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November 23, 2018

Why this deal is very likely to be approved - in the end

After the publication of the Brexit political declaration, the mood is dark and the forecasts are glum. But we are hearing the mood inside Downing Street is upbeat. In today’s lead story we would like to explain why that it is so - in much greater detail than we have before.

The main reason why we think that the deal will be accepted is that the legal framework for Brexit - Art. 50 plus the accompanying domestic legislation - greatly favours acceptance of the withdrawal agreement. Theresa May still frames the decision as a three-way choice: deal, no-deal, no-Brexit. As we explained yesterday, this is a useful smoke-and-mirrors tactic for now. But as we head to the final choice, maybe in a second vote next year, the three options will narrow down to a binary choice between deal and no-deal. At that point we would assume that the UK parliament will reluctantly support the deal.  

As the legal journalist David Allen Green put it yesterday, Brexit will happen on time by the force of law. It is not a path yet to be taken. It is entirely irrelevant whether the parliament opposes a no-deal Brexit. The undoing or postponement of Brexit cannot be achieved by parliament as a backseat driver. It will require a prime minister and a government to do all of the following, in this specific order:

  1. agree internally to a second referendum and an extension of the Article 50 period;
  2. bring legislative changes to the EU withdrawal act and to the appeal of the European Communities Act;
  3. initiate legislation for a referendum;
  4. make an official request to the EU to extend Art. 50, and for the EU to accept this request with unanimity;
  5. get the ECJ to rule that Brexit is unilaterally revocable.

Theresa May left no one in doubt yesterday that she will not initiate a second referendum. She was asked numerous times and gave a clear answer on this point. It is possible that, as early as this Sunday, the EU itself might pre-commit to vetoing an extension request. But we would not bet on this. For one thing, the EU might not want to be blamed for a hard Brexit. There are political interests to defend in the EU as well. The EU might not wish to foreclose on the possibility of a new UK prime minister changing course. 

It is possible that May herself might resign. She does not give the impression of a politician who quits easily. More likely, we think, she will go back to the EU and try to amend the deal in one or two important points. After that, we would be in the deal vs no-deal scenario.

If the above-mentioned process were to happen, it would require at a minimum a new prime minister and a cabinet committed to Brexit reversal. So, May would have to be gone. It is important to consider this process in some detail. If she quits, a new more eurosceptic Tory leader would take over. There could be immediate elections, though this is not certain.

If she does not quit, a Tory leadership challenge is still likely. It could either leave May in place, or end up with her being replaced by another more eurosceptic Tory like Michael Gove or Sajid Jarvis. 

So, to enable the above sequence would require a change in Tory leader, a general election which that newly elected Tory leader would lose to Labour or a coalition led by Labour. The opposition itself does not currently have the votes to force an election. That would require that either May or her Tory successor seek a parliamentary majority for an election. Even a successful leadership challenge would not automatically remove her from office for at least two months.

So let’s work through this in detail. The likely election scenario would require the following sequence: 

  1. May resigns or Tories trigger internal no-confidence vote against May with a majority of at least 158 Tory MPs voting in a secret ballot to replace her.
  2. A leadership contest begins; two MPs would emerge as the leading candidates. Tory members have the final vote; in 2016 the entire process was scheduled to last for about two months. It was cut short because May emerged as the only candidate. Unlikely to happen again.
  3. While the leadership contest continues, May remains in office. A new leader would emerge in mid-to-late February. 
  4. A new leader would have to seek a majority for elections pre-Brexit.
  5. Elections could be held in the second half of March at the earliest.
  6. Labour wins the elections, but fails to secure an overall majority - second referendum most likely if a minority Labour government was supported by LibDems or Scottish National Party.
  7. New parliament would initiate the second referendum process within a few days.

The only other option to consider is the following slightly shorter sequences:

  1. May loses the vote;
  2. there is either no confidence vote or she wins it;
  3. she seeks and wins majority for elections;
  4. she loses the election.

A referendum would probably take some time to legislate and to hold, maybe 9-12 months. It is possible that the new government would want to frame the debate as no-deal versus no-Brexit. We don’t think the EU has an appetite for this. We don’t think Corbyn has an appetite for this, nor do we think that voters do.

