The UK, by jingo!


The October 31st that just past was supposed to mark a completion point, where a crafted and agreed withdrawal agreement would separate, in a courtly manner, the UK from the European Union. That, of course, didn’t happen. The UK’s deliberative representative democracy and its fractious domestic politics precluded that.

Now, a general election is scheduled for early December and yet another extension of the BREXIT terminal date is set for month-end January. This means the drama continues.

The International Monetary Fund prudently observes that a United Kingdom without an adopted withdrawal agreement, but a country dependent solely on “WTO trade rules”, can expect “long run output losses of around 5 to 8 percent of GDP compared to a no-BREXIT scenario.” And worse, without a negotiated withdrawal but instead a crashing-out or “disorderly exit”, it will be – in non-macroeconomics speak – the deluge. The Fund writes, “such an outcome (i.e. disorderly exit) would lead to a sharp fall in confidence and reversal of capital flows, which would affect asset prices and the value of sterling…”

We don’t want to see a disorderly exit, no one does, given the likely macro tumult. On Brexit and prospects for eventual negotiated withdrawal, the tea leaves, too, are now wilted and emulsified, making them very hard to read, indeed. That said, we would argue that another key aspect – the UK’s fundamental institutional underpinnings – should be appreciated, as the country weathers this coming change.

Our SIRE measure estimates the association between World Bank-produced World Governance Indicator values and country history of default. Specifically, the SIRE, a logit score showing the likelihood of country avoidance of sovereign default, shows the UK (90.3%) scoring very well and comparably to Germany (90.5%) and the United States (88.7%).

Overall, an institutional endowment – reflecting evidence of strong government effectiveness, regulatory quality, rule of law, and control of corruption – equates to a strong country foundation. This conjures a certain resilience, and even “saltiness” in view of what looms. In that spirit, we are reminded of lyrics from an old British pub verse. They’re a bit brash but highlight the resilience that may be on offer, even with current circumstances around a stormy BREXIT:

“We don’t want to fight
But by jingo if we do,
We’ve got the ships, we’ve got the men,
We’ve got the money, too.”

Share this: