Triumphant Boris means Brussels can no longer play the divide and rule game

EU and UK flags
Britain is suddenly the only big country in western Europe with a government able to take radical measures and sweep aside resistance Credit: REX

The Boris boom begins. A surge of pent-up investment will combine with fiscal stimulus worth 1pc of GDP in the next Budget.

By fluke of timing it may occur just as the world economy starts to recover, bruised but alive, after the recession scare of mid-2019. Trade volumes are rising again. Manufacturing orders are picking up in Asia and Europe. Central banks have capitulated and are flushing the international system with liquidity. Boris Johnson has a lucky star.

Britain is suddenly the only big country in western Europe with a fully functional government able to take radical measures and sweep aside resistance. France, Germany, Italy and Spain are all in political turmoil or have a paralysed executive. 

The centre is crumbling everywhere – but not in Britain. A one-nation Tory running on a green, social democrat economic programme has pulled off the feat of uniting a blue collar north and an affluent south. The world press and left-academia got that narrative badly wrong.

This political asymmetry between a unified, confident, well-armed British government and a demoralised, splintered Continent matters enormously. Brussels can no longer play the divide and rule game in Westminster, or indeed with the Tory party itself. 

Everything has changed. The Grieves, Gaukes, and Soubrys of the rump Parliament have been liquidated. To evoke a loose historical parallel, it is the moment Europeans discern the iron fist of Cromwell and discover that the chaotic English revolution is more formidable than they had bargained for. They have heard the roar of Yorkshire, Lancashire, and Northumberland.

Global investors can see that property is safe again in Britain. There will be no capricious seizure of assets, or war on finance, or mistreatment of foreign funds so vital to our infrastructure and technology plans. The global flirtation with Piketty wealth taxes and the overthrow of market capitalism has met its first crushing defeat. This is a British favour to the liberal world.

Goldman Sachs – no friend of Brexit – has identified $150bn of global capital flows ready to flood into the UK economy as Parliament ceases to obstruct. It expects a “back-loaded acceleration” in investment, lifting growth to a 2.4pc rate by late next year. It is betting on three-year expansion above 2pc and a catch-up surge in depressed UK assets.

On cue, the smaller domestic stocks on the FTSE 250 were up a blistering 4.4pc on Friday. But there is a 20pc gap to close.

HSBC – a conduit for Asian capital – expects a structural "rerating" of UK Inc, with sterling powering to €1.35 over the next year. What we have seen so far this morning at €1.20 is an amuse-bouche. “It could be radical,” says HSBC’s currency chief David Bloom.

Stephen Jen from Eurizon SLJ, an adviser to Asian sovereign wealth funds, says corporate treasuries and banks have short positions on sterling of at least £100bn through hedging derivatives that will now have to be unwound. Years hence people will be “looking back and shaking their heads” asking how sterling ever fell so low, he says.

There is a counter-view that any rally in UK assets will peter out quickly as Brexit reality hits again and investors price in the risk of a second "no deal" cliff-edge,  as early as July given the negotiating calendar.

They may be right but I think the diplomatic dynamic has changed, and I don’t share their premise that Boris intends to walk away from Europe into the deep blue of the WTO.

They say Boris will have to capitulate to all the demands of Michel Barnier’s "Task Force UK" to secure a quick and dirty deal with the EU, but that overstates the case. Europe is wounded and exhausted. It suffered more economic damage from the Brexit stand-off than anticipated by its academic trade models. It is also dangerously close to structural deflation and has a low pain threshold.

Analysis by Goldman Sachs shows that Brexit fall-out – through confidence channels, supply-chain angst, currency effects, etc – has been a bigger cause of Germany’s industrial slump over the last seven quarters than all other global factors combined.

The toxic side-effect of pushing Theresa May too hard and presenting Parliament with terms that no sovereign state could reasonably accept was to aggravate the latest downturn and push the eurozone deeper into a structural crisis.

When the full story of Brexit finally comes out, I suspect will we learn that Chancellor Angela Merkel – and not just her – ordered Mr Barnier to reopen the withdrawal agreement. Or as she reportedly said in exasperation: “Can’t we just come up with something Johnson can sign?”

Emmanuel Macron is doing his utmost to hug Britain closely to the European defence and security system

One argument in Brussels is that Boris is now strong enough to throw the clean Brexiteers of the ERG overboard - just as he threw Ulster unionists overboard - and can then "pivot" back to Europe for a soft deal with a de facto customs union, and even a disguised Norway-EEA pact.

Perhaps, but they also know that the EU is now in a bidding war with a US administration dangling a quick trade deal, and on terms that do not require "dynamic alignment" with EU law, or "non-regression clauses", or the jurisdiction of the US Supreme Court. They must calculate that he might dig in his heels and ultimately switch to Washington if Britain is squeezed too hard in the next round of EU trade talks. 

They then risk losing the UK into the American trade and regulatory orbit for half a century. This matters more than many seem to imagine. As I argued on Wednesday, France’s Emmanuel Macron is doing his utmost to hug Britain closely to the European defence and security system.

Over the summer he unveiled a profound shift in French thinking about post-Brexit relations, looking beyond immediate trivia to the great issues of shared geography, history, and liberal values.

So, I can imagine a rapid EU deal with no tariffs or quotas, and with fast-track customs clearance, light certification, and minimal pedantry over rules of origin. The complexities of data exchange and other matters can be dealt with later under standstill arrangements.

As it becomes clear that Boris is pro-immigration – and that rising wages/labour shortages in Eastern Europe reduce the flows in any case – free movement will cease to be such a neuralgic issue. That clears the way for Brussels to offer an olive branch on City services.

If broadly right, if both sides are worn down and ready for a settlement, markets will respond with euphoria. Remainers may find that the new order is not as awful as they feared. It may even be surprisingly congenial.