This is why we believe this is going to be a straight choice between deal and no-deal. One can’t assume that people will always act rationally. But we would be very surprised it the Remainers didn’t blink at the point when they can no longer pretend that they could get a better deal.

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November 23, 2018

What to make of the political declaration

As the many critics of Theresa May’s withdrawal agreement rightly pointed out the attached political declaration, while full of ambition, is not legally binding. That does not, however, make it meaningless. On the contrary. 

The bit about the agreement and declaration that is most misunderstood in the British debate relates to the duration of the backstop. It is absolutely not in the EU's interest to keep the UK in a customs union as a temporary backstop for the plain reason that it would give the UK some unfair trade advantages. To the extent that the vassal-state argument is correct, it relates only to the period between the start of Brexit and the date a new trade agreement would take effect. We heard Pascal Lamy on Channel Four News yesterday say that negotiating it would take approximately five years. This seems a reasonable estimate to us. This would take us to 2023. The backstop would be triggered, but only for one or two years at most. That is not vassalage, as every student of medieval history will tell you. 

The second aspect still misunderstood in the debate is that the withdrawal agreement would be consistent with other types of Brexit, for example a subsequent agreement on a permanent customs union. If Labour came to power, it would be possible to ditch the current political declaration in favour of another one, setting out different goals without a change to the withdrawal agreement itself.

Third, the EU has made significant concessions in the debate on the backstop, by accepting an all-UK backstop as opposed to an Irish-only backstop. This means that during that backstop period - maybe one year or two - the UK will have full access to the single market without the need to accept free movement of labour. 

Fourth, contrary to earlier statements including by Michel Barnier, the EU has embraced the idea of what one might call a Canada-Plus agreement. We recall that this idea was ridiculed by commentators including Sir Ivan Rogers, the former UK ambassador to the EU who predicted that the most May would be able to achieve would be Canada-Dry. What was agreed is a process towards a very wet version of Canada, meaning a free-trade agreement inside a broader association agreement. This is very much what the UK had asked for. 

Fifth, the deal stops short of May’s request for frictionless trade. The degree of future friction cannot be legally anticipated, but both sides agree to reduce friction to the technical and administrative minimum. These commitments go far beyond what is usually agreed on in trade deals.

And finally the political declaration, while not legally binding, will still inform any future judicial rulings. It also sets a precise agenda for the forthcoming trade talks, by framing discussions and defining the goals. By introducing poison pills into the backstop period on both sides, it also strenghtens the incentives for EU national and regional parliaments EU to ratify a future trade agreement.

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November 23, 2018

The EU's spy school is no laughing matter

Some of you may have read about the amusing EU decision to plan a joint spy-training centre as part of the drive for greater EU military cooperation. We are saying amusing because somewhat farcically, the new espionage academy is to be based in Cyprus and led by Greece, two countries particularly exposed to – or as some would phrase it, open to - all kinds of covert Russian activity.

So it is hard to imagine the EU’s very own finishing school for spies being mentioned in places like Langley, Virginia, without a joke or a smirk. Spying, or rather being spied upon, has always been a major issue for EU institutions; and many grown-ups of the spying world doubt that, for institutional, operational and cultural reasons, the EU will ever be able to set up a joint espionage centre that would not have more security holes than French gruyere cheese.

We would venture no opinion on the future cheesiness of the EU’s Cypriot 007 training centre. But whatever the future reputation of the school, the very fact of its planned launch is interesting and a harbinger of things to come. The decision to go for it was made possible only by Brexit; as with so much else in the field of security and foreign policy, the UK had blocked it, in big part out of submission to the preferences of Washington.

Brexit is unlocking, and will continue to unlock, a flurry of decisions big and small which the UK had fought tooth and nail to oppose, throwing the full weight of its standing as one the two EU’s leading powers in the security and diplomatic sphere in the balance. In some cases, the veto was about symbols, because the UK understood well that symbols matter: London, for instance, is the reason that Federiga Mogherini must travel the world as a mere EU High Representative rather than as EU foreign minister.

It is true that the EU has a less-than-stellar record when it comes to implementing many of its own plans in the military sphere: skeptics have plenty they can point to. Brexit is no guarantee that EU military cooperation will live up any time soon to some of its grander ambitions. But we predict that it is a game-changer, because the big defence power that would instinctively start every conversation with no rather than yes will no longer have a deciding seat at the table.

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