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October 17, 2018

Not a solution to the Brexit impasse, but a first step

FAZ has a Brexit scoop this morning. The European Commission is ready to offer the UK an extension of the transitional period, which under a previous draft agreement would have ended in December 2020. This is an important concession and solves the problem of the two transitional periods that would have been necessary - this one, plus the period in a customs union until the FTA takes effect. But the offer does not address the hairy issue of the Irish backstop: what happens if there is no FTA by the end of that period.

FAZ sources its story from an internal document circulating after the breakdown of the talks on Sunday. The article - and we presume the document - does not mention any specific dates, but we would assume that the natural end date would be December 2021, just ahead of the next UK elections. This is still a tight timetable for an FTA - though not necessarily for an FTA that starts out from a situation where the two parties have already converged. 

The paper raises more questions than it answers. For example, it says the UK insisted on a permanent inclusion of the country in the customs union if no FTA is negotiated. This seems to contradict Theresa May’s statement in the House of Commons that the UK would not be a permanent member of a customs union. The document said the Commission was, at this stage, not ready to offer the UK permanent membership of a customs union as part of the withdrawal treaty itself. 

Today’s European Council is unlikely to make much progress. The main goal is to avoid another diplomatic disaster as in Salzburg. We don’t see a Brexit deal concluded until December at the earliest - a timetable that would also greatly help passage of a withdrawal deal in the House of Commons. We also believe that the EU should then make a statement that the deal is final - making clear that it will not renegotiate if the deal is rejected, or accept an extension to the Brexit process. It is essential for passage of the agreement that the EU eliminates doubt among UK MPs about the availability of alternatives.

We note a column by Daniel Finkelstein, the Times columnist, who recently reflected about why a second referendum may be attractive to May herself. He now seems to have shifted his views on this matter, and says that May’s position is stronger than it appears with regards to the House of Commons. A no-deal scenario would indeed open up the possibility of a second referendum or a general election, both unpalatable options for the Brexiteers. And they cannot get rid of May because they don’t have sufficient votes.

So, once it became clear that there would not be a general election after a failed deal (if, for example, the DUP stays on board), would the Labour Party really oppose it? After all, their whole rationale for rejecting the deal is to force elections.

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