Bottom-Line Brexit – Part V

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.

Crunch time; will Godot show up?

There is a serious risk that the UK will lurch out of the European Union a week tomorrow, with no soft-landing transition period and monster legal and logistical headaches for every major business in Europe. That is the bottom line as EU leaders gather for a summit today in Brussels with British Prime Minister Theresa May. For that outcome to be avoided, her 27 EU peers are saying, one of two hard things must happen, and so far neither is looking anything like a safe bet:

Either: the British parliament must next week endorse the Withdrawal Agreement she struck with the EU last year. MPs have twice rejected it by huge margins and there is little sign today that situation has reversed. If they do change their minds and ratify, EU leaders would next week confirm by letter a delay in Brexit till mid-May, before the EU elections (or potentially till the end of June, before the new EU legislature convenes). The decision on timing could be taken at today’s summit. A Brexit that arrives with the Withdrawal Agreement would be soft and gentle, with a status-quo transition until at least the end of next year or as late as end-2022. During that time, details of a future free trading relationship should be worked out, including clever ways to avoid a troublesome “hard border” for Northern Ireland. A different British government could even move to stay in a customs union, or the single market.

Or: the House of Commons again rejects May’s deal, perhaps on Tuesday, and lawmakers and the government must then, almost instantly, overcome their toxic divisions and agree a longer-term strategy, involving elections and possibly a referendum, that can convince the EU at a crisis summit,  perhaps next Thursday, to extend the Brexit deadline from next Friday at midnight in Brussels (11 p.m. in London on March 29). The EU has ruled out a short extension for more votes if May fails, but instead offers a long extension that could run to the end of this year at least, and more likely for a year or even two. It would give the UK time to change tack completely. But that would mean years more uncertainty, possibly no Brexit at all, or a very different new relationship between the EU and UK. Britain would also be shoved into a limbo inside the Union, denied votes on key issues but paying its full dues as before. It would also be obliged probably to elect its own MEPs in May.

Luxembourg’s literary-minded premier Xavier Bettel likened waiting for a final decision from London after three years of Brexit discussions to the Samuel Beckett play, “Waiting for Godot.” But, as he pointed out, “Godot never came.” For Europe, if Godot, in the form of a clear response from Britain, doesn’t show up next week, then major economic disruption is on the cards for all.

Titanic to iceberg: iceberg not listening

Neither of those scenarios, May’s deal or a long delay, appeals to most British MPs. Nor, however, do most of them, in common with most of Europe, want a no-deal Brexit. Indeed, they voted heavily in favour of effectively banning a no-deal outcome. That, however, cannot halt the action of the EU treaty, which will usher Britain out by default next Friday if EU leaders do not stop the clock. As the Brussels wags have it, the Commons vote against no-deal is like the SS Titanic voting for clear passage. “The iceberg, unfortunately, isn’t listening,” the envoy of one member state told us.

Some of this brinkmanship is just that; the summit is a moment for the other 27 to rally behind Theresa May, exactly as we forecast would be the scenario, and metaphorically hang MPs by the ankles over the cliff-edge of hard Brexit in the hope that this finally overcomes their queasiness about the deal – whether those who would rather less alignment with the EU, especially over the Irish border, or those who would much prefer not to push the button on Brexit and hope to remain in the bloc.

Can to be kicked?

Talking about a crash-out next Friday increases May’s chances of winning her vote at the third time of asking; but it also raises the stakes for the EU if she loses. Many leaders have essentially ruled out any half-hearted, short extension in that case. But any long extension, dragging the process out through the EU elections, into a new Commission in the autumn and creating massive new uncertainty and distraction, is also pretty unpalatable. That’s why French President Emmanuel Macron and others have insisted that London come up with a credible plan for a new strategy before getting any such extension. But is that realistic before March 29? The Brussels tradition of kicking cans down roads could kick in next week – the Union says it is ready for a no-deal in terms of emergency regulations to keep planes flying and trucks trucking, even if many businesses will still not be ready. Total disarray in London could indeed mean that Brexit happens on Friday. But we believe the bar may still be relatively low for May to come back to Brussels and stop the clock – even if it is only by announcing her resignation and a general election.

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