Brexit

Why Brexit reminds me of the last days of Lehman Brothers

BY Robert Peston   /  11 February 2019

Most MPs tell me they believe a no-deal Brexit is a remote prospect.

They are wrong.

I would argue it is the most likely outcome – unless evasive action is taken much sooner than anyone expects.

Here is why.

1) The probability is low of the PM securing substantial enough changes to the widely loathed backstop to win a vote for her deal exclusvely from Tory MPs, the DUP and a modest number of leave-supporting Labour MPs;

2) The probability is also low of the PM risking the break up of her party by pursuing all the way to a formal agreement the negotiations just started with Corbyn and Labour on a Brexit deal built on Labour’s core condition that the UK must remain in the Customs Union.

3) The probability is better than evens that MPs will on 27 February vote to put a bill before parliament that would – if passed – force the PM to request a delay to the date the UK leaves the EU.

4) The probability is better than evens that MP and Lords subsequently pass that legislation which would force the PM to ask EU leaders to delay Brexit.

5) The probability is impossible to assess that every one of the EU 27’s governments will give their assent to a request from the UK PM for a Brexit delay – and Brexit can only be delayed if there is unanimity.

6) If Brexit is delayed, it would probably not be for any longer than two or three months – or the maximum possible time that would not trigger an obligation on the UK to participate in elections for the European Parliament. A delay of two or three months would be highly unlikely to be long enough for MPs to work out what kind of Brexit deal, if any, they would support, and then to secure the assent for that from the EU’s 27 leaders.

7) The leaders of the EU’s 27 nations would take the view there is very little point in delaying Brexit at all unless it is clear what kind of Brexit deal would win a majority in the House of Commons.

8) There is no mechanism at present for assessing what kind of Brexit deal would win the support of MPs.

9) All the focus on the backstop, and the insurance policy for keeping open the border on the island of Ireland, has distracted from what is actually the biggest obstacle to a Brexit deal – which is that there is no consensus in parliament on what the UK’s future long-term relationship with the EU should be.

10) If on 27 February MPs pass a motion that would then lead to votes in the Commons on what kind of Brexit or – or even no-Brexit via a referendum – would command a majority, there is no certainty that any option would win a consensus.

11) It is highly probable that it would take the UK at least another year to establish what kind of future relationship it wants with the EU – and probably longer to negotiate that relationship.

12) The probability of the EU giving the UK as long as it realistically needs to recover from its Brexit nervous breakdown and say with clarity what kind of future relationship it wants with the EU is infinitesimally tiny.

13) The history of the EU blinking at the last moment when the going gets tough is irrelevant here – because there are too many moving parts, and it is not at all clear what “blinking” would actually mean.

So just to personalise this for a moment, on Friday 12 September 2008 it was obvious to me that without a bailout, the investment bank Lehman would be dead on Monday morning, but that the consequences to all our prosperity of Lehman going down would be so momentous that the US authorities and government would find a route to save it. Come Sunday 14 September, I was reporting that Lehman would collapse and be taken into bankruptcy protection the following morning.

The rest is the painful history of the worst recession and blow to our living standards since the 1930s – which would not have been as acute if Lehman had not gone down.

Brexit feels eerily like Lehman 2.0, if in slightly slower motion and on the scale of a nation and continent.

DISCLAIMER: I make the Lehman analogy because both the government and EU leaders are explicit that a no-deal Brexit would have serious economic and security costs, just as the US (and UK) government, central bank and regulators knew that the collapse of Lehman would be an event that would impoverish us all. And yet they let it happen.

This article first appeared as a Facebook post – it can be found here