Brexit update: the day of reckoning
- On 6 July PM May and her cabinet agreed on a blueprint for the future EU-UK economic relationship
- The plan intends to de facto keep the UK in the EU Customs Union and Single Market for goods, though in an adjusted form
- The Chequers Statement is the first time that Theresa May tried to provide clarity on the envisaged EU-UK economic relationship post-Brexit, instead of a fudge to avoid the confrontation with the ‘Brexiteers’ in her cabinet and party
- The shift of the UK government towards a softer Brexit triggered the resignation of pro-Brexit ministers David Davis and Boris Johnson
- These resignations could mobilise pro-Brexit Conservatives against PM May and lead to a leadership challenge; such a turn of events could delay Brexit negotiations and lead to a disorderly Brexit
- But Theresa May is expected to survive this crisis and that should strengthen her ‘soft Brexit’ mandate
- Nevertheless, for a ‘soft Brexit’ to materialize, she still has to overcome several milestones in the coming months
- Thus, a ‘hard Brexit’ still remains a possible outcome of Brexit negotiations, though we maintain our base case of a comprehensive Free Trade Agreement (FTA)
Chequers gathering provides more clarity
On 6 July the UK Prime Minister (PM) agreed with her cabinet on a blueprint for the future EU-UK economic relationship, after days of discussions at her Chequers residence. The blueprint was in fact an extension of PM May’s previously published Customs Arrangement and it aims at keeping the UK de facto in the EU Customs Union and the Single Market for goods, though in an adjusted form (for example no direct ECJ jurisdiction but accommodating the role of the ECJ through a joint reference procedure and a joint Committee). This set up was not a surprise, as it had been ventilated by many analysts in recent weeks. However, it was the first time that the government endorsed this construction and thereby provided more clarity on the envisaged future relationship instead of the usual fudge that avoided confrontation with Tory ‘Brexiteers’.
Day of reckoning has come
Over the past year PM May has constantly chosen to procrastinate and to fudge answers in order to avoid confrontation with the pro-Brexit members within her cabinet and her party, fearing they could mobilise to remove her from her function. Exceptions to this approach were the political agreements on the withdrawal terms in December 2017 and on the transition period in March 2018. Both passed without triggering a crisis, as pro-Brexit Tories were willing to compromise on past and temporary issues, as long as a clean Brexit would take place. It was therefore expected that there was less room for compromising on the future EU-UK relationship. The shift of the UK government towards a softer Brexit was likely to trigger a heavier reaction from ‘Brexiteers’. It was only a matter of time and that time has come.
May she stay?
The resignations of ministers David Davis and Boris Johnson are likely to mobilise pro-Brexit Tory hardliners against PM May. Conservative ‘Brexiteers’ could trigger a vote of confidence in PM May, as they only need 48 Conservative members of parliament (MP) to call for such a vote (there are about 60 ‘hardliners’ in parliament). However, 159 Tory MP’s would have to vote against PM May in order to remove her from her function. This seems difficult to achieve, particularly as there are two factors in May’s favour for now. First, there is no real viable alternative to May and pro-EU Tories fear that she will be replaced by a pro-Brexit hardliner. Second, party rules allow Conservatives only one vote of confidence every twelve months, so Tory ‘Brexiteers’ are likely to wait for the right moment to strike as they only have one bullet. It is therefore expected that she will remain in her function for now. The smooth meeting with the 1922 Committee – the parliamentary group of the Conservative Party – yesterday bodes well in that sense.
If May stays
If PM May indeed weathers this political storm well, her mandate for pursuing a softer Brexit will likely be strengthened. However, there are still many milestones to be passed. First, it remains to be seen whether the EU will find the proposal of the UK government acceptable. The EU council has often stated that the four freedoms of the ‘Single Market’ are indivisible and the current proposal of the UK breaches this indivisibility. Further UK concessions might be necessary. The EU is expected to react on the UK’s proposal somewhere late July. Second, if a deal with the EU is agreed, the government still needs to get the deal through parliament. PM May has reportedly already started reaching out to opposition Labour MP’s for their support. However, the vote on the deal is also a moment the ‘Brexiteers’ could use to mobilise and oust PM May.
If May goes
A removal of the PM by her party would be followed by a leadership contest within the Conservative party. Such a process usually takes three months, but it is estimated it could be reduced to one month under such dire circumstances. In 2016 David Cameron was followed by Theresa May within three weeks after his resignation. Such an outcome also increases the chances of early elections, though these require even broader support in the House of Commons. According to the Fixed-term Parliaments Act of 2011, early elections can be triggered if a two- thirds majority of MP’s either vote for early elections or defeat the government in two consecutive votes of confidence within 14 days. The eventual removal of PM May is likely to delay negotiations with the EU and it is questionable whether that would leave sufficient time for reaching a deal between the EU and the UK before March 2019. The UK could ask for an extension of Article 50, but unanimous approval by the EU Member States can’t be taken for granted.
For now we maintain our base case that the EU and the UK will at the last moment agree on a comprehensive Free Trade Agreement which is to commence after a transition period ending in December 2020. We might reconsider this in the coming weeks depending on how UK domestic politics and negotiations with the EU evolve. As we have highlighted on many occasions, a ‘hard Brexit’ also remains a possible outcome and recent events show why this threat persists.