EUPICO

 

“1+2+3 = TM Deal is voted down + Parliament tries to take control but is unable to find an alternative + the PM accepts No Deal as the path to delivering Brexit.”

BlondeMoney consultancy – The PM will take No Deal over No Brexit

 

“…most senior officials in Brussels now believe a no-deal exit is less costly for the EU than a lengthy transition: senior officials across the EU’s institutions and capitals are highly sceptical of Theresa May’s ability to secure a majority for the Withdrawal Agreement in the Commons – many believe this “phrase of Brexit” can only be “unblocked” by no-deal and most now have this as their central scenario.”

Latest briefing from Mujtaba Rahman – Eurasia Group twitter feed

 

“It is tough, if not impossible, to find a single fund manager who genuinely believes a no-deal Brexit will happen, which is why it is not being built into the pound’s exchange rate already. “No one in the financial world thinks ‘no deal’ is a remote possibility,” as one hedge fund manager put it.”

Financial Times – Befuddled sterling shows market aren’t all-knowing

 

Tomorrow, Friday 29th March 2019, was supposed to be the day that Britain formally left the European Union (EU). That is not now going to happen.

In early January 2016, I forecast that Britain would narrowly vote to leave the EU which shocked my early readership. It has been a wild ride since that extraordinary day when voters rebelled against their own governing class, and with our next cliff edge date looming on 12th April, where are we now?

In my 2018 post “Beware the Ides of March” I considered the prospects of a no-deal Brexit (also known as a hard Brexit) and concluded that “…my head says there will be a deal but my gut is telling me it will be a no-deal/hard Brexit”. Since then I’ve gone with my head, most recently forecasting with a 60% chance that there will be an 11th  hour deal brokered to avoid a no-deal Brexit.

Having given this subject much soul searching, I am now increasingly convinced that we are, more likely than not, heading towards a no-deal Brexit within weeks or months, most probably at Midnight on Friday 12th April 2019.

The failure of May to get her Withdrawal Agreement and political declaration through the Commons has shown how toxic the backstop issue is with many within the Conservative ranks and the DUP who prop up the minority Conservative government. On the other side, Brexit remains deeply unpopular within the Remain strongholds of the major English cities and the Celtic fringe and any Labour or nationalist MP who facilitates Brexit will be hugely unpopular with their own voters.

The key reason why I now think that, on balance, the most likely outcome is a no-deal Brexit is the interests of the ruling Conservative Party. According to a recent ComRes poll, 44% of current Tory voters consider a no-deal Brexit the best possible outcome; nearly half.

When asked if they agree with the statement that “If the UK left the EU without a deal on 29 March it would briefly cause some uncertainty but then ultimately work out OK” a stonking 71% of current Conservative voters agree with only 11% disagreeing.

Conservative voters overwhelmingly support Brexit and a clear majority want the UK to exit the EU soon, with or without a deal. Should a Conservative party go for a long extension with the humiliation of UK participating in the May European elections, it will be politically suicidal. As the pollster James Frayne notes in Conservative Home, should the Tories appear to U-turn on Brexit “…its core vote will surely completely collapse and they will be left trying to go after voters who are mostly not culturally aligned to the party – an immensely difficult task”.

This electoral reality is reflected by the fact that in the indicative votes held by the UK Parliament this week, half of Conservative MP’s voted for no-deal. As the political consultancy BlondeMoney put it in their flash analysis of the results, “With half of Theresa’s own party choosing no deal as an option last night, it’s clear that if she continues to prioritise her Party, No Deal is the path she will take.”

The possibility, which I discussed at the beginning of the year, of a last-minute, cross-party consensus that carries enough Tory MP’s (that half that didn’t vote for a no-deal Brexit) of a modified version of May’s deal that includes the option of a permanent custom union remains a realistic scenario. However, it would be the case of May taking on half her parliamentary party, the bulk of the Tory party grassroots and a plurality of the Conservative electoral base at a minimum.

Moreover, Jeremy Corbyn, the Labour Opposition Leader, would need to whip his 125 odd loyal MP’s (who follow the party line) to save May’s deal, facilitate a Tory Brexit and own the political damage with his predominately Remain electorate. Is Labour really going to save a beleaguered Tory government in the interests of avoiding a no-deal Brexit?

The word within Brussels is that Corbyn is determined to remain a political virgin when it comes to Brexit and his inner circle secretly want a no-deal Brexit as the perfect conditions to pave the way for a future Labour government. It is hard to know what precisely the political calculations of Corbyn is although we do know that he is a life-long Eurosceptic and his closest aides backed Brexit and favour a return to a 1970’s type of socialist economics.

The betting and currency markets, as noted in the quotation at the top of the blog, continue to be in a state of collective denial about the possibility of an imminent no-deal Brexit in a spooky re-run of the days before the Leave vote.

The EU appear to be increasingly accepting of a no-deal outcome as a lesser evil to the alternative of a long extension, UK involvement in the European Parliament elections and the risk that the Brexit saga will never end. It was significant that the Irish leader confirmed to President Macron that Ireland could survive a no-deal Brexit which will be a key consideration for the EU leaders.

As Mujtaba Rahman notes in his most recent briefing after speaking to senior EU officials (see quotation at the top) Brussels consider a no-deal as their central scenario. Whether rightly or wrong, the EU Commission think that the bloc can handle a no-deal Brexit and this will encourage the member-states to play hardball should the UK fail to approve the Withdrawal Agreement in the next two weeks.

Outlier risks remain a general election which is unlikely given that May has promised not to commit to one and the majority of Tory MP’s would be horrified by the prospect. Alternatively, a majority could be found for a 2nd referendum within the House of Commons, but again, it is unlikely that the Tories could ever agree given that it would be the equivalent of committing electoral suicide.

A last-minute compromise deal which have proceeded the indicative vote process within Parliament, remains a viable scenario but is diminishing as we get closer to the 12th April cliff edge (45% probabilistic chance).

To summarise, I consider, that on a balance of probabilities, the most likely outcome, given the factors discussed above, is that the UK will stumble towards an accidental no-deal Brexit (55% probabilistic chance).