The Power and the Money

Nots on the new Brexit deal

The new Brexit deal seemed like a weird animal.

The old Brexit deal kept the whole U.K. in a customs union with the E.U. since nobody wanted a customs border running down the Irish Sea. The new Brexit deal seems to run a customs border down the middle of the Irish Sea. Surely there is more than that? I thought to myself.

So I read the damn thing. And here is what it says:

1. Article 4 says that the U.K. may strike free trade agreements (FTAs) with third countries, “provided that those agreements do not prejudice the application of this Protocol.” Meaning that the protocol does not guarantee that foreign goods will enter N.I. tariff free. Rather, it guarantees that N.I. goods may be exported to other countries tariff free as long as the U.K. has an FTA with them.
2. Article 5 establishes that the only way you can move a good from the Rest of the United Kingdom (RUK) to N.I. is to prove that: (a) That good will not be processed in any way once in N.I.; and (b) That good is determined to be not-at-risk of entering the E.U. by the “Joint Committee.” There are no clauses about the makeup or procedures of the Joint Committee. At some point, then the U.K. will have to make this determination, either before the good leaves the RUK or when it enters N.I.
3. Article 6 establishes that protecting the U.K. against smuggling from the E.U. is entirely up to the U.K., as long as they do it in the North Sea or the RUK.
4. Article 7 creates a separate “Made in UK(NI)” tag for goods made in N.I.
5. Article 10 requires the U.K. to stick to E.U. rules on state aid for private companies.
6. Article 12 lets European officials monitor the way U.K. officials enforce European law in N.I. It also retains the authority of the European Court.

In short, yes, N.I. stays in the E.U. single market, unless both London and Brussels agree that a particular good can be shipped into N.I. without any problem. 

So this is not some sort of technowonder panacea. It is a deal that Europe offered the U.K. quite a while ago. Leo Varadkar must be pleased that London finally caved, although he can not say so. (Note the title of this post!) 

To be honest, I can see why this might be better from the point of view of a Brexiteer. The Brexiteers seem to have given up on keeping the United Kingdom together as a primary goal anyway. Given that, what is so bad about an internal customs boundary? Article 12 looks a bit squicky, true, but it only applies to Northern Ireland and the Joint Committee (however it is constituted) will give London a bigger say than it has now.  

On the other hand, it seems like a pretty radical plan, separating N.I. from the RUK. But so was Brexit. 

Brexit is over?

There is nothing really new in the piece. I am just laying out my thoughts, because I am a little confused. Which I suppose is standard for anyone trying to think about Brexit.

Specifically, I am confused as to why commentators continue to discuss the future form of Anglo-European trade relations. As far as I can tell, the U.K. just agreed to remain part of the single market and customs union for trade in goods. 

This would be rather more integration than Norway or Turkey currently enjoy. 

Norway is in the single market but not the customs union. It follows European regulations and trades tariff-free with the E.U., but there are customs checks on the borders because Norway imposes its own tariffs on goods from third countries. Turkey is in the customs union but not the single market. It imposes the same tariffs as the E.U. on imports from third countries but it does not follow European regulations. So there are customs checks on its borders to insure that only goods that conform to European law are allowed to enter the E.U.

But the U.K. cannot have customs checks on the Irish border. So unless Northern Ireland agrees to leave the British Customs Area, the U.K. needs to stay in (at least for goods) both the single market and the customs union. And that is what the recent declaration says. The U.K. “will maintain full alignment with those rules of the Internal Market and the Customs Union which, now or in the future, support North-South cooperation, the all-island economy and the protection of the 1998 Agreement.”

So no customs checks because the U.K. will follow every European rule on every single physical tangible thing that anyone might want to bring into the country. Which also means accepting the decisions of the European Court of Justice about the interpretations of those rules.  

This represents an unprecedented level of economic integration for a non-E.U. country. Heck, I am not sure if there is anywhere in the world that integrated absent some sort of political union. 

London will still in theory be able to stop Europeans from being able to legally work in the U.K. in return for giving up access to the European market for British service exports. But no more “global Britain” signing trade agreements with countries around the world. 

I am surprised that the political reaction in Britain has not been stronger. Where are the Brexiteers? Or have they been yelling and I am just missing it on this side of the Atlantic?

What makes a nation?

