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May nudges UK towards a friendly EU divorce
December 13, 2017 | 1:27 PM
by Reuters
Britain's Prime Minister Theresa May. - Reuters file picture
 
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London: Prime Minister Theresa May's divorce deal with the European Union is the strongest signal since the shock 2016 Brexit referendum that the United Kingdom is heading towards an orderly departure that preserves very close trade ties.

May rushed to Brussels before dawn on Friday to secure the European Commission's agreement that "sufficient progress" had been made to begin talks about trade and a two-year Brexit transition period that will start when Britain leaves the EU on March 29, 2019.

Below are some scenarios for Brexit.

1) Benign Brexit



An orderly Brexit, with a clear transition and the hope of a trade deal to keep the UK and EU economies as close as possible, would cheer investors and business chiefs.

Friday's deal appeared to put Britain on course for an orderly Brexit.

May largely conceded to the EU on the structure, timetable and substance of the negotiations. At least for now, she has convinced her divided party and the Northern Irish lawmakers who prop up her minority government that she can deliver a deal that is acceptable to them.

If all sides stay happy enough to keep the talks on track May is aiming to strike a transition deal early in 2018 and a free trade deal to be signed shortly after exit day.

The EU says any transition deal in the next few months will be interim in the sense that nothing is definite until the Withdrawal Treaty is ratified in 2019. The EU thinks a free trade deal would be negotiated during the transition.

May is committed to the UK leaving the single market and customs union. But she agreed with the EU that the rules between Northern Ireland and Ireland would stay if they could not work out another way to avoid a hard border on the island.

That indicates that the UK will keep significant alignment with EU rules, at least for the first few years after the transition.

Brexit negotiator David Davis has said his preferred deal would be similar to Canada's CETA deal with the EU but "Canada plus plus plus". May has said she wants a bespoke British deal.

The Canadian deal focuses on access to goods but services is more important for Britain as it accounts for about 4/5 of the economy.

"Brexit does look more benign if you think there will be a transition and a trade deal," said Mark Essex, director of Brexit at KPMG. "At the very least, Canada, or CETA, plus banking seems a smart move."

2) Disorderly Brexit

Such a benign Brexit assumes that May can stay in power long enough to deliver one.

The talks came close to collapse in Brussels on Dec. 4 when the Northern Irish party which props up May's government vetoed a draft deal already agreed with Ireland.

Many companies fear that events in either Britain or the EU could still derail a final deal.

"Cliff edge Brexit is still a possibility," said Essex

"After what we saw in Brussels last week, you have to have a lot of faith to assume it will be plain sailing all the way to next March."

The shock Brexit vote on June 23 2016 thrust Britain into its deepest political crisis since the Suez crisis of 1956.

May, who pitched her premiership as a way to calm the turmoil, increased uncertainty when she lost her party its majority in a June snap election which strengthened Jeremy Corbyn's position as opposition Labour Party leader.

With her authority weakened and her minority government dependent on 10 lawmakers from the Northern Irish Democratic Unionist Party, May has to constantly gauge how far she can bring her party and her allies with her on Brexit.

"May is like fatigued metal: she is going to break but you just don't know when the collapse will come," said one former British diplomat. "The Conservatives will never allow her to fight another general election so the question is whether she lasts until Brexit, if we do indeed (do) Brexit."

Foreign diplomats in London are already trying to figure out which candidates could win the top job when she is gone.

3) A Corbyn Brexit?

So far May's survival has been dependent on the absence of a clear successor and fear in her party that if she is toppled then opposition leader Corbyn could win a national election.

Betting markets indicate a 29 per cent probability of a UK election in 2018. Corbyn has the lowest odds on being the next prime minister after May, followed by Conservative lawmaker Jacob Rees-Mogg and Foreign Secretary Boris Johnson.

A YouGov poll showed May's Conservatives were ahead of Labour in the first time since the June election.

A Labour government is now seen as such a real possibility that some major financial services companies are trying to gauge just how radical Corbyn, a lifelong socialist, and his finance chief, John McDonnell, will be.

While Labour's official policy is to leave the EU, Corbyn has barely detailed the party's Brexit position. Many of his lawmakers want to stay in the EU but many traditional Labour supporters voted to leave.

Labour's Brexit chief Keir Starmer has said Britain should keep the closest possible trading ties with the EU.

4) Brexit Never

Brexit doesn’t happen: The $2.6 trillion economy stalls, prompting calls for a second EU referendum that — if held during a deep recession — could produce a vote to remain in the EU.

Ever since the referendum, Brexit opponents — from French President Emmanuel Macron and former British prime minister Tony Blair to billionaire investor George Soros — have suggested Britain could change its mind and avoid what they say will be disastrous economic consequences.

Reversing Brexit assumes the fall of May, who triggered Article 50 of the treaty on March 29. The legalities of reversing Brexit are unclear as the EU's treaties do not cover such an eventuality.

John Kerr, a former British ambassador to the EU, who drafted Article 50 of the Lisbon Treaty said Britain could unilaterally scrap its divorce plans. In Brussels, there is no single view on how a reverse Brexit might work.

While the EU would be likely to welcome a Brexit reversal, it might require the agreement of all 27 other members and some of Britain's special favours, such as the rebate on its payments could come under attack.

Supporters of Brexit have repeatedly said that any attempt to have another referendum, or to undermine Brexit, would catapult the world’s sixth largest economy into crisis.

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