Brexit update: entering overtime
- The 18-19 October EU summit, the original deadline of the EU for reaching a Brexit deal with the UK has been missed
- Moreover, the UK brought the talks to a stand-still on 14 October
- The EU will not convene in November to discuss Brexit due to lack of progress on the Irish border conundrum
- A deal between the EU and the UK now seems likely at the 13-14 December EU summit
- Domestic politics have flared up in tensions again and the cumbersome dynamics will make it challenging for Prime Minister (PM) May to get an eventual deal through the UK Parliament
- We still regard a last minute deal as the most likely outcome, but due to the recent turn of events we now estimate the chances of a ‘hard Brexit’ as almost as high as the base case
Important milestone missed
The 18-19 October EU summit has long been one of the most important milestones in the Brexit negotiations between the UK and the EU as it was the latter’s deadline for reaching a deal on the withdrawal agreement. After it became clear the deadline would be missed this summer, the EU shifted the focus of the summit to sufficient progress on the Irish border and made an additional EU summit in November contingent on such progress. Talks between the UK and the EU intensified in the two weeks before the October summit and PM May later reported that there is an accord on 95% of the withdrawal agreement. A solution to preventing a hard Irish border also seemed in sight, taking the form of membership of the EU Customs Union for whole of the UK and regulatory alignment with the EU for Northern Ireland.
But then on 14 October the UK halted the negotiations due to political pressure from the domestic front. Consequently, a Brexit dedicated EU summit in November remains contingent on progress on the Irish border and seems increasingly unlikely as time passes by and no progress is made. It now seems most likely that the EU and the UK will reach a deal on the withdrawal agreement at the 13-14 December EU summit of December (see Figure 1).
That leaves very little time for ratification of the agreement by both the EU and the UK parliaments and for adopting the necessary legislation before 29 March 2019. The complex dynamics in the UK parliament make ratification by the UK parliament particularly uncertain (see below). PM May’s tactics will reportedly be time pressure by using the week before Christmas to push the deal through parliament, as that gives Eurosceptic MP’s little time to mobilize against her. But that also gives the PM little time to garner support for the deal, which seems very risky. The failure to meet the October deadline for reaching a deal, the negotiations deadlock and the increasing uncertainty around approval of a deal in the UK Parliament all make that we now consider the chances of a ‘hard Brexit’ as almost as high as those of reaching a last minute Free Trade Agreement deal (Figure 2).
Domestic political tensions flare up
This turn of events reflects the fluid political dynamics at home which will make it very challenging for PM May to get an eventual deal through the UK Parliament. The possibility of increasing regulatory divergence between Northern Ireland and the rest of the UK has upset the DUP, the unionist Irish party the PM relies upon for a majority in the UK parliament. And the cabinet needs the votes of the DUP for passing the annual budget on 1 November. The Chancellor of the Exchequer Philip Hammond has brought forward the presentation of the budget by one month to 29 October so that the vote would not get entangled in Brexit tensions.
The proposition for the whole of the UK to remain in the EU Customs Union, albeit maybe temporarily, has also enraged the Brexiteers and increased tensions within the cabinet. So has the consideration by PM May of extendingthe transition period into 2021. In the week of 22 October speculation about a leadership challenge by the Brexiteers was rife, the milestone being the 1922 Parliamentary Committee of the Conservatives that convened on the evening of 24 October and which receives the requests for a vote of confidence in the PM. While they need only 80 Conservative MP’s to start a motion of confidence, they need 158 Conservative MP’s to proceed and party rules allow for such an attempt only once in 12 months. PM May survived another tense period, but the threat of a leadership challenge will hang above her head until March 2019, particularly if she further softens her Brexit stance.