The Question

How is it possible that Britain is contemplating a ‘No deal’ breakdown of the Brexit talks only weeks away from their deadline? How can it be conceivable that the Chancellor of the Exchequer while warning against it, is budgeting £500 million for scoping out a ‘No deal’ as the authoritative S&P Global Ratings publishes a financial analysis that shows “A no-deal Brexit could push the U.K. economy into a moderate recession and lower the economy's long-term growth potential [leading to] the economic loss of about 5.5% GDP over three years”? Which means, the agency spells out, “a loss per household of £2,700 in income per year, 2019-2021”. A more hair-raising overview of the likely consequences is elegantly presented under 29 headings in the London Review of Books. For a thorough description of what a ‘No deal’ could be like we have to turn away from the London media to Der Spiegel’s Peter Müller and Jörg Schindler, to learn what could happen on 30 March 2019 if Britain leaves the EU without any agreement.   

The New Statesman’s political editor, George Eaton, quotes Labour’s Brexit spokesman Keir Starmer MP as saying ‘No deal’ is inconceivable: Parliament, would not let it happen. Eaton himself says a ‘No deal’ would represent “The greatest failure of statecraft in British post-war European history”. Nonetheless, his colleague Steven Bush, in his lucid ‘Morning Call’ emails, insists there is no “plausible path to a parliamentary majority” for any agreement the Prime Minister brings back from Brussels and therefore “unless the politics shift” the UK will indeed leave “without a deal”. When the ex-Secretary of State for Brexit, David Davis MP appeared to disagree, saying “Terror… the fear of no deal… That will win and there will be a deal”, he promptly recanted the next morning on Twitter to predict that no agreement between the Prime Minister and Brussels will pass the Commons.

With such high stakes and uncertainty it’s natural for everyone to be obsessed with what happens next and miss the larger picture. Brexit is not just a bizarre, unpredictable dispute between Westminster politicians over the supposed ‘will of the people’. It has become a battleground in a much larger war: between two forms of capitalism in the post-crash age. One seeks to maintain a regulated, law-based world that manages competition between nations and alliances, the other to unleash a deregulated, to-the-victor-the-spoils model of traditional, international rivalry.

This is why it is a mistake to perceive ‘No deal’ as being a “failure”. For sure it will be a defeat for those on the left. But it will be a victory for the other side, and will be greeted as such by influential figures on the British right - while a can of diet coke will be raised in celebration by the ogre in the White House. For there is no such thing as a ‘No deal’. There is either a deal with the EU or with the US. An agreement between the UK government and the EU is probable and might not be voted down by the Commons. But even then it will satisfy no one. The polarisation inherent in the referendum is intensifying. Britain will have to choose between remaining within the European regulated space – ideally by reversing Brexit after a People’s Vote - or affiliating to an American-led deregulated one.

These are not polar opposites. Both are forms of globalization, as Quinn Slobodian points out in a masterly, forensic demystification of the hard right. In their different ways both desire competition, need some regulation and aim to manage democracy. The centre of the conflict lies within the United States, whose government is now impatient with a world order its predecessors created but which it feels no longer ensures that America comes first. With Brexit still unresolved, however, the UK has become the frontline of the conflict. Given the polarization unleashed by the American president and his supporters, the UK could become the first satellite of the Trumpian, American space. This is the aim of British supporters of ‘No deal’. They deploy the language of independence and don’t openly advocate subordination to Washington. Nonetheless, this will be the consequence of an outcome once thought incredible.

This is not because Donald Trump takes any special interest in the United Kingdom, on the contrary. In a wonderful new book, The Fifth Risk, Michael Lewis provides a jaw-dropping account of President’s destructive hostility to government. Combining gripping reportage with a conceptual grasp of the larger consequences, Lewis shows at first-hand how vital aspects of America’s exceptional government - its energy safety, its nuclear waste, its meteorology, its funding of start-ups - are being wrecked by the administration in a concerted effort to devastate the public sphere. What matters is not the man, with whom Americans are far too obsessed, but the lasting effects of his policies. The White House has becoming a wrecking ball. Internationally, the main structure that stands in the way is the European Union as it has begun to set global standards for regulation. Brexit is a delightful opportunity to maim if not destroy Brussels and all its stands for.

