Brexit Bulletin: Changing Direction?

(Bloomberg) -- This Week in Brexit: Votes in Parliament will decide the direction of Brexit.

Two rival factions of Parliament will fight to take control of Brexit this week. If one wins, Brexit will probably be paused — perhaps indefinitely. If the other triumphs, Theresa May will be sent back to Brussels to negotiate the impossible.

May is fighting the first group — led by Labour’s Yvette Cooper — because the prime minister thinks Cooper’s ultimate goal is to thwart Brexit altogether. If Cooper wins, the threat of no-deal will be taken off the table. That would be good news for business but bad news for May’s efforts to win new concessions from Brussels.

It’s less clear what May thinks of the other faction, a group of pro-Brexit Tories including some quite senior ones. They have proposed two amendments that would effectively order the prime minister back to Brussels to renegotiate the Irish border backstop, the most controversial part of the deal.

There have been some hints from May’s office that she might support that approach, and some of her allies have signed up to the amendments. Her head of communications hinted at support with some stealth Twitter action over the weekend, spotted by ITV’s Robert Peston.

Boris Johnson wrote in the Telegraph that senior sources have told him May will seek changes, concluding that if she does she will have “the whole country full-throatedly behind her.”

Watch out today for any firm signs that Downing Street is behind one or both of the amendments. That would mean the PM is essentially asking Parliament to give her a mandate to go back to Brussels to fight. Brussels has long said it’s not clear what the U.K. wants. A clear majority to change the backstop would send a strong signal at least.

There’s one glitch — the European Union has long said the backstop can’t be renegotiated. Any tweaks to the deal would probably end up with a softer Brexit than the one that’s now on the table. The EU says all it can do is change the political declaration on the future relationship to outline a closer long-term relationship, one that would reduce the chances the backstop would ever be used. European Commission President Jean-Claude Juncker told May in private that the bloc would only move on the backstop if she changed her red lines, the Guardian reports.

If changing the backstop means closer EU ties, then renegotiating won’t win May any more votes in Parliament — she’ll be back in the same catch-22 she’s been in all along. With the clock ticking to March 29, most of the possible outcomes this week lead to the same thing: postpone Brexit.

Today’s Must-Reads

  • May has told Cabinet ministers in private she won’t allow a no-deal Brexit, but she’s not prepared to go public with that, the Sun reports.
  • These are the amendments you’re looking for: Robert Hutton has a guide to what’s happening in Parliament this week.
  • ICYMI: The French “Yellow Vest” protests are steering President Emmanuel Macron against a no-deal Brexit, Ian Wishart reports.

Brexit in Brief

Going Softer | A group of Conservative MPs who backed May’s Brexit deal earlier this month will ditch the prime minister’s plan and instead push for a softer Brexit if Parliament manages to remove the threat of a a no-deal divorce, the Times reports.

Cost of Brexit | The U.K. economy was 2.3 percent smaller in the third quarter of last year than it would have been if the country had voted in 2016 to remain in the EU, according to the Centre for European Reform. The pro-EU think tank trimmed its estimate for the cost of Brexit from 2.5 percent at the end of the second quarter, after the U.K. outperformed the hypothetical model economy. The new estimate means a weekly hit of £320 million ($422 million) to public finances, or £17 billion a year, the group said.

Stockpile Watch | Add smart meters to the list of things companies are stockpiling in case of a no-deal Brexit. The Times reports that most smart meters are imported and the program to install millions of the devices — which is already facing hurdles — could be hit by delays at borders. 

Tax Concerns | A no-deal Brexit could create yet another headache for the European Union as it prepares to hand dozens of U.K.-based companies a tax bill that is expected to top $1.5 billion, Stephanie Bodoni reports.

On the Markets | Sterling has gained more than 3 percent versus the dollar this year, the most among its Group-of-10 peers, on conviction that the possibility of a no-deal Brexit has receded. Fund managers at both Aberdeen Standard Investments and BlueBay Asset Management think the optimism is now overdone. The pound was unchanged in early trade on Monday at $1.3194.

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