What are the chances of an “oops Brexit”?

Friday of next week – not long to go now until 29 March 2019, the official date on which the British are due to leave the EU, as enshrined in British and European law. Even though the British House of Commons clearly rejected a no-deal Brexit only last week, it remains the default scenario as long as the EU and Great Britain fail to agree on an alternative solution. And at the moment the negotiating partners still need to clear a number of major stumbling blocks before a solution can be found.

The first is the British parliament and its stubborn refusal to back Brexit which has already resulted in several bitter defeats for the Prime Minister. Whether Theresa May will dare to put her departure deal to the vote again on Wednesday depends largely on the Northern Ireland DUP. If the party signals its willingness to agree to the deal (the fact that talks with the DUP have been going on for several days gives many commentators cause for hope), May will most likely take the risk. If Parliament still rejects the deal again, May will then travel to Brussels on Thursday to petition for a postponement. At the moment there is talk of a deferral of between one and two years. But even if the EU leaders have recently signalled their willingness to grant the British a deferral period on several occasions, a degree of risk still remains that should not be underestimated. The decision is to be taken by the Heads of Government of the EU member states and the vote must be unanimous. Clear doubts exist as to how Italy and France will vote.

But even on the assumption that the EU is prepared to grant the British a postponement, this concession might still be tied to a number of conditions. Whether these will be financial or political remains to be seen. No matter what, it will be exciting to see how the British Parliament reacts. Because the House of Commons for its part must also agree to the postponement, and this vote also poses an enormous risk. The Brexit hardliners and all the MPs whose constituencies support a withdrawal from the EU (including a number of Labour MPs) could vote against the postponement due to the possibility it creates that Brexit could be called off after all. In the worst case scenario, the House of Commons could overturn the postponement at the end of next week, thereby making it impossible to prevent a no-deal exit.

Thus, the risk of Brexit happening unwittingly (an „oops” Brexit) still exists – either because of the EU failing to consent to a postponement, or because of the consent being rejected by the British parliament. Investors are advised to position themselves cautiously. A no-deal scenario has still not been priced into the market. And even if the risk of this happening has diminished in recent weeks, it should not be completely ignored.

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