Florida is a bizarre state. Not only is it different in extreme from the rest of the country; different parts of Florida are different in the extreme from each other. It just should not work. But somehow it does. Every so often somebody idly proposes splitting the state, but it’s never gone anywhere. Ditto secession. Despite the enthusiasm with which non-Americans jump on news of secession movements in California, Texas, Hawaii and Vermont, none of them show even the slightest sign of going anywhere.

Why then is the European Union in trouble or the United Kingdom under threat? It isn’t political oppression, despite what the people in England (regards Europe) or Scotland (regards England) might tell you. Both polities are acceptably democratic, no matter what objections you might have to the constitutional particulars. Is it language? Obviously not in the case of the United Kingdom, and almost-certainly not in the case of the people demanding Brexit, since the European Union has done nothing to weaken English. (Nor any other language; quite the reverse, by demanding full translations from everything into everything.) 

So what is it? Why is the U.K. under strain and why is the E.U. under strain? The obvious answer is that the cultural splits in Europe are much bigger than their equivalents in the United States. 

Alberto Alesina (Harvard), Guido Tabellini (Bocconi), and Francesco Trebbi (U. of British Columbia) decided to answer that question. What did they find? Well, simply put, cultural differences within Europe are less than within the United States. You got that? Texans and New Yorkers differ more in their beliefs about family, religion, trust, sexuality and the state than do Castillians and Dutch or Greeks and Germans. Moreover, cultural differences within European states are bigger than the differences between European states. 

(Amusingly, you can use their methodology to compute the most European part of Europe. You get Germany and Austria. But you also get the Belgium, the Netherlands, and oddly enough big chunks of Spain and Portugal. So much for stereotypes.)

In summation:

A comparison between the E.U. and the U.S. suggests that fundamental cultural differences among Americans are not bigger than that amongst Europeans. Along this dimension, if Americans can share a well functioning federal union, so could Europeans. Needless to say, the United States had 250 years of nation building and 150 years have gone by from the Civil War. Europe has had a much shorter common history and only 70 years have gone by since the last inter-European war. Americans share a common language and geographic mobility in the U.S. has been much higher than within Europe, or even within individual European countries. Mobility helped creating a melting pot and thus a common identity, but apparently did not dampen cultural heterogeneity.

In other words, you are left with nationalism as a defining force by itself. Which leaves you with two possible implications:

1. It might be easier to build a European polity than the current troubles imply;
2. Building any multinational polity is impossible. Two political communities can be identical in every respect, but as long as they define themselves as nations then it will be very hard to create a shared polity;
3. We are reading too much into all this. The stability of the United States and the problems of the United Kingdom are both contingent. Give the U.S. a few bad breaks or give the U.K. better politicos and none of this would be happening. 

Thoughts? It certainly seems as if nationalism has a mysterious strength of its own. But maybe not! Maybe it is all on (3): political communities grow and disintegrate in hinky contingent ways; nationalism follows (or doesn’t.) Frex, you can’t get the near-identical West Indies to unite but you have no problem holding the unbelievably diverse United States together. 

Did the U.K. gain independence with Brexit?

As if poor Prime Minister May didn’t have enough on her plate, here comes another possible complication. (“Poor” may be the wrong adjective, as she is bringing most of the problems upon herself.) Could the U.K. be sued by foreign investors for damage inflicted by Brexit?

Right now, foreign investors in the U.K. have two ways to enforce their rights against the British state. The first is the legal system. That is, you go through British courts and ultimately the European Court of Justice. The second is through the arbitration clauses in British bilateral investment treaties (BITs); that is, via the investor-state dispute settlement (ISDS) mechanism that attracted so much opprobrium during the controversy over the TPP. 

Roger Alford of Notre Dame points out that when Argentina devalued the peso it led to massive arbitration claims. Many of those arbitrations were based on “legitimate expectations,” that is, the idea that foreign investors had the right to expect stable laws and regulations. So Argentina could not just, say, slap price controls on gas without violating its bilateral investment treaties. 

Well, could a foreign investor sue the U.K. if Brexit slams their profits? As Alford suggests, might Nissan sue the U.K. if Brexit causes British car exports to have to pay a 10% tariff to enter the European Union? Or could foreign banks sue over their loss of access to the European market? Heck, might Airbus and Bombardier sue over disrupted supply chains and the need to shut down U.K. facilities?

