Bottom-Line Brexit Part VIII

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.

Plus ça change…

Talk of Britain being dumped out of the European Union next Friday seems overblown. The risk of a no-deal Brexit is still very real and carries with it a sudden reintroduction of customs controls and questions over mutual regulatory recognition. But there is still little appetite among EU leaders – who will meet British Prime Minister Theresa May in Brussels on Wednesday – to pull the trigger on hard Brexit. Not just yet.

In the past week, May has lost a third parliamentary vote on ratification of the withdrawal agreement she signed with the EU more than four months ago and she has turned to her Labour opponents in an effort to find a majority. That means potentially opening up to Labour demands to seek a permanent customs union with the EU, or even putting any final to a referendum, which could see Brexit cancelled altogether. Brussels is still waiting for clarity on the three big questions of Brexit – how, when and, ultimately, whether it will happen.

Yet while London still seems to be going round in contradictory circles, less than a week before the EU summit on April 10 that could narrow Britain’s options dramatically, there seems a risk that British politicians are still not getting the European position; this is that EU governments intend to take back control from the UK about ending the uncertainty. The EU risks being damaged in the longer-term if Britain hangs around after next month’s European Parliament elections. So, while a no-deal crunch is far from ideal, it will be a preferred option if the British paralysis goes on.

Senior EU sources see limited scenarios for next week: if nothing has changed in the UK, there could be a summit decision not to extend the exit deadline under Article 50 of the EU treaty beyond next Friday, April 12, and so trigger hard Brexit; if May can show some shift in UK politics, in agreement with Labour, that gives real chance of finally accepting the EU’s orderly withdrawal terms, then there will be a short extension of a few weeks, possibly to the eve of EU voting on May 22; or if, in the course of just a few days, there is some kind of dramatic shift in Britain that shows a majority in favour of a very different approach, EU leaders could offer a long extension of a year – but only on condition the UK hold its own elections on May 23 to the European Parliament.

To many in Brussels, that middle option, of a final short extension, seems on balance the likeliest: that would give everyone a chance for an orderly but rapid exit, and also a bit more time to prepare for disorder.

Flexible EU

Friday’s suggestion from summit chair Donald Tusk of a year-long ”flextension” will tempt some in London. Chancellor Philip Hammond spoke of something similar a day earlier. It would give the UK until next spring to sort itself out, while holding out the possibility that May could still deliver on her promise of Brexit before the summer if she can muster support for a deal. It would, however, demand May call an EU election in the UK by next Friday. The benefit for EU leaders is it rules out repeated dramatic deadlines and may calm spirits and limit distraction to the Union.

Tusk has limited clout with national leaders but rarely goes public with proposals before having some idea that they can find support at the summit. However, leaving the Brexit timetable in uncertain British hands is not popular on the continent, so this proposal may struggle.

The EU is not as soft as it looks

Senior British politicians, at least in public, appear to be underestimating Europeans’ attachment to two principles: first, that any extension, especially a long one, must come with a credible plan not just more promises of good intentions; and second, that holding EU legislative elections to return 73 British MEPs is somewhat optional, even if the UK might not leave before the new chamber convenes on July 2.

While German Chancellor Angela Merkel is willing to bend over backwards to avoid pointless economic pain, even Berlin has its limits, and the fear of a damaging unravelling of rules in the EU single market at a time when trade tensions with the United States and China are battering German industry is driving impatience. Some other powerful figures, notably French President Emmanuel Macron, will demand May show that any new strategy she advances for reaching a withdrawal deal has passed some kind of test in parliament by Wednesday – not necessarily a fourth “meaningful vote” but at least some clear indication that she has a parliamentary majority. If not, while a crash-out next Friday seems improbable, leaders may set a very tight deadline for Britain to sign up or get out.

Each member state has a veto on any extension to Brexit. None shows signs of breaking ranks. But France is leading the camp of the impatient and Merkel may have her work cut out to pull Macron and others back from the brink of a no-deal Brexit in April if May shows up empty-handed. Unlike with Greece, when Merkel was able to outrank her own finance minister to avoid the EU dumping Athens out of the euro zone in 2015, in the case of Brexit, she will need all her powers of cautious persuasion if she wants to help May gain a bit more time to rally a consensus.

Macron aides refuse to rule out a French veto on a Brexit extension: “We are ready to do a lot to support a new British solution, but we won’t do it at the expense of the European project,” one said. “This isn’t about trying to create chaos, but between an immediate difficulty and a serious long-term problem, you have to weigh things up.”

Some leaders, including Dutch premier Mark Rutte, have said they would be willing to delay Brexit until June 30, after the election but before the new parliament sits. But this is not a popular view with Brussels lawyers or with many governments. They see any delay beyond May 22 as a recipe for mishaps that would hurt the EU’s lawmaking powers if Britain fails to hold an EU election. Yet Britons voting for MEPs also seems absurd to many in Europe.

Britain’s leadership seems in too much disarray to exploit differences among EU states. And as such, those differences are largely restricted to emphasis rather than fundamentals. So there is much to be said for simply taking EU leaders at their word when they say, first, that they will not change the withdrawal treaty and its “backstop” terms for post-Brexit trade across the Irish border and, second, that Britain will be out, deal or no deal, within seven weeks – unless there is some seismic shift in London before Wednesday. If Britain ratifies the treaty, little will change for business for at least a year and a half of transition. If it doesn’t, business better be prepared.

Read our related post

Bottom-Line Brexit Part VII

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