Global Daily – May’s last throw of the dice?

by: Bill Diviney , Aline Schuiling , Nick Kounis , Fouad Mehadi

UK Politics: Second referendum offer raises chances of deal being passed – Prime Minister May made a last-ditch attempt to sell her Brexit deal to MPs today, outlining new bill that combines elements where the government was prepared to compromise with the opposition Labour Party until recent talks broke down, with the offer of a vote on a second referendum. The condition for such a referendum is that the deal passes the first stage of voting, and it is as yet unclear whether the vote will be a ‘free’ one (i.e. without party leaders ‘whipping’ the vote in a particular direction; a free vote would make it more likely a referendum is approved). Alongside the referendum pledge, the new bill contains pledges on maintaining worker and environmental rights at a minimum in line with EU rules, and it also offers the option of a permanent customs union – a key Labour demand – by giving parliament a say in the government’s negotiating goals for the post-withdrawal trade deal.

It is unclear just how many MPs will be won over by these new elements to the bill, and some of the right flank of the Conservative Party who voted in favour last time are now either unlikely to do so this time (eg. Boris Johnson) or have already confirmed that they won’t (David Davis, Jacob Rees-Mogg). PM May is clearly banking on the new elements of the bill to win over enough Labour and other opposition MPs to offset any losses on the Conservative side. In the last vote, 30 MPs would have needed to switch votes to get the deal passed. On balance, we think the chances are a little higher the deal passes, but the coming days will be crucial in determining whether the parliamentary arithmetic moves in May’s favour. In light of the considerable political flux in the UK, we are currently reviewing our Brexit scenarios. (Bill Diviney)

Euro Politics: Belgium elections preview – Belgium will go to the polls on Sunday 26 May, the same day of the elections for the European parliament. Polls for the Belgium federal elections show that the parties that were in the previous coalition government have each lost support, while far-right, far-left and green parties have gained, so the political landscape has become even more fragmented than it already was. Similar to the results of the previous two elections, the Flemish-nationalist conservative N-VA is expected to become the biggest individual party, while the Walloon social-democrat PS will become second. Formation of a new government could (again) be complicated and might take considerable time as a majority coalition might need as much as five or six individual parties. We think it is most likely that N-VA will fail to form a government and that ultimately a Purple-Green coalition (of centre-left, centre-right and Green parties) will take office. Under all likely coalitions, Belgium’s public finances would likely deteriorate modestly compared to the baseline, although the calculations by Belgium’s Federaal Planbureau of the impact of the party programmes on economic growth and government finances have to be taken with a pinch of salt. During the coalition talks, the discussion about a break-up of Belgium could move to the headlines again, but the chances of a break-up are low. Belgium’s government bonds are likely to underperform, mainly due to relatively high sensitivity to Italian government bond spreads, which we expect to widen further. (Aline Schuiling, Nick Kounis, Fouad Mehadi)