The beginning of real chaos in Great Britain

11.01.2019 16:21|Marcin Lipka

"30 months have passed since the Brits decided to leave the European Union, but nothing is yet clear about Brexit. From the chaotic separation from the Community to remaining in the structures of the EU - today all scenarios are still possible," writes Marcin Lipka, Conotoxia Senior Analyst.

January 15th is the key date in British politics. The plan to leave the European Union will be voted on this day by the House of Commons. The conditions for leaving the EU, negotiated for months by Prime Minister Theresa May, can already be thrown into the bin. It is extremely unlikely that the plan will receive sufficient support from parliamentarians.

The existing version of the agreement is rejected by the entire opposition and a large part of the conservatives in power. Some members of the Prime Minister May party do not like the so-called backstop, i.e. the plan to maintain the lack of a real border between Northern Ireland and the Republic of Ireland. According to them, by means of a customs union, it binds Great Britain to the EU if there is no new trade agreement. On the other hand, some Tory members believe that the current agreement is too far away from the EU and will, therefore, be economically disadvantageous.

As a result, it cannot be ruled out that on Tuesday the government's plan will be rejected by a large majority (more than 100), which means that alternative solutions will have to be prepared. Which ones? This is truly not known.

Plan B is already not existing

The failure of the Theresa May's plan on January 15th will mean that the government has exactly three working days to propose solutions that will satisfy Parliament's majority and allow it to vote in favour of the plan to leave the EU. However, in just three days, will it be possible to make changes that the majority in the House of Commons will accept?

The opposition can't be relied upon, because the labourists want to take over power through the confusion associated with Brexit. It is also difficult to count on such a modification of the backstop which would satisfy all interested parties (both Ireland, Brussels, and conservatives). A more likely scenario assumes that the second vote ( January 21st) will also be lost by Prime Minister May. As a result, Plan B today seems almost unrealistic. So what could happen after January 21st?

Plenty of scenarios, but none with parliament support

The failure of the second vote may, of course, mean more of them, but this strategy seems unwelcome. Bloomberg presents 7 other solutions. This could be, for example, a desire to agree on a new agreement (milder exit from the EU). This, however, quickly meets with the opposition of the Eurosceptic part of the Tory, even if Brussels and the opposition were to support this idea.

It is also possible to postpone the cut-off date, which is set on March 29th (the moment of formal leaving the EU and a hard Brexit if no agreement has been accepted by Brussels and London by that time). But will Brussels allow this? However, if the opposition were to lose the vote of confidence by a parliamentary majority, it would be interesting for the opposition.

However, this vote must take place when the government is completely disgraced, as the surveys do not show that the labourists currently have an advantage over the ruling Tory. After all, the labourists are not in favour of staying in the EU at all, but only want to negotiate their own conditions. The outcome and direction of talks with Brussels are completely unclear now. In addition, the British left has recently become so radicalised that instead of social demands it is mainly socialist, which may make it more difficult for entrepreneurs to support them in the event of a new agreement or the scepticism of foreign capital that has invested a lot of money in the islands, for example, in the automotive industry.

How about elections to the European Parliament?

Many of the potential scenarios after the hypothetical rejection on January 21st require time. Meanwhile, the UK is due to leave the EU by March 29th. Of course, this deadline can be postponed, but there must be a specific reason for this, which Brussels will accept.

Time is also the key in the context of the upcoming European Parliament elections (23-26 May). If the negotiation period and the moment the UK leaves the EU are extended, should the British people be able to vote in the May EP elections?

Officials quoted by "The Guardian" claim that prohibiting British citizens to vote in the May elections (even though GB still remains in the EU) would expose the EU to legal proceedings. According to the Guardian's source in the EU, from a legal point of view, it would be easier to postpone EP elections than to hold them without the British. This means that it is possible to change the date of the UK's exit from the EU, but not beyond the date of the EP elections.

Extreme scenarios quite possible

Time pressure and strong polarisation of views in the House of Commons imply a relatively high probability of extreme scenarios. These include, e.g. unstructured Brexit. Although practically nobody wants it (both in the British Parliament and in Brussels), such a solution cannot be ruled out.

Prime Minister May may also be playing with this threat to force the House of Commons to support her plan. This development could also expose the pound to serious volatility if Conservatives really want to hold on to power. This could cause the British currency's quotations to depreciate and fall even to the range of 4-4.50 PLN if the solution to the impasse did not come.

On the other hand, a series of failures suffered by Prime Minister May, the unclear outcome of new elections and the lack of fundamental changes in the Brexit plan could lead to a completely new agreement with the EU, based on very soft terms (as in Norway), and to a referendum. If, in turn, this scenario gains support and becomes likely, it may be thought that it is not worth leaving the EU at all if the new agreement is so close to actual membership. Then a referendum on staying in the EU, rather than a new deal, seems to be quite real. It would give a strong impulse to the pound and growth even up to the 5.5 PLN level.


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