Fra ABN Amro:
KEY MESSAGES
Prime Minister Theresa May’s speech on Tuesday evening marked a significant shift that reduces the risks of a no-deal Brexit, in our view. There are still many unknowns: the EU response to a request for only a short extension of the UK’s departure; the Cabinet reaction to any softening in Mrs May’s Brexit red lines; and progress in talks with the opposition leader. Nonetheless, we think this is a positive development, on balance, that supports our base case of an ultimately orderly Brexit outcome.
Theresa May’s speech on Tuesday was substantially more pragmatic than on previous occasions, in our view. We highlight the following specific points.
Further extension: Rather than succumb to the significant number of Cabinet members who
reportedly favour leaving the EU without a deal, Mrs May acknowledged the need for a further extension of Article 50. Admittedly, she said this should be “as short as possible” – with 22 May in mind still. But we think saying that it ends “when we pass a deal” leaves
the door open to a longer extension.
The reason: The EU has always said that an extension beyond 12 April requires a reason, and now there is one – namely, providing time to ensure that the UK leaves the EU with a deal.The method: The prime minister offered once again to hold talks with the leader of the opposition, Jeremy Corbyn, to find a plan that they would both stick to.
Accepting the current Withdrawal Agreement is a key component of this, so we expect talks to revolve around options for the future EU–UK relationship. If Mrs May is serious about the need for compromise, then this is likely to involve negotiating a customs
union as the basis for the future relationship, in our view. We think this would be likely to command a majority in the House of Commons if adopted.
The fallback: The prime minister even set out a Plan B. If the two party leaders cannot agree on a unified position, then they would put a series of indicative votes to Parliament on various future relationship options. This time it would be a government-led vote,
not a takeover by backbench MPs, and the government would “abide by the decision” of MPs.
The risks: We are more optimistic than we were after Monday night’s votes but there are still risks.
The EU is likely to insist on a longer extension of the Article 50 process, including UK participation in the European Parliament elections in May, unless a deal is quickly passed through UK Parliament.
Cross-party talks might fail and MPs might struggle to find a consensus for any alternative option.
Any softening in the Brexit position is likely to be politically disruptive for Mrs May within her own party.
