These men are dangerous

You could easily imagine Wild West-style posters: “Wanted, the two most dangerous men for the global economy: Donald Trump and Boris Johnson”. This is not a fancy suggestion considering that the latest forecast of the International Monetary Fund on July 23, cutting global growth to 3.2 per cent from 3.3 per cent this year and 3.5 per cent from 3.6 per cent in 2020, mentions: “The principal risk factor to the global economy is that adverse developments — including further US-China tariffs, US auto tariffs, or a no-deal Brexit — sap confidence, weaken investment, dislocate global supply chains, and severely slow global growth below the baseline.”

 
Both the American president and the new British prime minister are leading deeply divided, polarised countries, uncertain about their future and agitated by strong populist currents. Both men are quite unprincipled, egotistic, focused on their self-interest. However, while Mr Trump has taken control of the Republican Party and does not see any real threat to his power for the time being — and he stands a very good chance at re-election if the present ineptitude of the Democratic Party persists — Mr Johnson is assuming the premiership in an extremely difficult and dicey circumstances.
 
To a large extent, these circumstances are of his own making. And by repeating his pledge in the first speech as prime minister that Brexit will happen on October 31 “no ifs, no buts” Mr Johnson is pointing out to three possible outcome options — each of them theoretically very implausible:

 

First option: The Brexit deal negotiated by former prime minister Theresa May with Brussels is remodelled by October 31 to meet the demands of the hard-line Brexiters, among other things with respect to the backstop element ensuring that there should be no new physical checks or border infrastructure between the two Ireland in case of no agreement reached after Brexit on the future relationships between London and the EU. But it is highly unlikely that, beyond purely cosmetic changes in the political declaration that comes with the Brexit treaty proper, Brussels would agree to reopen a negotiation on any significant part of the agreement reached with Ms May — and rejected three times by the British Parliament. 

 
Second option: Downing Street asks for a prolongation of the deadline of October 31 for Brexit to get more time to convince Brussels to reopen the negotiation. This would be such an about-face for Mr Johnson that it could be a political killer for him; and — given the present mood in the European Union — and the antipathy towards the new British prime minister— it would take a lot of imagination to see the European leaders agreeing to reopen the negotiation and having to go again through the process of getting the new agreement endorsed by the
27 members.

 
Third option: Facing a deadlock with Brussels, Mr Johnson sticks to a no-deal Brexit happening on October 31. But then he would be confronted by the opposition of the majority of members of the Parliament who don’t want a no-deal Brexit. If the prime minister were to close the Parliament to prevent it to oppose a no-deal Brexit, he would then open an unprecedented constitutional crisis. If the no-deal Brexit were to be subjected to a vote then the prime minister could either dissolve the Parliament and go for elections — that he would very likely lose — or call for another referendum.

 
At this stage these options are of course quite hypothetical and there is no underestimating the kind of new rabbit or U-turn an opportunistic Boris Johnson could draw from his hat. For the moment, the purge of 17 ministers opposed — or lukewarm to — a no-deal Brexit and their replacement by hard core Brexiters are meant to show that he means what he says. Who knows? His bet that European leaders will balk because a no-deal Brexit — although more damageable to the United Kingdom than to the EU — will nevertheless be disrupting enough for an EU with a new leadership and beset with other challenges might work after all. We have witnessed so many “unthinkable” developments in the last few years.

 
But the reality that remains is the kind of uncertainty that the Brexit factor is adding to a global economy which keeps losing steam, with investors all over the world already weary of too many risks and too much volatility. Significantly, the American Federal Reserve is expected to cut interest rates by a quarter percentage point at the end of the month — with maybe an additional cut before the end of the year. Mario Draghi, the president of The European Central Bank, has made it clear that he is prepared to cut interest rates and start a new round of quantitative easing before leaving his position in October to counter the negative impact of economic uncertainties and prevent a further global economic slowdown.

 
There has never been a time over the last 50 years or more when geopolitical risk has weighed so heavily on economic and business decisions. A time when the ability to fully understand the full ramifications of different risks, to anticipate their potential impact, to assess which factors will tilt the balance one way or the other at the end of the day, has been so crucial for business and the conduit of economic policy. And expect the likes of Mr Trump — and now Mr Johnson — to keep it that way for the foreseeable future.
 
The writer is President of Smadja & Smadja, a strategic advisory firm;   @ClaudeSmadja