High noon in Westminster

ABBL Published 15.03.2019

What a week! In Westminster. Brexit. Again.

Theresa May, the United Kingdom’s Prime Minister, on Monday put the (unchanged) withdrawal agreement she had negotiated with the EU for a second vote… and lost. On Tuesday the House of Commons not only voted against leaving without a deal but took off the option permanently.

In the meantime the clock nevertheless continues ticking on relentlessly counting down to 29 March midnight (respectively 23:00 on the British isles). Indeed a simple expression of a wish does not stop or delay the process. The date of departure is set in EU and UK law and a change of that needs to be enacted.

Two options were for that on the table

For one the UK could just revoke unilaterally the article 50 letter of March 2017 that started the countdown. The EU Court of Justice in Luxembourg confirmed this possibility earlier this year. Such a move would nevertheless have been quite unexpected as completely out of character with Mrs May whose mission in live seems to have become to deliver Brexit come what may. The House of Commons would also have been extremely unlikely to do so without another expression of the will of the people.

The much more likely alternative was to request an extension of the article 50 period as provided for in the Treaty. This is what happened yesterday (Thursday night) although the House majority could only agree on an extension until 30 June in order to avoid the UK having to participate in European elections. Indeed the newly elected MEPs would start their mandate on 1 July.

The crux is nevertheless that Mrs May needs to convince all members of the European Council to do so. Michel Barnier – chief negotiator but not a member of the European Council – has already poured cold water on such a suggestion by asking what would be the use of such an extension. There is in his eyes nothing more to negotiate.

Other EU leaders like President Emmanuel Macron of France or Prime Minister Rutte of the Netherlands want to hear perfectly good reasons for granting an extension i.e. a credible UK game plan to save an orderly exit.

For the moment the UK Prime Minister seems to have only one game plan. Vote again on the deal that the House of Commons has already rejected twice. This is expected to happen sometime next week before the Thursday European Council. This time rather than aiming at the more moderate MPs in the House pointing to the disaster of a no-deal crash-out, she is warning the radical Brexiteers of the European Research Group that an extension of the article 50 period might end up in no Brexit at all. That the nearly one hundred strong ERG will vote in one bloc and that that will tilt the balance in favor of the adoption of the deal she negotiated with the EU is far from guaranteed.

At the meeting of the European Council in a week’s time Mrs May will either present the adoption of her deal and request a very short technical extension to have the procedures duly concluded or she will have to request a much longer extension in order for the UK to find out what it wants. In the end, despite all the rhetoric, EU leaders are nevertheless likely to grant the extension. Indeed who would like to so clearly shoulder the responsibility of an disorderly Brexit?

Should the deal be voted down again and a long extension granted to think things over from scratch, various options would again be on the table.

One would be to for the UK to revise its red lines and aim at a completely different economic relationship with the EU in the lines of an EEA membership or a customs union. Both would be going against Theresa May’s red lines but as others have already noted earlier this week, she has fundamentally lost the control over Brexit to the Parliament (although the latter by vote refused to take it as well yesterday). Other options are new elections or a new referendum on EU membership. The House of Commons yesterday voted these options down – for the moment. Both would mean an admission of complete failure. But they could be well back on the table if things become more desperate.

The conclusion for financial institutions is that two weeks from the scheduled departure of the UK, chaos seems still to reign the process. A hard no-deal Brexit cannot be completely ruled out if things unravel utterly. Banks still need to ready themselves for such an outcome. The chance of a deal next week is slim but not impossible either. All depends on the most hardcore Brexiteers to give May her majority. Continued uncertainty is nevertheless more unlikely than ever before in the scenario of a (possibly long) extension.

Whatever the final outcome may be, it has already cost billions of euros to the economy at large, innumerable working hours and put lasting damage to the European Union and the Internal Market. An experience few are eager to repeat.

By Antoine Kremer, ABBL & ALFI Head of European Affairs

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