Scary thought.

But unlikely to happen.

Consider the list of British BITs. Not a lot of developed nations there. In fact, not a lot of E.U. members, save some ex-Communist countries. It is possible that investors in the U.K. carefully shopped around for nations to route their investments through in order to gain legal protection: this is why American oil companies became Dutch for the purpose of investing in Venezuela. But it seems unlikely. It would have taken a remarkable level of foresight. 

In other words, the threat could in theory be huge, but in practice it is not something that Ms. May should worry about. And not just because she is about to have a lot of things on her plate ...

Marking my Brexit (and 2016) predictions to market

Yeah, this post (and this one) do not look so good. Mark to market. Lesson: polls can shift, a lot.

But to defend my honor, Sam Wang’s latest projections are making this post look pretty good. If you take a two-percent uniform swing over current polling, both Michigan and Wisconsin turn into toss-ups, with Pennsylvania staying blue. No flipping Wisconsin before Michigan. 

Click the map to create your own at 270toWin.com

Of course, I feel I need to point out that the fact that the polls are so close means that most of the people on my Democratic email chains were entirely wrong in their models about American politics. Fat Crybaby is not bobbing dead in the water.

Say, where is our resident troll? You know, the one who got mad at me for telling someone in a Hitler costume to leave a children’s party? I keep expecting to show up and start chanting about the terrible things that will befall us when the Fat Crybaby wins. 

A European kludge to allow Scotmain?

The last post (quoting Callum’s Craic) pointed out the biggest problem with keeping Scotland and N.I. in the E.U. while letting the rest of the U.K. secede: who would control the U.K.’s representatives in Brussels? Sure, it is easy to say that they would come under the joint control of Edinburgh and Belfast. But in a country based on parliamentary sovereignty, that is hard to do. 

One solution is to cobble something together in the great British tradition: that is, have everyone sit down and agree that Holyrood (or Holyrood plus Belfast, in some weird joint operation) will control the U.K. seat on the European Council. That might satisfy the country’s European counterparts. Or it might not: after all, the British parliament could renege on the deal with a single vote. 

Thus, the second solution, proposed by Brendan O’Leary, would be to remove Britain’s seat on the European Council. Scotland could continue to elect representatives to the European Parliament, since those representatives, once elected, are not beholden to their home government. (The picture in the last post was taken behind the Parliament building in Brussels.) Similarly, Scotland could continue to choose one commissioner on the European Commission, since those commissioners, once selected, are also (supposedly) not beholden to their home government. The Council, however, represents home governments directly. If the Europeans refused to allow the U.K.’s council seat to be filled by a subnational body, then the U.K.’s council seat would have to go.

The problem with both solutions lies on the European side, rather than the British one. Since the Treaty on European Union specifically lists all the associated territories, rather than leaving it as only a broad category, then a treaty change will probably be required. That means unanimity on the European side. (In fact, even if treaty change is avoided in order to circumvent messy ratification referenda, unanimity would be required.) Spain is already likely to be a problem, if for reasons that exist only inside Rajoy’s head. Other countries may be equally reticent, for their own reasons.

Sadly, discussion over at A Fistful of Euros seems in deep freeze, part of the general decline of the blogosphere. I would love to know what the authors and commentators over there think about “reverse Greenland” and the survival of the U.K. after Brexit. What is the real prospect of a kludge to keep the U.K. united and England out?

Is there a very British kludge for Brexit?

This blog suggested that one way around the Brexit issue would be a brief treaty revision that declared England and Wales to be an “overseas territory” of the United Kingdom. That way, the U.K. government keeps a seat at the table  while England and Wales leave the single market. The half-Brexited U.K. would, of course, have its representation at Brussels reduced to reflect only the population of Scotland and Northern Ireland, but it would retain a national veto where one applies.

And therein lies the rub. As Callum points out on Medium: “With Holyrood being a subservient parliament in the constitutional order of this country, it can be overruled. Imagine a scenario where the E.U. wants to do a foreign policy initiative that the UK doesn’t want. London has reserved foreign policy, and Holyrood has no right to make foreign policy decision. Yet, Scotland sits on the council and has to vote some way in the council. Say, about sanctions against Russia, for instance. In theory, London could overrule Edinburgh, and force Scotland to vote for or against it. London would then have, indirectly, a veto in a club it didn’t belong to. The E.U. would, of course, have none of that, and wouldn’t accept this situation.”