Like most commentators I regarded such a ‘no deal’ scenario as near inconceivable. On the eve of Trump’s visit to the UK in July this year, Adam Ramsay argued in openDemocracy that shock doctrine supporters of the US president want a hard-Brexit, supported by right-wing think tanks such as the IEA, the Institute for Economic Affairs, and the dark money that supports their causes. I was sceptical of such alarmism. Now, from a very different political perspective, Sir Ivan Rogers has set out a compelling account of the role and worldview of what he calls the “Brexit revolutionaries” and the likelihood of their success. There are few with a more intimate knowledge of both Westminster and Brussels than Rogers. He was the UK’s Ambassador to the EU, negotiated the deal that Cameron put to the country in 2016. When he advised Theresa May that her approach was unrealistic, she fired him. So far, all his warnings have been vindicated.

If asked, a large majority of Britain’s voters would reject subordination to an American model. Yet their referendum may make this their fate. The external reasons are clear, given the Trump administration’s goals and the think tanks that are its praetorian guard. The domestic reasons for the Calvary of Brexit are more opaque. They can be traced to the ‘impossible desire’ shared by leaders of the United Kingdom that lies at the root of Brexit; the desire to be a completely ‘sovereign’ and ‘independent’ country.

The shared self-deception behind the lies of Brexit

This is not simply an expression of imperial nostalgia as the EU negotiator Michel Barnier has just claimed. Britain renewed itself in far-reaching ways, first under Labour after 1945, then with Margaret Thatcher after 1979. Both episodes involved social, economic, political and military transformations, dedicated to ensuring a new role for the country in world affairs. Both saw towering domestic achievements that appeared to vindicate a proud belief in Britain. But neither succeeded. The result today is frustration and England’s sense of impasse needs to be understood not as the consequence of decline but of failed renewal. It is this that generates the incoherent, thwarted energy expressed by Brexit, which is far from being the mere dying spasm of a spent regime. (Scotland, Wales and Northern Ireland have different stories).

England’s rage was especially evident in the Leave side’s conduct of the referendum: the role of dark money, outright illegalities, absurd claims of the financial benefits of exiting the EU, and vile, anti-immigrant untruths perpetuated via social media.

Its sense of frustrated renewal also helps to explain a more significant deception that cast its spell over the entire referendum campaign. One that was reproduced by both sides, continues to this day and originated with those who called the referendum. Even as he prepared the public for a vote on EU membership, the then Tory premier David Cameron opened the way for his own defeat by perpetuating its untruth. “Let’s be frank”, he told voters, often a sign that self-deception is on its way, “Britain is an amazing country. We’ve got the fifth biggest economy in the world. We’re a top ten manufacturer. We’ve got incredibly strong financial services. The world wants to come and do business here… The argument isn’t whether Britain could survive outside the EU. Of course it could”.

Just like Cameron, Theresa May, who was his Home Secretary, opposed the UK leaving the EU. But she too agreed that the country was perfectly capable of doing so. When he lost the referendum, Cameron resigned and she seized the opportunity to succeed him. She then doubled down on the conceit involved. In her keynote speech to the 2016 Tory Party conference, her first to it as party leader as well as Prime Minister, she told her Conservative colleagues, “We are leaving to become, once more, a fully sovereign and independent country”. Three months later, in January 2017, at London’s Lancaster House, when May set laid down her principles for Brexit, she described the referendum as, “a vote to restore, as we see it, our parliamentary democracy, national self-determination, and to become even more global”.

May was channelling the main advocate of Brexit, Paul Dacre who edited the Daily Mail for 25 years. Defending Leave voters against their critics, he described their main motive as being “a deep-seated human yearning to recover our national identity and independence”. Which is why, he explained, arguments of economic costs fail to persuade them to change their minds. 

The source of this self-centred British nationalism is not directly that of empire, which embraced subjects around the world, but its remotest depot, the Falkland Islands. The Conservatives, both Remainers and Brexiteers, are the children of Thatcher’s triumph in the 1982 war. One that allowed her to proclaim, “There were those who would not admit it… but had their secret fears that it was true: that Britain was no longer the nation that had built an Empire and ruled a quarter of the world. Well they were wrong. The lesson of the Falklands is that Britain has not changed…”. In their wet dreams, the advocates of Brexit see Britain as once more astonishing the world with its defiance and a magically quick victory, that opens the way to a decade of economic growth. In reality they are recycling the detritus of the South Atlantic while the European Union is not Argentina. It has not declared war on even a toenail of the British Isles, however much they seek to turn it into an aggressor (“similar to Hitler”, Boris Johnson; “Mafia”, Jacob Rees Mogg; “like the Soviet Union”, the current Foreign Secretary). So Barnier is not completely wrong, there is a nostalgia, but it is for a recent triumph. One that echoes in Nick Timothy’s recent column in the Daily Telegraph (Timothy was for a long time advisor and speech writer to Theresa’s May and drafted her original Brexit programme): “if we want Brexit to be a success, we must be bold. We can quiver and fail, or dare and succeed”.

