TM is strengthened in the short term. Emboldens hardcore Brexiteers. Crystallises risks of either “Brexit In Name Only” or “No Deal” for Q3.
(Nice of him to let the cameras in for when he signed his letter of resignation…)
- Another one bites the dust. But as a proven election winner, Boris Johnson is the only one who could potentially threaten to achieve 159 Tory MP votes versus the PM.
- The numbers and momentum are not (yet?) strong enough however. He has stretched credibility with his absence from the country on the recent Heathrow runway vote, despite promising to ‘lie down in front of the bulldozers’ if it were passed, not to mention writing two articles, one pro-Leave, one pro-Remain, back in the heat of the days of the referendum. It plays into the narrative that the boy who told his parents he wanted to be “the World King” is only out for himself.
- All politicians want power, of course. Boris, as a Classicist, is no doubt aware that if you grasp it too hard, you’ll lose it. The Brits in particular cannot stand a triumphalist. Hence no comment from the big man about taking the reins. He will not light the match on a leadership election. His resignation does mean, however, that, in his own words of five years ago, he will be available to ‘pick up the ball if it came loose from the back of the scrum‘.
- A scrum is most certainly coming. His resignation does have the effect of emboldening Brexiteers, with two more junior minister resignations yesterday. But it’s clear the battle is now over the final deal, not over whether TM is PM. And Brexiteers who prefer No Deal to Any Deal will be joined by Labour Party MPs keen to bring down the government.
- If they argue hard for No Deal, but don’t get it, they can continue to be an effective protest group for people’s ongoing anger at liberal elites. If they do get it, capital leaves the country, markets tank, and – guess what – an emergency summit is called whereby the EU and TM manage to thrash out a ‘better’ deal and/or indefinitely delay the transition period. We can then get a situation like 29 September 2008: the TARP bail-out programme is voted down, the Dow drops 777 points, only for Senators to vote it through 48 hours later, stabilising the market.
- Remember, politics is about what sells. Unlike a successful negotiation, which is coming to a solution that neither side likes. BoJo realised the Chequers Deal was the latter, and therefore not the former. DC likely realised it on the morning of June 24th 2016. Old Etonians, blessed with charisma and confidence, know when to get out if they can’t win.
- Theresa May is therefore unexpectedly perfectly placed to deliver the deal. Her botched General Election leaves her, Millwall-like, as the leader no-one likes but she doesn’t care. She has a job to do and she’s damn well going to do it. If, in a year’s time, the public complain about too many Bulgarians stealing their jobs and not enough money for the NHS, she can say the alternative was No Deal and no money for anyone. She doesn’t need to sell the sunlit uplands; Boris had to. Hence his resignation letter talking of dreams dying and the snuffing out of hope.
- We are still in the stalemate of yesterday. No one has the numbers to get what they want. Unless public opinion changes.
- But the potential outcomes are crystallising, and these risks should be reflected in the market. It’s either Brexit In Name Only, or No Deal. And the crunch is coming after the summer.
- In the meantime, the PM is strengthened. She has purged her Cabinet of non-believers, and no-one is bold enough to challenge her directly. The four great offices of state are now held by Remainers. But she retains in the Cabinet senior Brexiteers like Michael Gove, and Dominic Raab taking over as Brexit Sec. The difference is that these Brexiteers are realists. That splits the Brexiteer Bloc, at least for now. GBP can rally from here, but a risk premium should be built into longer-dated Gilts and options market volatility from 2 months onward.