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August 31, 2016

Deflating hopes of a frustrated Brexit

There are three hopes about Brexit, among British EU supporters, that will give people their second and real Brexit shock once they are dispelled: a second referendum; the idea that the British parliament will frustrate the process; and the hope of a deal with single market access. This is perhaps a reason we have not seen so much of an economic reaction to Brexit yet. Yesterday's news reduces the likelihood of the first two options.

A YouGov poll for the Times shows that Owen Smith, the Labour Party leadership contender favouring a second referendum, trails Jeremy Corbyn by a whopping margin of 24pp - the result is 62%-38%. Even by the standards of British opinion polling, this gap seems to be beyond the margin of error. This would suggest that Corbyn is on course to improving on his already formidable result from last year, when he won the leadership with a first round result of 59%.

A successful leadership challenge by Smith this year would have been a necessary but far from sufficient prerequisite for a political path away from Brexit. If Smith fails, that path is closed. And, even in the now increasingly unlikely event that he wins, a number of equally unlikely events would have to take place. With Corbyn as leader, Labour will co-operate on the Article 50 process. He was a lukewarm Remain campaigner, and now says that he respects the result of the referendum. 

In a separate report, the Times writes that Theresa May intends to invoke Article 50 through Royal Prerogative and to deny the country a second referendum on any Article 50 agreement. The Royal Prerogative is a legal procedure that allows the government to bypass parliament. It is government by decree. Government lawyers have concluded that it can be invoked for the Article 50 process, although this will become subject to a legal challenge currently in preparation. The government seems confident that it can see off that challenge. (In any case, we believe May would get a very large majority in favour of an Art 50 trigger if she did put it to parliament, as William Hague suggested).

When reading the Times, we noted a revealing comment by Tim Montgomerie, which struck us not so much for its main argument - that eurosceptic Tories should learn to be nice to continental Europeans - but by a comment that reaffirms the strangeness of the public discourse on the EU. He argues one has to make a distinction between the EU, which he too dislikes, and its rather wonderful member states. 

And finally, we take note of a comment by Stefan Kornelius in Suddeutsche Zeitung arguing for a vindictive position towards Britain in the upcoming negotiations. Kornelius makes the point that a soft deal would encourage others to leave as well. While we don't think that the negotiations will, or should, be conducted in the spirit of penalising Britain, we note that a soft deal would carry risks for the EU. Kornelius' rather mean-spirited comment gives us a sense of the kind of opposition to expect if the EU and Britain were to follow the advice of the Bruegel paper we discussed in detail yesterday. He also makes the point that the relative strength of the negotiating positions has shifted. Britain used to get what it wanted - like the budget rebate or the various opt-outs - through its veto powers, but on this occasion the tables are turned. The other 27 have the veto power. 

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