The truth of the matter

The dishonesty of such post-crash, regurgitated Thatcherism has never been publicly called out by any of the country’s political leaders. Britain is indeed a resilient, enterprising and significant country. But Thatcher’s legacy wrecked much of the indigenous manufacturing industry, bloated its finance sector and privatised the state, turning the UK into perhaps the most dependent and vulnerable middle-range economy in the world. It is no longer capable of being a “fully sovereign, independent country”. To take three snapshots:

It has a chronic balance of payments deficit, currently 4% of its GDP. As a result the value of the British pound “relies on the kindness of strangers” as the head of the Bank of England put it. There is much talk now by those advocating Brexit about the opportunities to strike independent trade deals. But Britain has long been unable to sell enough to itself. Italy has a healthy trade surplus by comparison. 

Most of the UK’s stocks and shares are held abroad. At the end of 2016, the rest of the world owned 53.9% of the UK stock exchange. A higher proportion than the 51.9% that the Leave campaign got earlier that year.

A new IMF analysis reports that the UK government’s net worth is a negative liability of £2 trillion. As a percentage of the public balance sheet this is the worst for any advanced economy, with the sole exception of Portugal.

It is hard to quantify the sheer penetration of direct foreign ownership of the UK’s strategic assets, from its railways and water supply and power infrastructure to its leading newspapers and hi tech sector, not to speak of its car manufacturing. The marketization initiated by Margaret Thatcher, deepened by Tony Blair and intensified by David Cameron, has left the country acutely unequal and lopsided. One analyst shows that the UK now has the greatest regional inequalities of any country across the whole of the EU.

It is particularly galling to listen to arch-Brexiteer Boris Johnson when, as Foreign Secretary, he lauded London as being the “Eighth Emirate”, because so much of it is owned by Middle Eastern potentates including London’s tallest building, its poshest store, its Olympic village, a leading football club and its main exhibition centre - not to speak of the country’s historic merchant shipping company P&O – the Pacific and Orient - now owned by Dubai. Johnson concluded the final TV debate of the referendum by declaring that victory for Leave would be “independence day”. He was rightly criticised for propagating the lazy notion that the UK is a ‘colony’ or victim of the EU. The shaping falsehood behind it is the assumption that Britain is capable of being ‘independent’ in the traditional sense.

It isn’t.

The necessity of regulation

There is nothing shameful about this reality, even if the UK is more exposed than most to the necessity of being part of a larger market place whose rules it cannot unilaterally decide. Indeed, under Thatcher the UK played a pivotal role in the formation of what is the finest achievement of the EU, the creation of an international regulated space. This is not at all the same as a sovereign power. It has generated a zone of shared freedom, which far from subjugating the UK or any of the member states enhances their economic and social life. What Britain lacks is the patriotism that expresses this.

Instead, Brexit nationalists proclaim that an economic nirvana awaits the UK outside of the supposed confinement of the EU’s customs union, with only the most minor adjustments. The evidence suggests otherwise. To bring it to life, recently, as the negotiations hit an impasse, on just one day, 15 October, three foreign companies (who have been understandably low-profile) issued unusual public warnings. Ford said a no-deal was a “red line’ for its car manufacturing in Britain; Nissan warned of “serious implications”; and the drugmaker AstraZeneca which employs 7,000 in the UK, announced it had put UK investment “on hold”.

Prime Minister May is loyal to a vision of one-nation conservatism that embraces the need for workers and towns to prosper. She has not faltered in her judgement that this means the UK must stay close to the EU. Initially she wanted the advantages of membership while hoping to escape the obligations of its rules. As she slowly learnt this was not possible she sought to stay within the EU’s rulebook for manufacturing but not services. She persuaded her Cabinet to agree to this, in what is now called the Chequers proposal, named after the Prime Minister’s country house. For all the talk about the Irish border, the heart of the government’s difficulty is simple: how to remain within the EU’s regulated space without being regulated by it.

