February 28, 2019

Brexit End Game in Sight

Can the end to Brexit actually be in sight, after all of the struggles and negotiations? Technically the end game to Brexit is still unknown, but the current situation is beginning to resemble a game of chess, where we can see the direction the game is taking, but can't quite predict yet who will win.

Prime Minister Theresa May has set three votes in Parliament for three successive days next month. On March 12, Parliament votes on May's withdrawal agreement — which is essentially the one that previously got rejected by record numbers. On March 13, a vote is scheduled to decide whether or not to move ahead on a Brexit with no deal. On March 14, a vote is scheduled to decide whether or not to extend the exit date from its currently scheduled date of March 29.

If we get to that last vote, the European Union has indicated that it will allow for a short extension, but such an extension is not expected to last beyond June. This is due to the scheduled European parliamentary elections. If the UK really is going to leave the EU, EU leaders do not want the UK voting in those parliamentary contests.

So where does that leave the game pieces on the board? If the first two votes fail and we get to the last vote, a “no" vote is a de facto “yes" for a no-deal Brexit. It is hard to see how the few days between March 14 and 29 can possibly produce a deal that has eluded everyone for the past two years. For that matter, even with an extension of a couple of months, what is really going to change?

If an extension is requested, the EU would want to know what will happen in that time, and all countries of the EU would have to agree to it. Implicit in that agreement is the requirement that the UK will hold a second Brexit referendum, something May has said she will not do. That can change, of course.

This leaves that first vote on the withdrawal agreement critical. Would pro-Brexit members of Parliament vote for the withdrawal agreement as a hedge against a second referendum? Would pro-remain members vote against the withdrawal agreement as a gamble to force a second referendum?

Market expectations seem to center around a delay, whatever that holds. The likely market indicator of expectations is the value of the British pound, which hit 1.33 this week and is at levels not seen since last July.

My View: I am getting more persuaded that if the withdrawal agreement is defeated, there will be no deal on Brexit. In fact, it looks like we are headed to a no-deal Brexit or a second referendum, which could either reverse the whole decision or underscore the no-deal exit.

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