Brexit meanders towards extension

Yesterday’s parliamentary vote had been awaited with bated breath. Fourteen amendments were tabled, seven of which were selected by the Speaker of the House. But in the end only two managed to attract a majority: Caroline Spelman’s amendment, which was aimed at preventing a no-deal Brexit, and Graham Brady’s “Backstop Amendment.” Amendments are to be regarded primarily as an indication of Parliament’s wishes, but in this case its wishes were almost diametrically opposed. The majority in Parliament clearly seeks to avoid a no-deal Brexit, but vehemently rejects the agreement that has already been negotiated. The commitment to avoid a No-Deal Brexit is undoubtedly a sign of progress. However, the “backstop” that has been negotiated undoubtedly constitutes the biggest obstacle in the way of an agreement.

The first thing that Theresa May will now do is to reopen the negotiations on the “backstop” – or at least try to do so. The first signals from Brussels have been anything but encouraging. Assuming that the EU sticks to its hard line (which is likely to be the case) and rejects demands for a renegotiation of the “backstop”, May will have two options: She can either try to put her deal before Parliament again in its original form in the hope that time (and a further rejection by the EU) is on her side, or she can try to find an alternative. With Plan A having failed to get past Parliament and with Plan B not looking anymore promising, there are now moves towards Plan C, also referred to as the “Malthouse Plan.” This envisages proceeding in two stages. Initially, the Prime Minister should try to renegotiate the backstop. Assuming she fails to do so, the second step then envisages a more radical approach: The EU Withdrawal Bill would be dropped and replaced by a new agreement in which the EU grants the British a three-year transitional phase and the British in return provide an undertaking to continue to meet their financial obligations. The transitional period should then be used to negotiate a free trade agreement.

The “Malthouse Plan” appears to have met with a positive reception in Downing Street and, at least from the point of view of the conservative Brexit hardliners, it has the advantage that it would ensure that the United Kingdom would leave the EU punctually on 29 March. This would eliminate the risk of a postponement or even a complete cancellation of Brexit. It would also get around the problem of EU elections. But there are two main obstacles in its way: First, it will probably be difficult to get approval from the remainers and the proponents of a soft Brexit, and second the EU is very unlikely to agree to something that does not provide a permanent guarantee that the Irish border will remain open.

After another strenuous and fiercely contested parliamentary debate the British government has not made any real progress. Many members of parliament appear to continue to labour under the illusion that the EU, when the chips are down, will be prepared to fulfil their every wish. The EU, by contrast, continues to stick to a hard line from which it cannot err without jeopardizing its credibility. With only two months left until the official exit date, an extension of Article 50 remains a possibility. But for this to happen the British government would at least have to put forward a clear plan for where to go from here. The next showdown between the Prime Minister and Parliament will most probably take place around the 14th of February when the next vote on the Brexit deal (in whatever form) will be held. In the meantime, the markets will track developments with bated breath – always in the hope that a solution can be found.

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