Show manufacturing the door

It can’t be done, a point made by Boris Johnson who resigned from the Cabinet after Chequers, claiming any attempt to accept May’s priorities would turn the UK into a “vassal state”. What, then, is his and his fellow Brexiteers’ response to the many concerns of manufacturers? Johnson summed it up in two words, which were reported in their full Anglo-Saxon without asterisks by both the Financial Times and the BBC. I quote, “Fuck business”.

We have to take this reaction seriously. It is no joke. The hard Brexiteers see destruction as essential to clear the way to their vision of Britannia reborn. The president of the CBI (the Confederation of British Industry) warned that outside the Customs Union, “ ‘there are sectors of manufacturing society in the UK which risk becoming extinct,’ pointing to the car industry in particular”. Ian Duncan Smith, another leading anti-European and ex-Minister argued in response that car manufacturing only accounts for 0.57% of the UK’s employment and 0.8% of gross value added. So let’s not be “obsessed” by it. The Chief Executive of Philips says the future of the UK as a manufacturing hub is at risk. The country’s most profitable export sector, British chemicals industry, has long stated its need to remain in the customs union just like the British manufacturing economy as a whole which is integrated with the EU’s and needs a customs union with it. Not to speak of agriculture. But let's not be "obsessed" with all that. An "adjustment" will be necessary as the price of freedom. Jacob Rees Mogg, another leading Brexit advocate, laundered and ironed Boris Johnson's filthy language, the benefits will be reaped "over the next fifty years"

Three sources for a Hard Brexit

How, then, is it possible that such an outcome can be gathering support? While the passion may be a thwarted Anglo-British nationalism, the economic answer is three-fold. First, there is the free-market tank prospectus, second the City of London is indifferent and, most important of all, the United States is keen to break the EU.

The fantastic economic policies of the hard Brexiteers have been dissected by Chris Grey and Simon Wren-Lewis and the insane politics and insufferable self-deceptions by Ian Dunt. Their arguments are met by silence. So we have to turn to Steve Baker MP for a summary of the Brexiteer world-view. He resigned from the government to become the organiser of the ERG group of parliamentarians for a hard-Brexit. When his hopes were high he proclaimed the need for “boldness, vision, ambition and resolve to recover our democratic self-government and help change the world for good”.

Inflated by such hopes, he felt Britain “is on the cusp of catalysing a transformation in world trade”, no less. “If we can combine a comprehensive EU tariff-free trade deal, together with accession to the Pacific Rim CPTPP, with a US bilateral deal and a new platform agreement for financial services, then we will improve the prosperity and prospects of hundreds of millions of people”. As deflation set in, Baker blamed the CBI for being nothing less than “a grave menace to the political stability and economic prospects of the UK”. He looked back with longing to the proposals of the Legatum Institute Special Trade Commission (for which see openDemocracy's Peter Geoghegan) and the Institute for Economic Affairs (for which see Adam Ramsay and Peter Geoghegan who have also reported in the New Statesman on another Cabinet Brexiteer, Liam Fox, and his connections to right-wing US institutions and his dream of frictionless trans-Atlantic trade). Taken singly, the shock-jocks of Brexit are easily mocked. But they represent a well-connected, very well-funded worldview, capable of playing a long game. For them a 'No deal' would be like winning the lottery while an incoherent agreement that takes the UK out of the EU leaves all to play for.

The UK’s genuine economic strength is located in its financial services sector, which does play a nodal role in the world economy. The EU is only a small part of its business. The Financial Times explained one part of the background: “Clearing houses, largely run by exchanges, sit between parties in a deal and manage the impact to the market should one side default. London is the heart of the global business. Its three clearing houses — LCH, ICE Clear Europe and LME Clear — process more than $450 trillion in interest-rate, credit, forex and metals-related swaps from around the world”. It also points out, “the European Central Bank estimates 90 per cent of interest-rate swaps coming from the EU are cleared through London. But for LCH [the London Clearing House], derivatives business secured from EU banks is just 14 per cent of the global total”.

Alongside the legitimate lubrication of the entire world economy in which the EU plays only a small part, the City also sits at the centre of a permissive network of money-laundering supported by a global network of tax havens under British suzerainty, from the Channel Islands to the Caymans. Recently brought to life by the TV mini-series McMafia, this network of activities also regards the EU as relatively marginal.

