Bottom-Line Brexit Part IV

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.        

Next week, we’ll know … something

Whichever way the House of Commons leaps tonight in the latest of a series of complex votes, we believe next week can provide a moment of truth – on Brexit hard or soft, now, later or never. Prime Minister Theresa May could spook hard-core Brexiteers into backing, at the third time of asking, the deal she made with the EU in November, even though many of them see it as leaving the UK too closely tied to Brussels’ economic and trade regulations. If she does – and rather few in Brussels think she will – then Britain will shortly leave the EU in formal terms but enter a transition period that could last from two to four years during which little will change for business. It is highly improbable it will leave on schedule on March 29 but more likely either in mid-May, before the May 23-26 EU parliamentary election, or around June 30, before the new European Parliament convenes on July 2. Key timing decisions on extension will, however May fares next week, be taken by EU leaders at their quarterly summit in Brussels next Thursday and Friday.

 Give ‘em enough rope. Or none.

If May succeeds next week in getting her deal through “MV3” (the third ‘meaningful vote’), then the brief technical extension will be uncontroversial, just enough to pass supplementary UK legislation. The end of the status-quo transition period, when business faces another potential ‘cliff-edge’ jolt into a new trading relationship, will be set at Dec. 31, 2020. It can be extended – by a one-off, joint EU-UK decision to be made before July next year – until as late as the end of 2022.

But the summit will have more arguing to do in the more likely event that the British parliament fails to rally a majority behind any coherent Brexit choice (voting to leave without any deal, as it did this week, doesn’t really count as a choice – as one EU official put it, this was like the Titanic voting that the iceberg should move). It is not at the time of writing clear what May would ask for – she has indicated that she would rather seek a long extension, but this may be a tactical position intended to spook the Brexiteers into backing her. She might change position after a defeat.

Technically, May will have to initiate any discussion of delaying Brexit. But in the unlikely event that she decides Britain should leave as planned on March 29 with no deal, as some in her party want, some other EU leaders may urge her to hold off. The summit chair, European Council President Donald Tusk, this week urged the other leaders to keep open the possibility of delaying Brexit by a year or two. But some key figures are warming to the idea of effectively forcing the UK out now.

 Summit divide

Europe is in two minds. Many leaders themselves are in two minds. They so want Brexit to be over, to stop it being a distraction from major issues like facing up as a united bloc to the challenges posed by Chinese and U.S. trade policies (the key summit agenda item, Brexit notwithstanding).  But they would also very much like to avoid a chaotic, no-deal Brexit. They would love to see Britain stay. But also worry that Britain is too toxically divided to be good for the EU. Which way will they jump?

Tusk, former premier of non-euro zone Poland and a long-time fan of a second British referendum, is pushing the line that a short extension will only briefly delay a no-deal crash. He wants Britain to have at least a year, maybe two (the Council must set a firm end-date) to figure out what it really wants. But it will have to hold the EU election in May if it is to stay beyond the next three months. German Chancellor Angela Merkel is perhaps the most likely to back anything that averts a no-deal crash. French President Emmanuel Macron is sounding more hawkish, seeming to side for now with those who want Britain out, willy nilly, before Europeans vote in May.

The European Commission itself seems somewhat uncertain. Brexit negotiator Michel Barnier seems keen on a quick end to his job – he remains a dark horse in the race to succeed Commission President Jean-Claude Juncker in the autumn. However, Juncker’s right-hand man Martin Selmayr has appeared open to a longer extension.

Adding spice to those arguments is the lopsided effect on the parties in the EU parliament that would result from Britons voting. It is no coincidence that the loudest voices now against a long extension include the centre-right EPP. The EPP has no UK seats (May’s Conservatives sit to its right) but its centre-left rivals would welcome British Labour members. A British EU election would also likely return the noisily Eurosceptic UKIP and Nigel Farage to the chamber in Strasbourg. Is Brexit nearly over, or only just getting started? We’ll have a much better idea in a week.

 

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