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November 14, 2018

Now what?

We have to admit that we did not expect Theresa May to jump the gun on the draft deal so early. We thought she would wait until the last possible moment so as to secure further and final concessions. It would have followed the usual script in EU high-level negotiations. 

So, what prompted this? We presume two factors influenced her decision. The first is the self-fulfilling dynamic of no-deal preparations. These were already starting and could have done much damage in terms of lessening apprehensions about a no-deal outcome. Secondly, there is no hope of an improvement in the political situation in the UK. May is now betting that the announcement effect and the official handshake at a forthcoming EU summit will produce the political magic to get the deal passed. The arithmetic does not look good. 

The 500-page draft agreement must have been one of the first documents in the entire history of the EU that was not immediately leaked to the press. Some journalists have talked to the few ministers who were allowed a first peek - in the Number 10 reading room - but we doubt that many would have even begun to penetrate the dense document. What we do know is that the negotiators reverted to the old smokes-and-mirrors trick of hiding some of the more controversial bits in obscure language, annexes and protocols. What we know as well is that this is a version of an all-UK backstop. 

We picked up what appeared to be two fragmented, but possibly reliable, pieces of information. One is by the highly reliable Tom Newton Dunn, political editor of the Sun, who reported last night that the five most important cabinet ministers would all stay on board. A senior-level cabinet resignation would have been hugely dangerous for May at this stage. We also note that there were no further cabinet-level resignations over night - not even by the three remaining Brexiteers in the cabinet. We expect the first part of Theresa May’s political calculation to pay off - that the cabinet will support her.

The second information came from Robert Peston, ITV’s sometimes-reliable political editor. He was told that the now-agreed version of the Irish backstop was akin to a swimming pool - with Northern Ireland at the deep end and the rest of the UK at the shallow end. In less metaphorical terms, this refers to the attempt to turn what would normally have been a discrete binary decision - customs union or not - into a smooth one where Britain and Northern Ireland are all members of the same backstop, but with slightly different rules.

We assume both pieces of information to be correct, but this does not tell us much about the political process that will follow. The parliamentary arithmetic has not changed. We noted comments from at least one of the Brexiteers that the deal was better than he expected. But the usual suspects in the debate have long made up their mind. The Tory party’s European Research Group - the 40 hard Brexiteers - condemned the deal as committing the UK to the position of a vassal state. The Labour Party says it opposes anything that does not meet its six tests. Since nothing that could be agreed by the EU could ever meet those tests, it is a safe bet to assume that Labour will oppose whatever the treaty says. Jeremy Corbyn’s real goal is to force elections, which are very likely to happen if parliament were to vote down the agreement.

We remain reluctant to assign numerical probabilities to outcomes, but make the following observations. The chances of parliament approving a deal are not zero. It will become progressively harder for so-called pro-Europeans to reject a deal that is endorsed by the EU itself. Moreover, the EU will pour cold water on any second referendum fantasies. We would not rule out that the EU’s own position will leave at least some of the Remainers conflicted, as well as Tory eurosceptics whose political careers would be jeopardised by early elections. The voting behaviour of MPs could thus very well depend on the opinion polls nearer the time of a vote. 

Our second observation is that the UK parliament might vote twice on the deal - a rejection at first, followed by an election, followed by a renewed vote. This could all happen within the current Brexit timetable. If there is a special Brexit summit at the end of November, parliament could hold a first vote on ratification before Christmas. Elections could take place in February. The EU will not renegotiate the withdrawal agreement, but there may be scope for rewording the political declaration. If the Tories win, the same agreement will be presented to the new parliament - in this case as a straight deal versus no-deal choice. If Labour wins, we presume that Corbyn would press ahead with a reworded political declaration that foresees the UK remaining in the customs union and single market for good. The withdrawal agreement itself is not in conflict with Labour’s version of a Brexit, as it would leave open the possibility of a permanent customs union. We doubt strongly that Corbyn would want to call a referendum if he were to become prime minister. He would be in the enviable position to blame the mess on the Tories, cut a deal with the EU, and then move on.

We note an unusual reticence from Brussels. There are no leaks, which means that the Brussels correspondents of UK newspapers have nothing to write about. 

The Irish government won't make an official statement until the details are on the table. But privately there is relief as the main goal to prevent a hard border across the island is achieved. They are likely to argue that this deal is in line with what has been agreed last December, the Irish Times reports.

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