will retain the benefits and obligations of EU membership, but will be formally outside the EU.

The withdrawal agreement signed in October stipulates a transition period until the end of 2020, with a possible extension for a further two years. Reacting to hardline denunciations of “Brexit in name only” Johnson has stated in his election manifesto that “we will not extend the implementation period beyond December 2020” and instead promised to negotiate a full UK-EU trade agreement within 12 months. That won’t happen: no two major economies have ever negotiated a trade agreement in less than 3-4 years. To make matters worse, the withdrawal agreement requires that the decision on whether to extend the transition be taken in June, fueling concern (sometimes bordering on panic) about a new “no deal” deadline on July 1.

Such fears are groundless. Why take Johnson’s promise not to extend the transition at face value – or any value at all? Johnson promised repeatedly to leave the EU by October 31 “with no ifs or buts, come what may.” And after parliament passed a law requiring this deadline to be extended, he promised to “die in a ditch” rather than obey it. But when October 31 arrived, all Johnson’s “secret strategies” to evade the law turned out to be illusions, and he secured the extension without much fuss. If Johnson now wins re-election, after breaking one of the firmest pledges ever made by a UK politician to voters, why would he face adverse consequences from breaking another, less important promise, of which few ordinary voters are even aware?

From a strictly economic standpoint, it is reassuring that “Johnson’s career rests on casual mendacity,” to quote the chief political commentator of the normally understated Financial Times. In trying to predict how leaders like Johnson make tough decisions, it is often wise to ignore promises and focus on economic and political interests.

If Johnson is re-elected, what will be in his economic interest? His top priority will be to demonstrate that his “fantastic Brexit deal” has made leaving the EU a painless process and miraculously stimulated economic growth. To risk a financial crisis during his first year in office would be crazy, whether by ruling out an extended transition or by accepting a breakdown in trade if, as is almost certain, an EU trade agreement cannot be completed in just 12 months. Johnson’s clear economic interest will therefore be to extend the post-Brexit transition beyond December 2020, probably taking the full three years.

What about political interests? So far in his brief career as prime minister, Johnson has relied on hardline Brexiteers in Parliament to sustain him, and the key to his electoral strategy has been to outflank Nigel Farage’s Brexit Party. To achieve both these goals required him to reject any possibility of extending the post-Brexit transition. But these political calculations will soon reverse.

In terms of public opinion, outmaneuvering the Brexit party will become irrelevant once the election is over. Moreover, many pro-Brexit voters will be satisfied once Britain leaves the EU’s political institutions, without worrying about the trade and market negotiations that continue at tedious length.

The parliamentary leverage of hardline Brexiteers will also diminish after the election. Johnson needed his party’s hardline Brexiteers to elect him as leader and keep him in office without a majority in Parliament. But all Tory MPs have now committed in writing to vote unconditionally for Johnson’s withdrawal agreement. If they win a majority, the Tories will pass the withdrawal agreement. And once that has happened, future negotiations on EU trade, including the transition arrangements, will no longer be subject to parliamentary approval until a deal is completed, whether in 2020, 2021, or beyond.

The upshot is that UK-EU economic relations will remain almost unchanged for a long period, whatever happens in this month’s election. If Johnson loses, Brexit will be delayed and probably canceled. In the likelier event that Johnson wins, Brexit will go ahead and cause Britain long-term damage. But for the next year or two, the worrywarts really should calm down.

Anatole Kaletsky is Chief Economist and Co-Chairman of Gavekal Dragonomics. A former columnist at the Times of London, the International New York Times and the Financial Times, he is the author of Capitalism 4.0: The Birth of a New Economy in the Aftermath of Crisis, which anticipated many of the post-crisis transformations of the global economy. His 1985 book, Costs of Default, became an influential primer for Latin American and Asian governments negotiating debt defaults and restructurings with banks and the IMF.
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