BORIS JOHNSON'S SPLIT FROM BRUSSELS ECHOES HENRY VIII's BREAK WITH ROME

 The Guardian 18 October 2020 - by Larry Elliott

© Provided by The Guardian Photograph: Zak Hussein/PA

Boris Johnson’s assertion that the UK should prepare for a no-deal Brexit has left the financial markets unconvinced. Brinkmanship is the name of the game, they say. Before negotiations can be concluded there always has to be a crisis when it appears all is lost. Then both sides give a little and success is plucked from the jaws of failure.

The big banks in the early 1530s did not employ armies of economists to opine about political events but had they done so the analysts of the 16th century would probably have been saying the same about Henry VIII’s divorce from Katherine of Aragon as they are now about Brexit. Henry is bluffing. He is not really prepared to break with Rome. A schism will do neither side any good, but there will be more damage to England than to Catholic Europe.

In the end of course, there was no deal and an earlier form of Brexit went ahead. Henry became head of the church, the state nationalised the monasteries and England went its own way. The fact that capitalism developed sooner and in a less top-down way from the rest of Europe can be traced back to Henry’s determination to marry Anne Boleyn come what may.

© Thomson Reuters Britain's chief negotiator David Frost and EU's Brexit negotiator Michel Barnier arrive for a meeting, in Brussels, Belgium August 21, 2020. REUTERS/Yves Herman/Pool

Like Henry, Johnson would prefer a deal. Almost half Britain’s trade is with the EU. Tariffs would hit farmers and carmakers hard, even though some of the pain would be alleviated from the fall in the value of the pound that would result from no deal. Businesses could do without another economic shock when they are already struggling to get on top of Covid-19, a point that is being made volubly by employers’ organisations. The idea that ministers believe this winter will be a good time to leave the EU on WTO terms because nobody will really notice is nonsense. Britain’s economy is on course to shrink by a colossal 10% this year, according to the International Monetary Fund. That’s enough to be going on with.

Yet the markets are probably under-estimating the risk of failure. Johnson wants a deal but not at any price. If the choice is between no deal and a relatively thin deal with strings attached, there is a non-negligible chance that the prime minister will call it a day.

There are a number of reasons for that. For one thing, Johnson and the chancellor, Rishi Sunak, believe Britain will eventually thrive outside the EU whatever the short-term costs. They are sceptical about models showing Britain’s GDP would be lower as a result of a no-deal Brexit , on the same grounds that some economists are sceptical about the epidemiological models showing scarily high death rates from Covid-19. In both cases the models assume there will be no behavioural change to different circumstances.

But just as it is logical to assume that individuals will change their lifestyles when faced with a pandemic, so it seems obvious to the PM that the economy will adapt to an environment where exporting to the EU becomes harder. Incentives matter.

There’s also the need to deliver for “red wall” seats in the Midlands and the north of England. In order to do so, Johnson wants to use the freedom that Brexit provides in order to pursue a different sort of industrial policy.

The wrangle between UK and EU negotiators over state aid reflects the new political geography of England. There is no little irony in the fact that one Conservative prime minister – Margaret Thatcher – insisted that tough curbs on the use of state aid should be integral to the single market and another – Johnson – is ostensibly prepared to walk away from trade talks because he insists on having the freedom to intervene. But it is not just the election result. Covid-19 has changed what is politically acceptable and the Treasury’s support to workers and businesses has legitimised a more activist state.

© Thomson Reuters European Union chief Brexit negotiator Michel Barnier is seen at a two days face-to-face EU summit , in Brussels, Belgium October 15, 2020. Olivier Hoslet/Pool via REUTERS

It would be wrong, though, to assume that all vestiges of Thatcherism have been expunged from the Conservative party. Rishi Sunak supported Brexit because he thought it would give Britain the chance to escape some of the rules and restrictions that he thinks has contributed, along with the malfunctioning euro, to sluggish EU growth. The chancellor is a lot keener on free ports than he is on attempting to pick winners.

In reality, the government wants to have the ability to do a bit of both – to use subsidies and tax breaks to nurture green industries, and to use lighter-touch regulation to boost sectors – such as artificial intelligence and biotechnology – where the UK already has a presence. The EU’s insistence that Britain will get an advantage if it refuses to continue with existing rules is a tacit admission that regulation can put European firms at a competitive disadvantage with global rivals.

Finally, there is the question of which side – the UK or the EU – needs to be more afraid of the talks breaking down. It looks like a no-brainer. The UK is a country of 68 million people; the EU has a population of 445 million. No individual country is as reliant on exports to the UK as Britain is to the EU. Michel Barnier, the EU’s chief negotiator holds all the cards.

But Johnson doesn’t see it like that. Rather, he views the EU’s seeming determination to hand out a beating to Britain as a sign of weakness not strength, the actions of a bloc that has an ageing population, has lost the dynamism it showed in the first decades after the second world war and is worried that nearly five centuries on from the Reformation, history will repeat itself and Brexit will be made to work.