One imagines that the U.K. could fudge this somehow. After all, this was the country that invented “responsible” self-government, dominion status and the Irish Free State. The question, I think, is whether there is a way that the U.K. can constitutionally make an ironclad guarantee to both Edinburgh and Brussels that Westminster cannot override Holyrood when it comes to voting in Brussels?

That, I think, is the needle that May needs to thread if she wants to keep the U.K. together without provoking a massive backlash from Brexit voters. Ideas?

The Brexit recession and the cost of self-discovery

I am very hesitant to discuss something that confuses Paul Krugman. Very hesitant. 

There is a great paper by Ricardo Hausmann and Dani Rodrik from 2003: “Economic Development as Self-Discovery.” The basic story is that it really isn’t just what it is that poor countries are best at producing. Are Salvadoreans really making the most of the country’s endowments of human capital and raw materials? Probably not ... but what then should they be doing? That isn’t clear either. Figuring out what industries a country is best at doing is very hard. Moreover, the first people who figure out what a country is best at won’t reap all the benefits: others will imitate their business models and pile in. That reduces their incentive to figure out those business models in the first place. Of course, you could try granting monopolies or some such — a nation-wide version of a patent — but then you have the problem of picking which industries to back. If you back all of them, then investment will flow into monopolies that turn out to be bad bets as well as ones that are good ... and you saddle your countries with lots of, well, monopolies.

Sticky! But what does this have to do with the idea that Brexit will cause a recession followed by slow growth? Well, Prof. Krugman gives the following example:

Let’s be slightly spuriously concrete. Suppose you think Brexit might have seriously adverse effects on service exports from the City of London. This would mean that investment in, say, London office buildings would become a bad idea. On the other hand, it would also mean a weaker pound, making investment in industrial properties in the north of England more attractive. But you don’t know how big either effect might be. So both kinds of investment are put on hold, pending clarification.

OK, that’s a coherent story, and it could lead to a recession next year.

At some point, however, this situation clarifies. Either we see financial business exiting London, and it becomes clear that a weak pound is here to stay, or the charms of Paris and Frankfurt turn out to be overstated, and London goes back to what it was. Either way, the pent-up investment spending that was put on hold should come back. This doesn’t just mean that the hit to growth is temporary: there should also be a bounce-back, a period of above-normal growth as the delayed investment kicks in.

That makes sense! But there is another way to think about the problem. You believe that Brexit might have seriously adverse effects on service exports from the City of London. This means that investment in, say, London office buildings would become a bad idea. On the other hand, it would also mean a weaker pound, making investment in ... uh ... well ... by gosh, just what is Britain going to become better at exporting? Manufactures from the north of England? Maybe. Wind power from offshore Scotland? Could be. Videogames written up in London exurbs? Possible. Music and are from London? Hmm! Or maybe the U.K. could build giant spaceships, like this one I saw off in the distance in Birmingham back in ‘12? 

The problem is that you have no idea what the best thing to invest in is, if finance does not pan out. You know that Brexit means finance is not the future, but you have no idea what the future is. And failure certainly is an option, as the slow growth of many many countries in many many time periods tells us.

So right now, investment goes on hold, which triggers a recession. (If that is indeed what is happening.) If Prime Minister May somehow stops Brexit, “or the charms of Paris and Frankfurt turn out to be overstated,” then investment roars back into finance!

But if she does not, well, uh ... it slowly trickles back as Britain undertakes that long slow process of self-discovery. There is no countervailing boom once the policy uncertainty is resolved.* Just a slow recovery followed by slow growth.

Somehow I suspect that there must be a giant hole in this logic. 

Rajoy is not making sense on Scottish secession

What else would you talk about in Alabama besides Brexit?

Well, lots of things, actually. Like airplanes! But I did spend a lot of time talking about Brexit with the mavens at the Air War College here at Maxwell AFB. My big contribution to the discussion resulted in this tweet: 

Scottish secessionists need to watch Spanish politics very carefully if they expect to remain in the E.U.

