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September 21, 2018

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The no-deal Brexit has come a step closer

Salzburg was supposed to be a stock-taking exercise, but it turned out to be a rare moment of truth in the Brexit process. The EU has killed off the Chequers plan for good. May needed Chequers to ensure that the Irish backstop in the withdrawal treaty would never be triggered. Her plan‘s formal rejection means that the Brexit choices have become starker. In our view no-deal may now be the single most likely outcome, alongside with what some UK commentators are calling the blind Brexit - one with an Irish backstop in the withdrawal agreement and a fudged political declaration. The DUP has no reason to support a deal that could leave Northern Ireland permanently decoupled from the mainland. The opposition parties will also reject it - for different reasons. Could the Tory party unite behind this? It is possible, but such an outcome cannot be taken for granted.

The Guardian reports this morning that Theresa May no longer believes that it will be possible to reach an agreement on the Irish backstop by the October summit. This is consistent with our view that the Brexit process will be delayed beyond the original schedule. The Salzburg summit has pushed us into overtime. 

We noted a comment in the Daily Telegraph by Fraser Nelson, who predicts the blind Brexit as the most likely outcome, and that this outcome would strengthen Theresa May politically by shifting all substantive negotiations into the transitional period. We think the Tory eurosceptics might want to stop it for that reason alone.

The EU‘s formal rejection of Chequers is a serious setback for a prime minister who just seemed to have found some political traction back home. The speculation about her future will now intensify. The Times writes this morning that David Davis, the former Brexit secretary, will present his own plan for a free-trade deal during this month‘s Tory party conference. If this has more traction with the grass roots than whatever May will suggest, Davis could emerge as the next Tory leader. But would Davis' plan include an Irish backstop? We don‘t know. Ireland is one of the issues that divides the eurosceptics. Some could not care less about Northern Ireland and are willing to accept an intra-UK customs border. But we find it hard to believe that this could command a majority position in the UK parliament as a whole. 

What about the moderate Tory MPs who supported May? One of the more important ones is Nicky Morgan, who chairs the treasury select committee. She said she had hoped that the EU would at least engage with the Chequers plan as opposed to rejecting it outright. What needs watching is the direction of travel of the likes of Morgan and other Tory centrists. It is possible in theory that the House of Commons assembles a cross-party majority in favour of a full customs union. The trouble is that this would require a government to do the negotiations. We see no chance of such a government emerging this side of a general election.

The complications of UK politics - not well understood on the continent - and the technical complications of Brexit, are what drives us to the conclusion that the risk of a no-deal Brexit has risen in Salzburg.

What will May do? For starters, the British government will now visibly increase preparations for a no-deal Brexit. May herself will stick to Chequers, as one of her cabinet ministers indicated this morning. She will accept a few technical compromises here and there, and let the negotiations drag out to the very end. Unless the conservatives replace her this autumn, she will confront the EU with a choice of Chequers versus no-deal. The UK sides believes, rightly in our view, that the EU is underestimating the probability of a no-deal Brexit. It will be interesting to observe how the EU‘s position will evolve when that realisation sinks in. 

Our other stories

We also have stories on how the EU achieved its unity on Brexit; on the ever-gloomy eurozone consumer; on the consequences of the Danske Bank scandal for its public business; on SPD ministers deciding to continue the grand coalition; on the pension cuts and minimum wages in Greece; and on Le Pen and her psychiatrist.

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