The pound rose, and all was calm on the stock market. As far as the financial markets were concerned, the message was clear: the voting down by MPs of Theresa May’s withdrawal agreement means a delayed Brexit, a softer Brexit or perhaps no Brexit at all. Those with serious wealth in Britain have always been worried that Brexit will lead to radical change. They now think that there will be a perpetuation of the status quo – or something not far removed from it. Hence the pound getting stronger.

There’s no question that opting for the quiet life has its attractions. There would be a boost to the economy as companies decided to push ahead with investment plans that had been delayed while the outcome of Brexit was uncertain. And, of course, any economic costs of no deal would be avoided.

If the Bank of England is to be believed, these could be very high indeed. Just before Christmas, the Bank said the economy could shrink by 8% in the event of a disruptive no-deal outcome – a bigger recession than that seen when the global financial system came close to meltdown in 2008. But this was a worst-case scenario and the Bank had to throw in the kitchen sink to arrive at it. The idea, for example, that interest rates would rise by four percentage points after a no-deal Brexit is implausible. More likely, the Bank would join with the Treasury in using every available policy tool – including lower interest rates – to boost growth.

More realistic projections have been provided by the consultancy firm Capital Economics. It forecasts that the economy will grow by 1.4% this year if May’s deal is eventually agreed, by 1.5% if a delay to the article 50 process leads to a softer Brexit, and by between 1% and -0.2% in the event of no deal, depending on whether it is orderly or not. Still a cost, in other words, but much more modest.

Even so, why bother suffering any cost at all if it can be avoided by leaving things as they are? That seems like a reasonable argument, but in reality it is based on a series of doubtful assumptions.

The first is that voters care only about economic growth. But if that were the case, they would support fracking and concreting over the green belt, both of which would lead to higher levels of activity. The second – voiced by business lobby groups – is that it is not possible to do better than the status quo because unemployment is low, real wages are growing, the City is the world’s financial hub and the UK is an attractive destination for inward investment.

The third – shared by the European commission and some in the remain camp in the UK – is that there is nothing much wrong with Europe either. The EU is the world’s biggest market; the four freedoms allow for the movement of goods, people, money and services across the continent; and the euro has been a success.

Yet in reality the UK has malfunctioned badly since the 2008 financial crisis, suffering a prolonged period of weak productivity growth and flatlining living standards. Investment has been weak. Most of the jobs created have been low-wage and low-skill.

As for the rest of Europe, the eurozone was even slower to recover from the crash, in part because of the design flaws of monetary union and in part because its addiction to neoconservative economic dogma resulted in supercharged austerity programmes.

Brexit, the gilets jaunes protesters in France, the terrible pain inflicted on Greece and the support for the League/Five Star government in Italy all tell their own story. Europe is alive with political discontent that reflects the demand for deep and urgent reform, but the chances of getting it are less likely if the status quo prevails.

Why? Because the forces of conservatism are strong. Change comes about only when the pressure for it becomes too great to resist. The financial crisis provided one such opportunity to reform an economic system that for many people clearly wasn’t working; Brexit was a second. The left’s case for Brexit has always been based on the following notions: the current economic model is failing; socialism is needed to fix it; and the free-market ideology hardwired into the EU via the European Central Bank, judgments of the European court of justice and treaty changes will make that process all but impossible without a break with the status quo.

It is theoretically possible that in the event of a “Brexit in name only” or no Brexit at all, policymakers will push ahead with what’s needed in order to make a reality of the slogan “a reformed Britain in a reformed Europe”. Possible but not all that plausible, given that it would require breaking up the euro, more autonomy for individual countries to intervene in the running of their economies, and a simultaneous philosophical U-turn in the big member states.

Much more likely is that the pressure for change will dissipate and the real grievances of those who voted for Brexit will be quietly forgotten. The softer the Brexit, the more convinced the EU will be that it has been doing the right thing all along. Britain will not go up in flames, but there will still be consequences. Leave voters will feel they have been victims of an establishment stitch-up. The anger will not go away and will eventually resurface.

The risk is that the losers will be the biggest supporters of the EU – the liberal left. And the biggest winners will be the extreme right.

Larry Elliott

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