— Noel Maurer (@noel_maurer) June 25, 2016

It seems as though the Scottish government is exploring ways to remain in both the E.U. and U.K. simultaneously, although European officials were reluctant to so anything as simple as declare England an overseas territory of the U.K. Their reasoning makes sense: it is early and they do not want to get drawn into an internal British dispute. 

Unfortunately, the Spanish premier, Mariano Rajoy, is dead set against letting Scotland remain. He is afraid of giving the Catalans more ideas. But that seems stupid. After all, Scomain is intended to keep the United Kingdom united, even if it results in a customs barrier running a little bit north of Hadrian’s Wall. Refusing to comprise on the issue raises the chances of Scottish secession, which is the real precedent that Rajoy should be refusing to set. 

I do not pretend to understand the People’s Party.  They started the current support for Catalan secession by opposing the Statute of Autonomy, going so far as to petition the Constitutional Court to declare it unconstitutional. (The court obliged.) I understand wanting to keep Spain together; I even understand refusing to countenance any sort of secession referendum. But I do not understand the resolute opposition to extending quite reasonable grants of autonomy ... and I certainly do not understand what Rajoy thinks he will accomplish by opposing any Scottish attempts to remain in the E.U. without formally seceding from the U.K.

Colonize England! Or, a brief word on Brexit and Scomain

 The Kingdom of the Netherlands consists of several countries and a few overseas municipalities. Only one of them, the eponymous one sitting on the northwest shore of the European peninsula, is part of the E.U. The rest are overseas territories, including the special municipalities. 

So lets look at those special municipalities and the E.U. They consist of the islands of Bonaire, St Eustatius and Saba. Dutch citizens on those islands vote in Dutch national elections. But they do not live in the European Union. What does that mean?

First, there are border controls between the special municipalities and the European Netherlands. Land at Schipol, go through customs and immigration just like any European citizen returning from a foreign country. 

Second, they are not in the single market. They can export duty-free to the E.U. (see Article 43) but with limits: (1) Re-exports can only be sent duty-free if the overseas territory imposes trade taxes at least as high as European tariffs (Article 45); and (2) services are not included (Article 51).

Third, they can establish employment restrictions on non-Dutch citizens. (In point of fact, they can also restrict Dutch citizens born elsewhere in the Kingdom.)

So all Parliament needs to do is declare England to be an overseas territory of the United Kingdom! The English could still vote for Parliament. In fact, they would still be E.U. citizens, strictly speaking. But Parliament could restrict non-British (or even non-English) from working in England.

Of course, England-based financial firms would no longer be able to sell financial services across Europe ... but British firms based in Scotland certainly would. Moreover, the U.K. would remain an E.U. member, and thus retain its voice in Brussels debates over financial regulation. As my GWU colleague, Christopher Mitchell, has pointed out in the Washington Post, retaining that voice is vital for the sector to thrive.

Now, I do not want to minimize the problems: other than retaining duty-free access to Europe, English manufacturing firms would face all the same non-tariff barriers faced by, say, Turkish companies. The dislocation of having financial firms move to Scotland is not nothing. And you would need to institute a customs boundary along the line between England and Scotland. 

But it keeps Scotland in both Unions and keeps Britain at the European table, although its voting weight would drop considerably, given that English residents would no longer count.

There might be a problem with doing this unilaterally, however. Annex II of the consolidated Treaty on the Functioning of the European Union explicitly lists the overseas territories; London may not be able to add to them unilaterally. But it would be a legal mess if it tried; I have no idea how the European Court would rule. 

Somehow I do not think this will happen, but I am not sure why I do not think it will happen. After all, something much weirder just did happen. 

Another modest proposal

 This blog is already on record supporting the accession of Jamaica to the United Kingdom in lieu of reparations for slavery. Sadly, that does not seem to be in the cards.

But should the United Kingdom decide to secede from the European Union, then an obvious opportunity presents itself: once Scotland goes its merry way, join Canada! No worries about American gun laws or presidentialism, surely the NHS can be integrated into the Canada Health Act. The Act, in fact, already allows provinces to opt out, although doing so would place an undue burden on the taxpayers of the provinces of England, Wales and Northern Ireland. (Call them the PEWNI, pronounced as spelled.)

