The odds of a “no deal” Brexit are rising

Anti Brexit campaigners fly EU flags outside the British Houses of Parliament in London, Britain, 18 July 2018. EPA-EFE/ANDY RAIN

The odds of a “no deal” Brexit are rising


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As Theresa May failed to rally her party and government behind a single Brexit roadmap, market and political analysts see the odds of a disorderly (“no deal”) Brexit rising.

In an article with the Daily Telegraph published on Monday, the former Foreign Secretary Boris Johnson argues that May’s so-called Chequers plan is a “disaster for Britain.” This is the tip of the iceberg; apparently, there is a  general backbenchers’ revolt with support from across the Conservative party, including the cabinet.

Later on Monday Mrs May’s official spokesman rejected Johnson’s criticism, suggesting he offered “no new ideas” in the apparent negotiating deadlock.

However, neither markets nor the rest of Europe are remotely interested in Conservative party divisions; what’s more pertinent to the negotiation agenda is time and money. Both, are in increasingly shorter supply.

The political clock is ticking

Brexit Secretary Dominic Raab suggests the UK’s future relationship with the EU is becoming “clearer and clearer” by the day but admits a political framework agreement may not be ready for October.

But Raab refuses to specify the odds of “no deal,” as he is not a gambling man. What Barnier made clear is his inclination to force the UK to pick an “off-the-shelf” deal,{Norway} because he is as unconvinced from Theresa May’s deal as the most ardent Eurosceptic.

Meanwhile, the political clock is ticking.

The European Parliament (EP) expects a vote on the framework agreement to take place no sooner than two weeks before March 29, Reuters reports.

The head of the EP constitutional affairs committee Danuta Hubner says the objective is now the plenary session of March 11-14. The framework agreement should not be delayed beyond November as lawmakers will need time to absorb and debate the agreement across the 27-member states.

Moreover, it is clear that EP will not debate a framework agreement that has not been ratified by the UK Parliament. That is a big issue, since the UK parliament is deeply divided within and across party lines.

Markets fear disorder within disorder

A Reuters poll confirms that markets believe the chances of a “no-deal” Brexit are rising.

Published on Monday, the economists’ poll suggests that 25% see the likelihood of a disorderly Brexit in March 2019.

The analysts poll comes as it becomes clear that Theresa May is unable to reign over her party and her parliamentary group to stand behind her policy proposal. At the same time, Brussels is less than convinced that access to the Single Market for goods can be extended without European Court of Justice jurisdiction.

These projections come in a deteriorating economic context, with multi-front trade war undermining multilateralism. Post-Brexit growth projections have been downwardly revised to 1,4 and 1,6 per cent for 2019-2020. Business confidence is dropping, the Balk of England is bracing for a second interest rate increase, and inflation is above the 2% target as the pound’s devaluation and soaring energy prices are cutting into purchasing power.

With these negative prospects in plain sight, a deal cannot be taken for granted. It is just as likely the two parties could be drawn into a blame game, managing the “day after” Brexit. The pain will be mutual, as the UK has the combined GDP of 19 EU member states.

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