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.

No deal no way?

After the “flextension” to Oct. 31, granted by the EU27 in the early hours of Thursday, the risk of a no-deal, transitionless Brexit has been pushed back from April 12. The UK political situation remains extremely unclear and so the risk of no deal remains, possibly as early as June 1. However, if the UK holds an election on May 23, as is now scheduled in the UK electoral calendar, no deal will not be possible until Oct. 31. As significant, we believe, is that the behaviour of member states at the summit indicates a significant reduction in the risk that the EU will simply accept a no-deal outcome.

The emergency summit this week was dominated by a robust argument about the best strategy to pressure the British parliament into ending the uncertainty that is running up costs to European business and distracting the European Union’s political institutions from other priorities. President Emmanuel Macron of France was shown to be isolated in what to most others appeared a high-risk tactic of threatening to pull the plug on the process by June. At least 19 of the 27 states, including Germany, supported a delay to the end of this year or to Spring 2020. Macron’s opposition resulted in the compromise deadline of October. Given the opposing consensus, it is also questionable how far France was genuinely prepared to run the risk of an abrupt dismissal of the UK from the Union.

The conclusion of many in the summit room has been that the EU has clearly very little appetite for no-deal disruption, despite impatience with the deadlock in the UK, and is prepared to give the process very much longer to play out.

“The inclination to push the UK into no deal is not very prevalent in the European Council,” one senior EU official told us. “It may happen by accident. It may happen by choice of the UK. But the choice of a no deal is not a very popular one.”

Patience has its limits. But the summit has revealed that the European Union’s pain threshold for Brexit uncertainty is higher – and its pain threshold for no-deal disruption correspondingly lower – than it has seemed at times. The risk is largely London’s to take.

Quick deal now or flextension ad infinitum

Plan A for the EU27 is still for Britain to ratify the Withdrawal Agreement. The summit arguments focused on how best to create pressure on May’s domestic opponents. But it is now clearer to us that Plan B is not a rapid no-deal Brexit but to go on giving Britain more time. Despite some public comment from leaders to the contrary, further extensions now seem the preference, if required to avoid no-deal – although the conditionality for the UK to show it needs more time will be higher in future – for example a need to hold new parliamentary elections, or a second referendum on EU membership.

May made clear that she faces opposition to her deal both from those who very much want to avoid no-deal, including some who want to remain in the Union, and from those who actively prefer a no-deal exit to her negotiated withdrawal, which foresees a close regulatory relationship with the EU in the future. The EU case for only a short extension targeted the former, that for a longer delay the latter – in the hope that hard-core Brexiteers would back May rather risk their cherished project running entirely into the sand and seeing Brexit cancelled. It remains to be seen whether the EU’s October compromise can have the desired effect. The Easter break in Westminster will give time for reflection.

May is trying to win over her Labour opponents in a bid for cross-party consensus that, she told the summit, has not been seen in Westminster’s ferociously tribal system since the Second World War – a reference aimed at convincing continentals accustomed to coalition and compromise that she really is doing all she can, despite the weak position she showed by having to promise her Conservatives she will step down once the process is over. The EU is sceptical of her chances but wishes her well and is raring to pull out of the Commission’s drawers a plan for a post-Brexit customs union that might be the price of Labour support.

It would take several weeks after any parliamentary vote in support of the agreement to complete the withdrawal. Even a rapid breakthrough after Easter on April 21 will not spare May from the EU demand that she hold the EU election on May 23 to avoid a no-deal exit on June 1. If the Withdrawal Agreement is ratified, the UK would then exit the Union on the first of the following month. This would usher in a transition period during which nothing much changes for business until at least the end of 2020, and possibly up to two years longer depending on a joint EU-UK decision to be taken next year. Dates for the end of transition are not affected by delays to its start. This period is to be used to complete a free trade agreement.

The EU is aware of the risk that the long extension may mean yet more prevarication in London. But EU senior figures believe an EU election in Britain may offer clues on whether the country can make a U-turn. So while some in Brussels assure us that “Brexit has gone away until October”, the review which leaders will make at the next regular Council on June 20-21 could see some push to discuss an even longer extension to the Article 50 withdrawal process – if the EU election in the UK has generated calls for a U-turn on departure. If that happens, “we will extend again in June”, another senior official in Brussels told us.

The summit also saw the Council agree that Britain will have limited scope to disrupt the Union from inside in the hands of a Eurosceptic successor to May – a recognition that the flextension mechanism means that the UK cannot walk out without a deal until the very end. It can only leave before the end of the extension if it ratifies the Withdrawal Agreement. And that, the EU is determined, will not be up for renegotiation.

British politics remains the key determining factor for whether, when and how Brexit happens. But this week has shown that the European Union is very unwilling to collude in a chaotic hard Brexit and quite willing to keep extending – if British minds start changing.

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