Someone should calculate the fiscal burdens! I am not sure what they would be, but a back-of-the-envelop calculation should be pretty easy. First, figure out what teh PEWNI would pay into the federal fisc. Then assume it cuts provincial taxes by the same amount. Use that figure to calculate the transfer payments it would be due under equalization and add an estimate of its social and health transfer receipts. (Canadian federalism is so simple compared to its American counterpart!) Voila!

For additional benefit, calculate savings from economies of scale. I mean, come on, you could generate massive savings from combining the two militaries alone! 

Now think of the benefits for the PEWNI! First, your home market just grew by 36 million people! Yes, that is a lot less than the population of the European Union, but the economic union will be a lot closer. Second, you are now in NAFTA! No new negotiations, no wrestling with Congress, just poof, you’re in. , Third, you get into the Canada-E.U. trade agreement, also with no need to negotiate. Finally, you get to keep your own flags and adopt a very cool national banner! 

But won’t the English take over the Canadian Confederation? They will have more than half the population of the expanded country!

As it turns out, no. The drafters of the Canadian constitution were wise. First, no province can have fewer MPs than it has senators. Second, no province can have fewer seats than it had in 1985. Third, no province can lose more than 15% of its seats in any given redistribution. Add those together, and the Province of England will have only 36% of the seats in an expanded 543-seat House of Commons, no more than Ontario has today! 

Obviously, England will get 24 senators, same as Quebec. Or less. What the hell. Less.

So all good! England, you should jump at this.

As for Canada, well, there are myriad multiple many benefits. Since those benefits are so obvious, I am sure that readers will be happy to list them in the very long comment thread that I expect to follow.

Bueller?

Still not worried about Brexit

 Well, the Labour Party will not save you. (In a weasel defense, let me state that the prediction at the link was that Labour will win if Scotland walks. But see below: we did think that Labour would win anyway, and we was wrong.) 

Still, I am not worried. First, the polls augur well. The blue dots show support for the E.U. The green dots show support when asked, “Imagine the British government under David Cameron renegotiated our relationship with Europe and said that Britain’s interests were now protected, and David Cameron recommended that Britain remain a member of the European Union on the new terms. How would you then vote in a referendum on the issue?”

As long as David Cameron can finagle something out of his European partners, these numbers make it seem like it would be an easy sell to the British public. As long as “something” does not involve a treaty change, I suspect that the rest of Europe would be quite willing to go along. Unless he humiliates himself, he should be able to get a pro-E.U. majority without breaking a sweat.

Now, should we trust the polls? After all, they got the recent general election fairly wrong. But I would make three points. First, constituency polling is much harder than national polling. That said, there is evidence that the polls actually blew the national vote share, so that might not be as much consolation as you would hope.

Second, the reason the national vote shares were off appears to have the last-minute collapse in Liberal Democratic support. That is tactical voter behavior consistent with the model that Victor Menaldo explained in comments: try to create momentum for your party by telling pollsters how you want to vote,  but then bail out for whichever leading alternative you dislike less when election day rolls around. In a two-option referendum, tactical voting is not an issue. The polls should be more accurate as a result.

Finally, the general election trend was against the Liberal Democrats and in favor of the Conservatives. (Click on the vote forecasts tab.) If the numbers turn around in the next few years, then we will revise our forecast, of course.

But what could destroy the pro-E.U. momentum? It is hard to see anything. UKIP would have to make some pretty damned convincing arguments to sway these margins. Or Cameron would have to royally botch things up in Brussels and Berlin. Even a recession would not do it; people are less likely to take risks in bad times.

In short, much ado about nothing.

Unless the above is wrong. What could make Brexit a contender?

Not worried about Brexit

 Grexit, yes, still on the list. (And were I a Greek minister, I suspect I would prefer capital controls followed by Grexit to sucking an additional 1.5% of GDP out of my economy this year and 3.0% the next.) But Brexit? Nope.

First, the polls do not favor it now. Second, I suspect that David Cameron will campaign against it, just as he did against electoral reform. With the election behind him, he would be insane not to do so.

More on why Scottish secession does not mean Tory dominance of the U.K.

 Over at Charlie’s place, two fellows named Tim and Barry raised the old canard that Scottish secession will lead to unending Conservative control of not-as-great Britain. They were unconvinced by (or ignored) the evidence contained in the previous post. 

