Bottom-Line Brexit – part II

What business needs to know about how Brussels sees the process of Britain leaving the European Union, as related to BCW by senior EU sources.

March onward

As our London colleagues write this week on Prime Minister Theresa May kicking the Brexit can down the road, the talk is all about delay and extension now. On March 29, 2017, Sir Tim Barrow, the UK ambassador to Brussels, handed the EU’s Donald Tusk a letter of notification from May that Britain was leaving under Article 50. We all scratched notes in our diaries that two years hence it would be over, as the EU treaty insists. It would be a Friday, 11 pm in Greenwich, midnight in Brussels, the end of a working week, a month and quarter. The intervening weekend meant history would pass over the fact that Britain would start its new future on April Fools Day. Scratch out those diary notes again. Take a Spring break. Deal or no deal this month, there is almost no chance that this will be all over on March 29, 2019.

 

Bridging the gap

EU lawyers and officials are hammering out text with British counterparts to persuade Geoffrey Cox, May’s attorney general, to change his legal advice on the Irish ‘backstop’. He spooked MPs by ruling that the UK might be trapped forever under EU rules due to the effective customs union which May asked for and got from the EU in case a better way is not found to keep goods flowing over the Irish border.  The last thing the EU wants is those backstop conditions to go on for more than a very few years. It’s too sweet a deal for the UK but offered as a favour to Ireland. But MPs aren’t listening. Key to unlocking the deal will be “bridging” the Withdrawal Agreement, the treaty containing the backstop, to the Political Declaration, the accompanying text that sketches out future trade terms. While ruling out a time-limit or UK opt-out on the backstop, hopes have risen in Brussels that clever drafting can let Cox point to “best efforts” commitments to come up with “alternative arrangements” – such as high-tech cargo tracking – and advise the government the backstop is not forever. That bridging text seems to Brussels to be raising the chance of MPs falling in behind May’s deal.

If the UK Parliament finally approves the Withdrawal Agreement, the worst-case scenario from a business point of view will have been avoided, and the resulting transitional period will give a much-needed breathing space and a short period of relative stability. However, the longer-term outlook for companies and markets remains far from clear.  The Withdrawal Agreement was supposed to be the easy part. The next stage – negotiating a new economic relationship on the basis of the first free trade agreement in history where one party wants to separate and diverge from the other – is likely to be even harder.

 

Patience thin, time short

If MPs approve May’s deal, there is so little time left to pass all the necessary legislation that some delay seems inevitable, possibly wrapped in to summit deal on March 21-22 by which EU leaders confirm the bridging text in return for May’s assurance that she has a stable parliamentary majority to finish the job. If they don’t? Well, leaders will probably give Britain more time anyway. No one wants to be the one who pulls the trigger on an economic calamity. But don’t expect more than a few weeks.

The EU does not want its May 26 European Parliament elections messed up – even if MEPs’ legal advice is that the new legislature that convenes on July 2 cannot be rendered illegitimate simply by one member state not holding a vote. For any longer extension, either asked for in March or in a second bite in May or June, London would have to come up with a very compelling reason, such as holding a second referendum. But it’s no longer clear many want the British, sour and divided as they are over Europe, to stay – even if that means a ‘no deal’ crashing out.

“After the referendum, we all desperately wanted Brexit to go away,” an EU mandarin told us. “Now, frankly, many of us will be saying ‘go, for God’s sake, just go’.” It won’t be this month, but Brexit seems almost certain to happen this year.

 

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