The EU could use an obscure provision in an international trade treaty to preserve a frictionless border in Ireland in the aftermath of a no-deal, no-transition Brexit, a new report commissioned by MEPs suggests.

The report to the European Parliament Constitutional Affairs Committee on the legal institutional implications of a hard Brexit - a prospect which is unlikely in the current state of negotiations, he suggests - has been prepared by Dublin City University's energetic Prof Federico Fabbrini, director of its Brexit Institute, and will be presented at a meeting of the committee on Thursday.

It warns that in the event of a hard, no-deal Brexit in which there was no transition arrangement or withdrawal agreement, from April 1st, 2019, "contingency plans would need to be put in place from the EU side to deal with the sudden emergence of a customs border between Ireland and Northern Ireland".  

That could be done, he argues, by invoking Article XXIV(3) of the General Agreement on Tariffs and Trade (GATT) , which provides for a so-called "frontier traffic exception". It is one way of doing what four parties in the North have urged in recent days - keeping the North inside the customs union and single market.  

The clause, which has never been used before, allows that custom provisions under the World Trade Organisation regime which would prevail in both the EU and UK in the event of a no-deal Brexit "shall not be construed to prevent: a) advantages accorded by any contracting party to adjacent countries in order to facilitate frontier traffic . . ."

This would allow the EU, Fabbrini says, to "declare the entire territory of Northern Ireland to be a frontier zone to the EU customs union; thereby removing the need for customs controls (at least on the EU side)".

PM Rutte, a conservative as brightest pupil in a mix of Theresa May and Donald Trump ...
cutting into the right-wing agenda of populist/Islamophobe Geert Wilders to win seats.

Well at least Spain has a Socialist PM after the cabal of Rajoy fell due to extended corruption in the Spanish conservative Popular Party (PP). No surprise whatsoever, the Dutch liberal, conservative party VVD has had plenty of corruption in all levels of national and local politics.

○ New Spanish Prime Minister Pedro Sánchez: the unexpected survivor | El Pais |

'Sapere aude'

The current odds are 7/4 so we could make some money except that the currency risk means it's probably a losing proposition unless we "butterfly" over to a pound put option.  

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

Sometimes it is not appreciated quite how industrial Italy is. It has long been Europe's second-biggest manufacturing power, beaten only by Germany. Italy is far more industrial than France or the UK. In some areas of design and high-quality manufacturing, Italy is still without peer.

However, since it gave up the lira and adopted the euro - in effect Germany's currency - things have gone pear-shaped. This economic calamity is driving Italian politics, leading many to question the euro and Italy's membership of it.

From 1945 to 1995 there was an understanding that Italy would devalue the lira. This is what Italy did. Traditionally, it devalued the lira every few years. This kept Italian industry competitive.

---<snip>---

The gradual fall in the value of the lira was a price that the Italians were prepared to pay for industrial success. Contrary to the dogma spouted by Europe's central bankers, Italian devaluations worked particularly well.

From 1979 to 1998, Italian industrial production outpaced that of Germany by more than 10 per cent. Italian equities outperformed German equivalents by 16 per cent - after having taken into account the devaluations.

So not only was Italian industry growing faster than German industry, aided by lira devaluations, but also the return on capital in Italy was higher than in Germany.
...
Then came the euro.

Is the Euro entirely to blame or were there other factors? And why does Italian industry become so systemically uncompetitive without regular devaluations? What is so intrinsically "Germanic" about the Euro, especially with Draghi as President of the ECB and the "unconventional" measures he has adopted?

Would leaving the Euro now solve all these problems or is devaluation as an economic policy tool no longer the the cure-all suggested in this article? Would leaving the Euro not result in far higher interest rates and ultimately inflation offsetting any short term benefits of devaluation leading to a need for a never ending cycle of devaluations?

And Finally, is there even a mechanism (equivalent to A.50) for leaving the Eurozone, or is that process, in itself likely to be chaotic and catastrophic? Brexit is certainly a process far easier to manage because the UK has its own currency, but will that fact, on its own, enable Brexit to be a "success"?

I am wary of the simplistic cause and effect advocated by this article. Would it not be better to tackle the underlying causes of Italian uncompetitiveness rather than relying on currency manipulation to hide them? In an increasingly integrated EU economy, would reverting to the Lira not be a backward step, even if the transition to the Euro created considerable difficulties?

I appreciate devaluation is often preferable to deflation, but is it not possible to manage an economy without either? Italy's economic problems seem to be caused far more by stagnant productivity, stagnant corporate structures, stagnant legal and governmental structures, regional and class inequalities, and a culture of entitlement.

La Dolce Vita was always about living now and paying later, and perhaps not paying at all. Blaming the Euro seems a convenient excuse and cop-out.

Index of Frank's Diaries

Britain would be hit with shortages of medicine, fuel and food within a fortnight if the UK tries to leave the European Union without a deal, according to a Doomsday Brexit scenario drawn up by senior civil servants for David Davis.

Whitehall has begun contingency planning for the port of Dover to collapse "on day one" if Britain crashes out of the EU, leading to critical shortages of supplies.

Last month officials in Davis's Brexit department and the departments of health and transport drew up scenarios for a no-deal Brexit -- a mild one, a severe one and one dubbed "Armageddon".

A source said: "In the second scenario, not even the worst, the port of Dover will collapse on day one. The supermarkets in Cornwall and Scotland will run out of food within a couple of days, and hospitals will run out of medicines within two weeks."

Officials would have to charter aircraft, or use the RAF to ferry supplies to the furthest corners of the UK. "You would have to medevac medicine into Britain, and at the end of week two we would be running out of petrol as well," the source said.