Whether smoothly managing derivatives or tax avoidance, the networks of the City of London are used to working around national barriers. They will set up offices inside the EU where necessary. Already they have “passed the point of no return” in planning for an organised Brexit. As Tamasin Cave and Kenneth Haar have shown, the financial sector has exploited its unrivalled access to both Brussels and the British government to secure their sectoral interests. Meanwhile, its more audacious hedge funds are outright opponents of the EU’s regulatory impulses. Rarely can a wealthy capital have been so indifferent to the larger fate of its country. If the City of London had been as opposed to Brexit as is manufacturing, neither a hard Brexit nor a no deal would be on the cards.

Trump’s foe

While the City is merely relaxed about Brexit, Britain’s traditional global ally sees it as a positive opportunity - to diminish Europe. On his way to meet President Putin this summer, Trump was asked by CBS News to identify his "biggest foe globally right now" and he replied, “I think the European Union is a foe, what they do to us in trade. Now, you wouldn't think of the European Union, but they're a foe”. Just this month, in a 60 Minutes interview with Lesley Stahl he said, “I mean, what's an ally? We have wonderful relationships with a lot of people. But nobody treats us much worse than the European Union. The European Union was formed in order to take advantage of us on trade, and that's what they've done... You know what's hostile? The way they treat us”.

On 10 October, shortly before his 60 Minutes interview, there was a striking example of the way Brexit is intensifying US enmity to the EU. Trump’s head of the US Commodity Futures Trading Commission, Christopher Giancarlo issued an astonishing threat. The administration would bar EU banks from using “US clearing infrastructure” in retaliation if Brussels decided to regulate the financial trading of its derivatives when the City of London leaves the EU. Soon after the 60 minutes interview, the White House gave Congress the necessary 90 days notification of its intension to open trade negotiations with the United Kingdom. Should the UK reach agreement with the EU, this may have to wait until the UK actually leaves. But if there is a ‘no deal’, Washington will be standing by. Making its announcement now sends a message of encouragement to the hard Brexiteers as their moment arrives.

Trump’s men

The British politician singled out by Trump to integrate the UK into the President’s project is Boris Johnson. For his part Johnson has said, “I am increasingly admiring of Donald Trump. I have become more and more convinced that there is method in his madness. Imagine Trump doing Brexit… He’d go in bloody hard … There’d be all sorts of breakdowns, all sorts of chaos. Everyone would think he’d gone mad. But actually you might get somewhere. It’s a very, very good thought.”

Brexiteers are thinking such thoughts more and more, calling in advance for cuts to taxes, streamlined regulations and opening up the UK markets to the US (to summarise Daniel Hannan). There are apparently strong supporters for such an eventuality in the Cabinet. Among them the current Home Secretary Sajid Javid, who is reported to have told his colleagues in September that if the EU did not accept the UK’s demands, Britain should just leave while implementing, “sweeping tax cuts and deregulation on workers' rights, scrapping automatic enrolment into pension schemes and ditching environmental regulations… He referred to it as a shock-and-awe strategy”. Perhaps he had forgotten how this phrase echoes the disastrous assault upon Iraq.

Any such strategy will need the tabloids to whip up a chauvinistic atmosphere, led by the Sun, owned by Trump’s fellow billionaire American, Rupert Murdoch. Brussels will be pilloried for its punitive intransigence, even as the UK’s Japanese and Indian-owned car companies load their robots onto lorries for production lines on the other side of the channel. The Brexiteers won’t mind. This is the key point: an irrevocable disintegration will have taken place as Britain’s ties to Europe are severed. The more savage the better, as this will then justify the economic losses as the population is rallied against Brussels. The disruption will provide an ideal environment for populist mobilization, to create an irreversible breach in European solidarity.

In all likelihood May will get an agreement that keeps the UK in the EU’s regulated space for the time being, even if the Brexit revolutionaries condemn it as years of “vassalage”. The problem for May is her lack of a nationalist counter-argument to theirs. For if Britain is to be within its influence why leave the EU at all? Incapable of admitting a change of mind and without media or popular support, the Prime Minister may therefore fail to get the necessary parliamentary backing. If, then, the House of Commons is also prevented from calling for a second referendum, the Brexit revolutionaries will have their way and it will be no-deal. Once more they will proclaim Independence Day. But Trump and all he represents will be waiting for them, welcoming the UK into his anti-EU alliance with generous terms that cannot be refused in the otherwise dire circumstances and Britain will enter the US sphere of corporate servitude.

Anthony Barnett’s recent talk on Albion’s Call can be watched on YouTube. This article is based on a public lecture organized by the Department of History and the Center for European and Russian Studies of UCLA (University of California at Los Angeles), 15 October 2018 (with many thanks for the feedback).