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Brexit Update: To vote or not to vote?

Economic Comment

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  • To avoid a parliamentary defeat on the deal with the EU, Prime Minister (PM) May decided to cancel the ‘meaningful vote’ in the British Parliament of 11 December
  • Instead, the PM will go to Brussels on 13-14 December and try to get assurances that address MP’s concerns that the ‘Irish backstop’ ties the UK to the customs territory with the EU indefinitely
  • The EU is unlikely to want to renegotiate the withdrawal agreement, but small cosmetic changes to the political declaration on the future relationship are more likely
  • Getting the deal approved in a first voting round in the UK Parliament still looks challenging, as various factions in the UK Parliament will probably first try to push through their most preferred Brexit outcome, like a general election or a referendum. However, getting a majority for these options looks challenging too
  • Hence, we still think it is possible for the EU-UK deal to get approved before March 2019. This scenario is fraught with downside risks and that keeps the chances of a ‘hard Brexit’ almost as high
  • The decision of the ECJ that the UK can unilaterally change its mind about leaving the EU before 29 March 2019 props up the odds of a Bremain slightly and is posed to give a boost to support for the EU-UK deal amongst Brexiteers

‘Meaningful vote’ postponed

‘To vote or not to vote?’, that was the main question on 10 December in the UK. The answer turned out to be a negative one as the UK PM decided to cancel the 11 December ‘meaningful vote’ in which the British Parliament was to vote on the deal the UK has agreed with the EU . A new date for the vote has not yet been announced.

The 11 December ‘meaningful vote’ was expected to lead to a rejection of the EU-UK deal, something that became increasingly evident during the recent three days of parliamentary debate on the deal and something the PM acknowledged in her statement on exiting the EU on 10 December. According to the her most MP’s are concerned about the ‘Irish backstop’ being in place indefinitely. Instead of subjecting the deal to a parliamentary defeat the PM chose to return to Brussels during the 13-14 December EU summit to get assurances that address these concerns. Postponing the vote makes sense if PM May wants to get the deal tweaked by the EU during the EU summit, as a domestic defeat would have made it very difficult for the PM to achieve this while dealing with a crisis situation back home. Particularly as this seems to be the last opportunity to negotiate with the EU whose next summit is scheduled for 21-22 March 2019. On the other hand, some have been arguing that a parliamentary rebuke of the deal would have strengthened her case to get further concessions from the EU.

Back to the negotiation table

What the EU might concede

Various EU officials, including European Council President Tusk, have already responded that the withdrawal agreement is not up for further negotiation, though the EU is willing to provide further clarification to support the ratification process in the UK. The attempt to alter the current deal is not without risks as it can also reignite demands from other EU member states (e.g. Spain’s demands over Gibraltar). The room for alterations is limited and will probably take the form of minor tweaks or some changes of language in the political declaration on the future relationship. Such changes would aim to stress that both the EU and the UK intend to find an alternative solution to the Irish backstop, even if the negotiations on the future relationship were to collapse. British MP’s, Brexiteers in particular, are concerned about the UK being trapped in a customs territory with the EU indefinitely as a result of the backstop. While this could be the case, we note that the construction is not ideal for the EU either and has raised various concerns with member states. As the British legal advisor put it the ‘Irish Backstop’ is “by no means a comfortable resting place in law for the EU”. Hence, the EU will be just as motivated as the UK not to prolong it indefinitely.

And what the EU will not concede

However, some of the ideas ventilated during the heated debate in recent weeksare unlikely to resonate with the EU. One such idea is the option for the UK to unilaterally withdraw from the ‘Irish backstop’. The backstop is intended as a guarantee that a hard Irish border will never have to be erected, no matter what the relationship between the EU and the UK will become. Allowing the UK to withdraw unilaterally from the backstop does not meet the definition of being a guarantee, an “all-weather back-up solution” so it is unlikely to fly with the EU. Another such option is a Norway-plus solution, which a large part of the British parliament reportedly supports. First of all, it is important to note that if there is an option which qualifies for the title “Brexit in name only” then that is the suggested Norway-plus construction. Namely, it would keep the UK in the EU Single Market and the EU Customs Union without having a say on EU legislation. That would be positive for the economy, but it would cross three of the four British red-lines: no contributions to the EU, own immigration policy and own trade policy. ECJ decisions could also adjacently apply to the UK, though not its jurisdiction. Second, the EU has often indicated that EU legislation does not allow the EU to negotiate with the UK on the future post-Brexit relationship until the UK has left the EU. Hence, getting an agreement on that now looks impossible. Third, ‘Norway- plus’ cannot serve as an ‘Irish backstop’ that is valid under any circumstances because its adoption also requires the consent of third parties like the EEA countries. An alternative to actually joining the EEA could be setting up similar institutions parallel to the EU as proposed by PM May’s white paper, but the EU has firmly rejected that option. Supporters of a Norway Plus solution could actually consider supporting the current deal as their best bet on it materializing, since the transition period is identical to Norway-plus and the transition period allows for four years of negotiations that could push the future relationship in this direction.

A torrid winter

Things will get worse…

The ‘meaningful vote’ will have to be rescheduled in the coming weeks. As the UK Parliament is going into recess on 20 December and the vote needs to be preceded by a parliamentary debate, the window for scheduling the vote before Christmas is limited. January seems more likely instead, after the House of Commons returns on 7 January. Approval on a first vote still looks challenging as most factions in the UK Parliament will probably try to push through their most preferred outcome first. Labour will likely attempt to trigger elections through a motion of confidence in the cabinet, but getting the support of two thirds of Parliament to achieve that will prove difficult. If that fails, they could join forces with other factions to support a referendum, for which a simple parliamentary majority is needed. But a referendum is a tricky option as even among supporters there is no agreement on the question to be asked. In case of early elections or a referendum an extension of article 50 might also be in the cards. Following a rejection of the deal in Parliament the cabinet would have 21 days to submit an action plan to parliament. A recent amendment allows Parliament to amend this plan and influence the course of action, which is in favour of an orderly Brexit. Meanwhile, the threat of a Conservative leadership challenge also persists, though that would only cause further delays without substantially altering the perspectives.

…before they can get better…

While there are clear signs that there is a majority for an orderly Brexit in the UK Parliament, it seems less likely that the same applies to the options names above. Therefore, we still think the EU-UK deal could get approved in a second voting round after all the above options have been exhausted. But this scenario is tilted with downside risks and the chances of a ‘hard Brexit’ remain almost as high as those of an orderly Brexit, particularly as the recent deferral leaves less time for the trajectory described above to be completed. Any Brexit related decision also needs to be translated to UK legislation, and that also requires time.

…with a little help from ECJ friends

We do note that recent developments could increase the chances of the EU-UK deal being approved. Namely, the European Court of Justice decided that the UK could unilaterally decide to cancel article 50 and stay in the EU. Add that up to the recent amendment that allows parliament to amend the Cabinet’s Brexit action plan and some could see this at least a last minute option to avoid a ‘hard Brexit’. And that is likely to embolden Bremainers and at the same time frighten Brexiteers which might consequently revise their objection to PM May’s deal in Parliament. We note that the UK cannot change its mind at the very last minute either as it requires legislative changes that need to be be enforced. This option supports our call that a Bremain cannot be excluded, though the chances still remain low in our view.

Figure 1: Next steps
Figure 1: Next stepsSource: Rabobank
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Author(s)
Alexandra Dumitru
RaboResearch Global Economics & Markets Rabobank KEO
+31 30 21 60441

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