Brexit Deal, German Economy, Car Wars: CEO Daily for November 14, 2018

Good morning. David Meyer here, filling in for Alan from Berlin.

It really is crunch time for Brexit now. The Brits and their EU counterparts have come up with a deal, the details of which are secret but nonetheless dribbling out to the media. Prime Minister Theresa May now has to get it approved by her cabinet, with whom she will meet this afternoon, and then get it through Parliament.

This is by no means a sure thing. The hardcore-Brexiteer “European Research Group” (ERG) faction of May’s Conservative party says cabinet resignations are coming, because the deal involves Northern Ireland staying inside the EU customs union for a few years, in order to avoid having to impose a hard border between the British province and the Republic of Ireland (an event that could come with bloody consequences.) This is the so-called “backstop” that, Brexiteers fear, could leave the country at the mercy of European rules without the U.K. having any influence over those rules.

Even if there are no cabinet resignations, the ERG will likely try to topple May by triggering a leadership contest. There’s no certainty that they will organize enough signatures from lawmakers to make that happen, but they claim to be close. As noted by the Guardian, sterling “will either soar or tumble once this afternoon’s cabinet meeting has played out.”

Brexit was always a bad idea that was going to leave the U.K. worse off than it has been as part of the EU. The best way forward would be a second referendum to allow the British people, who should by now be vastly better informed about Brexit’s consequences, to change their mind.

That would be politically toxic, but the prospect of a “no deal” Brexit is outright cataclysmic. Supply chains would be thrown into chaos, there is a very real threat of food and medicine shortages, the British economy would probably collapse, and the Eurozone—which may be suffering growth issues (see below)—would also take serious damage.

The hardcore Brexiteers need to shake off the illusion that no-deal is a viable option, or some kind of leverage that will squeeze more concessions out of an EU that rightly sees reserving membership benefits for actual members as an existential matter. (A tip of the hat to Irish solicitor Simon McGarr, who quipped on Twitter that “Brexit has been 18 months of watching someone trying to haggle on prices with the automatic scanning machine at a Tesco checkout.”)

And Jeremy Corbyn’s Labour Party, which is threatening to vote against the deal, needs to realize that there is no more time for negotiations—Brexit is scheduled to take place in March, deal or no deal. If opposition parties are to nix the agreement and bring down the government, they need to be prepared to either swiftly produce a viable alternative—and good luck with that—or allow the British people to call the whole thing off. It’s time for everyone to stop posturing and get real, or things are about to get very nasty indeed.

More news below.

Top News

German Economy

The German economy contracted by 0.2% in the third quarter. This is the first contraction since 2015 and, while it was expected, economists thought it would only shrink by 0.1%. The question now is whether this is due to car production being slowed down by new emissions testing requirements, or whether it points to bigger worries for the Eurozone. Guardian

Car Wars

There won't be a new auto trade war for now, according to a Bloomberg report that says officials are still working on a report about the "national security implications" of car imports. President Trump's favored justification for new tariffs is national security. The Commerce Department has been probing the issue since May, and has until February to deliver its report. Bloomberg

Shipping News

In one of the more obvious impacts of Trump's trade war, demand for container shipping is down. Announcing decent profits today, the Danish shipping giant Maersk predicted a fall in global container trade over the next couple years of anywhere between 0.5% and 2%. Maersk also said it plans to step up competition with UPS and Fedex. Reuters

Toys Were Us

Toys "R" Us's bankruptcy plan has been given the green light by a Virginia court. Suppliers will get some payment, while the brand will be controlled by a group of hedge funds. Hedge funds caused the bankruptcy by pushing the chain into liquidation, but they deny responsibility for the failure of the business's turnaround attempts. Wall Street Journal

Around the Water Cooler


Tesla's shy and retiring CEO—a chap called Elon; you might have heard of him—has irked the Mexican tequila industry by trying to trademark "Teslaquila," which is apparently a "distilled agave liquor." Sounds a bit like "tequila," you see, and that's protected. Here's the Tequila Regulatory Council: "If [Tesla] wants to make Teslaquila viable as a tequila it would have to associate itself with an authorized tequila producer, comply with certain standards and request authorization from Mexico’s Industrial Property Institute." Reuters

Digital Money

IMF chief Christine Lagarde wants to see central banks seriously consider issuing digital currency, as central banks in Sweden, China, Canada and Uruguay are already debating. Why? "Your payment would be immediate, safe, cheap and potentially semi-anonymous... And central banks would retain a sure footing in payments," Lagarde said at a Singapore conference. BBC

Russia Suit

The Democrats sued Russia for alleged hacking during the 2016 election, and Russia has now filed a complaint in New York saying U.S. courts can't prosecute it for such things. In short, Russia says it has immunity, as guaranteed by a U.S. law that lists a bunch of exceptions—of which "military attack" is not one. Washington Post

Worker Power

Former Googler Laura Nolan, who was one of those to quit over the company's Pentagon dealings, has written a piece for the Financial Times in which she hits back at characterizations of dissenting workers as anti-patriotic bullies. Firstly, she notes, these companies are extraordinarily powerful, so they are no victims. Secondly, many of their workers, such as her, aren't American anyway, so they have no reason to do things they don't want to out of patriotism. FT

This edition of CEO Daily was edited by David Meyer. Find previous editions here, and sign up for other Fortune newsletters here.

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