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Finanshus: Scenarier for UK’s Brexit herfra

Morten W. Langer

fredag 22. juni 2018 kl. 14:59

BNP paribas:

The UK government has avoided defeat in Parliament over an amendment that would have
given MPs a “meaningful vote” on the final deal to withdraw from the EU.

 Some have argued that this unties the government’s hands in the negotiations and, on
paper, means that the prospect of a no deal scenario has increased.
 However, in our view, a no deal scenario looks no more likely than it did a week or so ago. If anything, Parliament has made it clear that there is no majority for that outcome.
 Our central case remains unchanged – we continue to think that the UK and EU will reach a deal. And in our view, the direction of travel is towards a relatively ‘soft’ form of Brexit.
 In the meantime, this week’s developments probably reduce the short-term risk of a
leadership challenge to Prime Minister Theresa May from within her Conservative Party.
Government avoids defeat over Brexit Bill

After an extended game of parliamentary ‘ping pong’, with amendments to the EU Withdrawal Bill batted back and forth between the House of Commons and the House of Lords, the government avoided defeat on Wednesday. MPs voted by a majority of 319 to 303 to reject a Lords amendment that would have given Parliament a ‘meaningful vote’ on the final Brexit deal and in the event of no deal being agreed.

The succession of amendments, motions, amendments to amendments and unamendable
motions might have obscured the essential implications for Brexit. At its heart, this was a battle for power between the executive (the government) and the legislature (Parliament).

The government appears to have conceded that once a deal has been reached, it will table a motion that MPs will be able to debate. Admittedly, there are no strict deadlines forcing it to do so and there remain questions over whether such a motion could be amended (for example, that Parliament could accept a deal but only on condition that another referendum is held).

In any case, motions are not legally binding on the government. However, while Parliament may  not have been able to secure the written assurances about its role that some MPs had wanted, it nonetheless made it clear that there is no majority for a no deal scenario. And there will be other opportunities, as other pieces of legislation during the Brexit process are brought forwards, to exert its influence.

Our base case remains that the UK will not ‘crash out’ of the EU without an agreement. While if the amendment had passed, the risk of a no deal scenario might have receded, the fact that it hasn’t passed does not mean that the risk has increased. And in the near term, it probably reduces the chances of a revolt by Eurosceptic Conservative MPs to oust Prime Minister Theresa May.

The government has argued that it needs the threat of no deal to bolster its negotiating
leverage, in order to secure a better deal. However, given the adverse impact on the UK
economy that a no deal would entail, this never appeared to be a significantly credible threat.

By contrast, some have argued that if Parliament had been granted more power to veto any deal, that could have strengthened the government’s negotiating position, in that it could have pushed the EU into making concessions in order to ensure the deal could be ‘sold back home’. The next milestone in terms of actually reaching a deal will be the EU summit on 28–29 June.

Deal or no deal
Let’s assume that Parliament does get to debate and vote on either a motion presenting a deal on the withdrawal agreement and future partnership or a motion that says there is no deal in place. And let’s assume that the government says that it will respect Parliament’s suggestions as to what direction it should then go in. What might the implication be?

‘No deal’ scenario: There would almost certainly not be enough time for another referendum before 29 March 2019 – ie, to ask the public to choose between no Brexit and a ‘no deal’ Brexit.

It would take months rather than weeks for Parliament to enact the necessary legislation to
allow a referendum to be held. And, in any case, there does not appear to be a majority in
Parliament for attempting to overturn Brexit.

In our view, Parliament would be likely to give one of three instructions.
 Revoke Article 50 notice to leave the EU: We think Parliament would be highly unlikely to seek to overturn Brexit, but it is a theoretical possibility. Were Parliament to vote to ‘cancel’ Brexit and the government to agree to (or be obliged to) do so, the legal implications are unclear. Revoking the process would probably require the consent of all the other EU member states.

– If the EU agrees, the UK would remain a member of the EU.
– If the EU refuses or there is no unanimity among the EU27, the UK might try to extend the Article 50 process instead of revoking it or seeking to renegotiate in the time available – Otherwise, the UK would leave the EU without a deal.

 Extend Article 50: This would also require the unanimous consent of the EU27. We think that would be quite likely to be given, but perhaps only for a relatively short time.
– If the EU agrees, talks would continue, probably resulting in a ‘softer’ form of Brexit.
The government might call an early general election in an effort to secure a renewed
mandate on the direction of Brexit, or call a second referendum. Note that Parliament
must be dissolved 25 working days before an election is held. Were the election to
produce an uncertain outcome (another hung parliament), then negotiations to form a
government could drag on past the point at which the UK officially leaves the EU.
– If the EU refuses, the UK would leave with no deal.

 Keep negotiating in the time available: As the automatic legal process has the UK leaving the EU on 29 March, there would be little time to act on Parliament’s instructions, such as to restart the negotiations – nor, in our view, would there be much willpower.
The EU’s chief negotiator, Michel Barnier, might also have to secure a renewed mandate from the EU27 were he to deviate from his guidelines in this regard.
– If the EU agrees, that would most likely be conditional on negotiations proceeding on the
basis of a ‘softer’ form of Brexit, with more rights for the UK subject to more obligations.
– If it refuses, the UK could try to extend or revoke Article 50, or it would leave with no deal. The upshot, then, is that the decision to avoid crashing out of the EU would not lie solely with Parliament, but also rely on cooperation from the EU, which negotiates with governments, not with parliaments. If no deal resulted in a collapse of the UK government – to be clear, not our base case – then the process could get very messy indeed.

Deal scenario: If, as we think is likely, the UK and EU will reach a deal, Parliament may still be able to exert some influence in this event, despite this week’s vote.
Indeed, the government can only ratify a withdrawal agreement, including the framework for the future relationship, if it has the consent of Parliament. MPs will have the opportunity to vote and amend the primary legislation required to enact Brexit. If Parliament supports the negotiated deal, then the outcome is fairly straightforward – the UK would leave the EU on 29 March 2019 on those terms.

If, in contrast, Parliament gets the opportunity to vote on a motion and then rejects the deal, the outcome would be much less clear. It might try to force the government to go down one of the three routes detailed above. And it could always threaten to table a motion of no confidence if the government did not follow its wishes.

The government could try to plough on regardless – the motion would not be legally binding on it. But it would not be able to make the Bill an Act of Parliament without the approval of both houses. In any case, if the EU refused to re-negotiate, extend Article 50 or accept its revocation, then the options left on the table would be to either accept the deal or leave with nothing.

The bottom line is that recent developments have not caused us to alter our central view that the probability of a no deal scenario is still quite low. And to the extent that Parliament is likely to exert some influence over the process, we continue to think that Brexit will be fairly ‘soft’.

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