March 21, 2019
Looks like deal vs no-deal - just what May always wanted
Last night Brexit took on a certain House of Cards quality. Theresa May’s address to the nation was dark. She was obviously angry. She does not talk like your average politician, which is why the usual pundits always hated her. It is possible that her manner of public speaking has greater appeal in the country at large. People are fed up with how this whole issue has been tackled - and most with the whole debate. But we have moved beyond that.
The speech tells us that we are entering a game of high-stakes political blackmail with uncertain outcome. We have finally arrived at the point where we always expected the whole thing to end up: deal vs no-deal. And parliament’s options to stop this process are more limited.
The single biggest danger right now is the ongoing failure by the UK’s political class to read the intentions of the EU. When Donald Tusk yesterday refused to answer the question about what the EU would do if the meaningful vote failed for a third time, he was not threatening a long delay. That may well be his personal preference, but he was simply not able to answer the question because this is going to be the main subject of discussion among EU leaders. He cannot pre-empt the outcome. We hope that the European Council provides some clarity today - if only to kill off some of the more delusional scenarios. A positive Brexit resolution requires a narrowing-down of options.
EU officials and governments are beginning to contemplate the myriad political and legal aspects of an Art. 50 extension. We believe that the EU is pivoting away from a long extension for reasons outlined with great clarity by Barnier. The EU would accept a long delay if the UK were to propose a second referendum. But this is not going to happen next week.
We think about the EU’s decision differently than most UK commentators. We think the starting point for the European Council is not the length of the extension, but the political processes. If the final meaningful vote (MV) is approved next week, they will agree a short technical extension. If the MV is not approved, they will first evaluate the political process May proposes. This could be any of the following: a second referendum, elections, outright revocation, a series of linked votes to narrow down the options, or a no-deal Brexit. They might not hold that part of the debate until next week, maybe Thursday or Friday. Only once May answers that question will the EU set a time frame for an extension commensurate with the political action proposed.
In contrast to the dominant opinion in the UK, we don’t buy the idea that the EU would force a long extension in order to facilitate a second referendum. The EU has neither the legal powers nor the political will to risk a process that could easily backfire.
Under any of the above scenarios an extension to Art. 50 is likely, but we cannot rule out a potentially deliberate political accident next week. Among the various extension options, we see a short extension as most likely. Only a second referendum would require a long one. But a second referendum is the least likely of all options.
A further complication is that EU leaders enter the discussion with different views. It is possible Angela Merkel may prevail, as Germany is now starting to panic at the prospect of a hard Brexit. The discussion in the German media is only now starting, see for example the lead story in Der Spiegel this morning. What speaks in favour of a hard line is the legal basis of the decision. The European Council requires unanimity. We should therefore not be taking its response for granted.
But, given what we know, we think that our decision-tree-based framework is not unreasonable: it avoids a cliff-edge this month, preserving the EU’s own interests, and does not make the EU vulnerable to accusations that it triggered the hard Brexit. One possible option - not ideal in our view - would be an extension of Art. 50 until end-June, just as requested by May, with an earlier deadline for a decision on a political procedure like new elections. The EU pre-commits not to extend Art. 50 beyond June. If there is no political procedure agreed, the remaining time until Jun 30 could then be used for no-deal preparations.
But there are risks associated with that course of action as well. As Martin Selmayr recently noted: what if the UK did not hold European elections and then revoked Brexit at the end of June? Never mind the legal issues. Such a course of action would debilitate the European Parliament, which would be effectively suspended - for political reasons - until the UK holds European elections, which won’t be until September in this scenario.
In our view, the deal vs no-deal cliff-edge is probably the closest we are likely to get to an orderly Brexit. The most useful thing the European Council can do today is to make it clear to the UK parliament that a decision against the treaty would invariably bring about a no-deal Brexit, unless it can simultaneously agree on an acceptable alternative. The European Council should also be clear that the withdrawal treaty and political declaration remain compatible with Labour's version of a customs union or a Norway-style outcome, if the preference of the UK parliament were to change subsequently. It would really be useful for the European Council to take the guessing out of the game.