Global Daily – Trying to make sense of Brexit chaos

by: Bill Diviney

UK Politics: Long Brexit delay and May resignation likely – Events surrounding Brexit remain remarkably fluid, given the proximity of the UK’s legal exit date (next week, on Friday 29 March). Yesterday, European Council President Tusk responded to PM May’s three-month delay request by stating that the EU would only support it if parliament approves her deal. Meanwhile, Mrs May rowed back on an earlier pledge to seek a longer delay of 1-2 years if parliament rejected her deal again, by stating that “as Prime Minister I am not prepared to delay Brexit any further than 30 June.” This has been widely interpreted to mean that she would resign if forced to seek a longer delay.

And yet, a longer delay looks to be the most likely way forward. PM May will likely fail a third time to get her deal through parliament next week. To get around the Speaker’s ruling that she cannot present the same motion to parliament again, she could seek some changes to the non-binding Political Declaration, which would also help bring opposition Labour MPs on board. However, it is unlikely she will persuade the 75+ MPs needed to get her deal through, especially given the right wing of her party now look even less likely to vote in favour (as they now think – wrongly in our view – that their preferred no-deal Brexit has become more likely).

We therefore think PM May will make a last minute request to the EU for a much longer delay, stating that she would resign in due course. Her argument to the EU would be that a new leader – and subsequently, likely new elections – would mean a new government and a different approach to the Brexit process. The EU would probably deem this as sufficient cause for a long extension. While such a scenario would mean avoiding a near-term disorderly Brexit, it would nonetheless mean more medium-term uncertainty, with the UK led by (potentially) a more pro- or more anti-Brexit government. Further, leading up to such a long delay request, markets would experience significant volatility, as the heightened risk of an ‘accidental’ no-deal Brexit rises.

Can a no deal Brexit still happen? Yes, but it remains a low probability scenario, in our view – for instance, if the EU does not agree to a long delay in time (unlikely), or if parliament fails to approve a long extension (also unlikely). Following EU agreement, it should be relatively straightforward (and quick) to amend the existing EU Withdrawal Act to replace the current exit date of 29 March. No deal risk remains low given the political will to avoid it, but given the lack of political will for an alternative, a legal ‘accident’ can still nonetheless happen. (Bill Diviney)