Concern about chaos at Dover was behind a decision by Highways England to announce plans last month to build "one or more lorry holding areas" in Kent "to reduce the congestion caused by cross-Channel disruption".

It is understood that the papers were prepared for the so-called Inter-Ministerial Group on Preparedness, which meets weekly when parliament is sitting. One official said the scenarios are so explosive they have only been shared with a handful of ministers and are "locked in a safe".

The Sunday Times reported that models for mild, severe and "armageddon" reactions to no-deal exits were created by officials, with a source saying that even the severe scenario saw the Port of Dover "collapse on day one".

But the prime minister's official spokesman said: "The Department for Exiting the European Union has said that these claims are completely false.

"A significant amount of work and decision-making has gone into our no deal plans, especially as it relates to ports, and we know that none of this would happen."

Asked if that was a "cast iron guarantee", the spokesman said: "We are planning for all scenarios and we will make sure that we are fully prepared in the event of any eventuality."

    May delays blueprint for future EU ties until after June summit Financial Times. This is madness and assures a no deal outcome. Early on, I thought there were parallels to Greece, but the difference was that the Greek strategy was coherent save for one fatal flaw: they greatly overestimated their bargaining leverage. But here the same underlying delusion is becoming more obvious on the part of the British officialdom. The only way the UK approach makes any sense is that they assume (or have persuaded themselves) that the EU is bluffing and will relent (David Davis has said this repeatedly). So now, like Greece, they are more openly acting as if they are playing a game of chicken. But again, the Greeks recognized that was what they were up to. Is there anything approaching that level of self awareness in the Government?

But maybe something good will come out of it for the UK. Everybody needs a cold shower now and then.

As the great Rik Mayall said: "Good grief we are British, you know. We invented cold showers. To stop people..."

_{Schengen is toast!}

The bank said Monday that it underbought Italian bonds and overbought German securities in May, relative to its economy-weighted guidelines for monthly purchase amounts known as the capital key. As a reminder, last month the spread between Italy and Germany blew out to levels that started reminding everyone of the Greek debt crisis, and this served as evidence of investor nervousness about Italy's struggles to form a government.

The David Davis guide to SAS signals pic.twitter.com/IuvkzElbWc

— Hopeless Surfer (@HopelessSurfer) 7. Juni 2018

The headline of one tabloid screamed "Brexit back on course".

The polite reception in Brussels - and Dublin - for the UK's latest Brexit paper on the "backstop", prompted by relief that at last they had something to talk about, led some optimists in London to the view that a robust UK had pulled one over on Brussels.

Dream on.

When Brexit secretary David Davis meets the EU's chief negotiator Michel Barnier on Monday morning for the next talks round, he will find that the gloves have come off.

And he will be rapidly disabused of the hope that all the UK had to do to win brownie points for effort at the end of June summit was to demonstrate a plausible willingness to address the backstop issue.

No-one really expected them to resolve the issue, they believe. That hurdle passed, the summer would allow them to engage in chasing the real prize, a comprehensive EU-UK agreement on their future relationship that would make the politically embarrassing backstop agreement redundant. It is only there, after all, to provide a guaranteed fallback should no other deal be done.

Not so.

Barnier on Friday made clear that that strategy would not wash. For a start the UK document paper can not be described as a plausible attempt at addressing the issue. Politely, he demolished it brick by brick.

Crucially, he explained, member states were prepared to make an exceptional case of the North, waving common EU rules and practises for the first and last time, to preserve the frictionless Border and the Belfast Agreement. Such privileges were not on offer to the rest of the UK by virtue, not of malice, but its decision to leave the union. To imagine you could simply extend the backstop provisions UK-wide was presumptuous nonsense.

The British paper's failure to even discuss the EU-UK regulatory alignment that would be essential to any border-control-free regime is bizarre. As is its attempt to equate an "expectation" of a time limitation to the backstop with a specific commitment to one - as Barnier pointed out a time-limited backstop is no backstop, no guarantee.

just setting the scene of battle 26 July 2012,  Global Investment Conference, London, UK.

Then in the banking union or financial markets union, we will have one supervisor for the whole euro area. And to show that there is full determination to move ahead and these are not just empty words, the European Commission will present a proposal for the supervisor in early September. So in a month. And I think I can say that works are quite advanced in this direction.

So more Europe, but also the various firewalls have been given attention and now they are ready to work much better than in the past.

The second message is that there is more progress than it has been acknowledged.

But the third point I want to make is in a sense more political.

When people talk about the fragility of the euro and the increasing fragility of the euro, and perhaps the crisis of the euro, very often non-euro area member states or leaders, underestimate the amount of political capital that is being invested in the euro.

And so we view this, and I do not think we are unbiased observers, we think the euro is irreversible. And it's not an empty word now, because I preceded saying exactly what actions have been made, are being made to make it irreversible.

But there is another message I want to tell you.

Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.

There are some short-term challenges, to say the least. The short-term challenges in our view relate mostly to the financial fragmentation that has taken place in the euro area. Investors retreated within their national boundaries. The interbank market is not functioning. It is only functioning very little within each country by the way, but it is certainly not functioning across countries.

And I think the key strategy point here is that if we want to get out of this crisis, we have to repair this financial fragmentation.

There are at least two dimensions to this. The interbank market is not functioning, because for any bank in the world the current liquidity regulations make - to lend to other banks or borrow from other banks - a money losing proposition. So the first reason is that regulation has to be recalibrated completely.

The second point is in a sense a collective action problem: because national supervisors, looking at the crisis, have asked their banks, the banks under their supervision, to withdraw their activities within national boundaries. And they ring fenced liquidity positions so liquidity can't flow, even across the same holding group because the financial sector supervisors are saying "no".

So even though each one of them may be right, collectively they have been wrong. And this situation will have to be overcome of course.