No to Brexit deal

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Prime Minister Theresa May yesterday evening suffered a crushing parliamentary defeat, despite earlier calls to back her deal or risk “letting the British people down.” Some 432 out of 634 MPs voted against the Brexit deal agreed with the European Union (EU). The Brexit deal contains a withdrawal agreement setting out the terms on which the UK leaves the EU, as well as a political declaration on their future relationship. This is the largest defeat ever of a sitting British government. The pound initially fell against the euro and the US dollar following the vote, but quickly regained ground as the result of the vote had been priced in by the markets.

Following the vote, Labour’s leader Jeremy Corbyn tabled a vote of no confidence in the government set to be held later this evening. The prime minister is expected to win it, given her own MPs are set to vote for her as well as the Northern Irish Democratic Unionist Party with whom the Conservatives struck a deal in 2017. Should the government fall, anyone able to obtain a majority of the votes in parliament has two weeks to win a vote of confidence. If no government is presented within this two-week period, general elections need to be held.

Once May has won the vote of confidence, she has three days to present an alternative Brexit strategy. The British parliament then has the right to amend the strategy put forward by the prime minister and come up it its own proposal. Alternative options at hand would be to renegotiate the existing Brexit deal, to instead resemble the type of agreements Norway or Switzerland have reached with the EU. Norway – which has rejected EU membership twice – has opted to be part of the European Economic Area (EEA), granting the country full access to the EU’s single market. In return, Norway is subject to a large number of EU rules which have been implemented without having a formal say prior to their adoption. The Swiss model is based on more than 120 bilateral agreements with EU. These bilateral deals range from a partial access to the EU’s single market, to the participation as a partner country in education programs such as Erasmus+ and being part of the border-free Schengen area. There is, however, currently no parliamentary majority for these alternative options at hand.

We therefore believe there is a high probability that the British parliament will ask the EU to postpone the Brexit date as this is the only interim decision backed by a majority of British MPs. The UK is currently set to leave the EU at 11 p.m. local time on March 29 – regardless of whether there is a deal with the EU or not. The Bank of England has warned that the default option – a Brexit without a deal – could plunge the country into its deepest recession in nearly a century.

Brexit delay increasingly likely

In December, Europe’s top court – the European Court of Justice – ruled that the UK unilaterally could cancel the ongoing Brexit process. Alternatively, the Brexit date can be postponed if all 28 EU member states agree. There are indications that the EU may be willing to postpone the Brexit deadline until July, if it were to support the domestic political debate in getting the Brexit deal through the British parliament. The actual length of the prolongation would be defined by the reasons put forward by Ms. May for the requested delay. This request is expected to reach Brussels in the coming weeks. A special EU summit would then have to be held, to obtain the green light of the EU’s heads of states.

Holding a second referendum remains unlikely

So far, the option of holding a second referendum has no majority in the British parliament. This could change, if the political parties cannot agree on any matter, now that May’s Brexit deal has been voted down by a large majority of MPs. The sentiment of the UK voters has, however, not turned significantly more pro-EU over the last two years. It’s mainly young voters who are split over Brexit. When the first referendum was held in June 2016, a clear majority of those aged 18-24 voted in favor of “Remain” (80 percent of the women and 61 percent of the men in this age bracket). Their votes will, however, not suffice to change the outcome of a second referendum. We thus expect a clear majority of the British electorate in favor of Brexit, even without a deal.