For British PM May, for the United Kingdom and for Europe it has been life in the fast lane, but it is now less and less clear where the lane is leading us.

As widely expected by markets and political commentators, Prime Minister’s May Brexit deal was defeated in parliament last Tuesday. This happened with a wide margin.

She then survived a no confidence vote and has to present her plan B to parliament on Monday.

The clock is ticking louder by the day with several key dates ahead of us:

  • 21 January: by next Monday the PM will have to present her plan B to parliament
  • 29 March: the day on which the UK is supposed to leave the EU. ‘Supposed’ because it could be postponed provided the EU27 unanimously agree.
  • 18 April: last session of the European parliament. This date is relevant considering that the European Parliament needs to approve in a plenary session the Brexit deal
  • 23-26 May: European elections, but not in the UK
  • 2 July: inaugural session of the new European parliament, without British members.

What can be expected after what is called the ‘meaningful vote’?

Theresa May has to submit a plan B by next Monday, that is to explain to parliament how to proceed. The challenge is huge. Having lost with a wide margin would indicate that the Brexit deal needs more profound changes than some simple tweaking in order to gain approval by a majority of MPs.

On the other hand, Brussels has made it clear on many occasions that the deal is not up for negotiation. As indicated earlier this week by the German foreign minister, new talks could be held but significant changes to the treaty have been ruled out.

Yet it is also clear that it is in neither’s interest to end up with a no-deal hard Brexit, because of the economic disruption it would trigger, against a background of already slowing growth in Europe and globally, but also for political reasons, that is the border between Ireland and Northern Ireland.

Very much will also depend on the degree to which the UK parliament will want to seize the initiative, e. g. by using the process of indicative votes in order to get a feel about what eventually could get majority backing. In such a scenario there would be talk about a range of options: new elections, a second referendum, a permanent customs union, etc.

 

Although the initial reaction of markets was all in all quite relaxed, it is clear that we’re in a situation of ‘more uncertainty for longer’.

‘More uncertainty’ because of the range of possible outcomes. ‘For longer’ because the entire process risks to drag on, implying, quite likely, a postponement of the Brexit date.

This should obviously weigh on confidence and force companies to adopt a wait and see attitude, e. g. in terms of investments. Accelerated preparation for a no-deal Brexit will also come with a cost including an opportunity cost in terms of time and money.

The Bank of England report of November last year on “EU withdrawal scenarios and monetary and financial stability” has been very clear on the consequences of a no-deal no-transition outcome: by 2023 GDP would be between 4¾% and 7¾% lower than in the baseline defined in November 2018.

The IMF had estimated that higher trade barriers between the U.K. and the rest of the EU countries could in case of a hard Brexit have a negative impact on EU27 output of 1.5%.

Both the UK and the EU know what they should try to avoid.

It is not a coincidence that on Wednesday morning, the day after May’s defeat in the Brexit deal, the opening screen of Bloomberg was quoting Nelson Mandela:

“it always seems impossible until it’s done”.

Let’s hope this applies to avoiding a no-deal Brexit as well.

Photo play William De Vijldr