Are they right? After all, U.K. elections are decided using first-past-the-post. National vote shares matter only inasmuch as they translate into victories in individual constituencies. In the United States, for example, Democrats can win the national House vote by almost 2% and still lose the chamber, which is what happened in 2012. Is the U.K. similar?

Short answer: no. 

Longer answer: losing Scotland knocks Labor down to 217 seats, versus 306 for the Tories. Parliament shrinks from 650 to 591. That means Labor needs to capture 45 seats to outsize the Conservatives and and 79 to gain an outright majority.

Is that doable? Well, the way to find out is to look at Tory constituencies and ask how much of a swing would be needed to flip the weakest 45 and the weakest 79. If the required swing is huge, then the Tories would indeed have a lock on the 2015 election sans Scotland.

And whaddaya know? The Conservatives are facing at least 82 swing seats. See here and here and here. Translation: It won't take much of a swing to knock the Tories off their perch. The polls are already showing a 7-point swing even if Scotland walks away. If the Liberal Democrats remain the number-three party, then Labor will not a hard time putting together a winning coalition in 2015. The rise of UKIP, of course, is more worrying ... but only if it wins enough seats to put together a majority with the Conservatives.

To sum up: the U.K. parliament is more responsive to the popular vote than the U.S. House of Representatives. Even without Scotland, Labor would be able to win a parliamentary majority as long as it remains ahead in the popular vote. And right now, it is ahead in the popular vote in England and Wales.

This is amateur psephology, of course. I welcome data that shows why the above analysis is wrong. (And I think I now need a British Isles tag.)

If Scotland leaves the U.K., then the U.K. will not leave Europe

 If Scotland votes to leave the U.K., then Brussels has made it clear that it will also leave the European Union. Scotland would need to apply like any other potential member state.

But what about the rest of the U.K.? Would it vote to leave the E.U. without Scotland? Many observers are worried.

I do not think that they should be. 

The Tories will be up for reelection in 2015, unless there is a vote-of-no-confidence. That election will be weird. The Scottish government wants to wrap up the independence negotiations by March 2016, so Scots might still be able to vote in the U.K. election. 

That said, it would entirely reasonable for Parliament to disenfranchise Scottish voters before then. Would that swing the 2015 election to the Tories?

Probably not. I played with the crosstabs from this poll. Here are the results:

	Weight	Weight w/o Scotland	% Tory	% Labor	% UKIP
London	13%	14%	37%	36%	9%
South	32%	36%	35%	28%	21%
Midlands/Wales	21%	23%	37%	33%	15%
North	25%	27%	29%	48%	13%
Scotland	9%	--	18%	34%	4%
Total U.K.			33%	36%	15%
Without Scotland			34%	36%	16%

My general impression from the literature is that the district boundaries in England (I mean England England) generally favor Labor, even after the recent redistricting. So Labor is likely to win. Labor opposes holding a referendum on the European Union. That would make Brexit moot.

Moreover, my gut feeling, which could be entirely wrong, is that allowing Scotland to secede will kill Cameron and hurt the Tories at the election. After all, Cameron allowed the election to happen and Cameron took off the option of giving Scotland the powers of your typical Canadian province. So he really will be to blame.

Absent some sort of black swan, Labor will be more likely to win, and Brexit will be moot.

This analysis fails if the Tories pick someone popular to replace Cameron. But I have no idea who such a person would be.  

On the other hand, if the Tories pull off reelection, then Britain is likely out of the E.U. The above analysis, from this poll:

	Weight	Weight w/o Scotland	% Brexit	% E.U.
London	13%	14%	34%	50%
South	32%	35%	42%	37%
Midlands/Wales	21%	23%	45%	37%
North	24%	26%	39%	40%
Scotland	9%		30%	65%
Total U.K.			39%	41%
Without Scotland			40%	39%

Any Cameron-replacement is likely to demagogue the Europe issue and the voters south-of-the-border will be pissed. The momentum will be towards withdrawal and the polls will likely move that way.

But I would bet against a Tory election victory in the wake of Scottish secession, and thus against Brexit. Investors and bankers relax! The Labor Party will save you.

On the other hand, I think that the Spanish government is going to be much bolshier about letting Scotland in than I did a few months ago … they won’t veto, but they will drag things out, and Scotland is going to hurt.