U.K. Weighs No-Deal Brexit Vote as May Is Thrown Into Crisis

(Bloomberg) --

Britain will confront head-on the threat of a no-deal Brexit in a parliamentary vote with huge ramifications for Prime Minister Theresa May.

On Wednesday, members of Parliament will decide whether to tear the country out of the European Union with no agreement in place in 16 days’ time, or give themselves the chance to delay Brexit in the hope of securing better terms.

If -- as expected -- they reject leaving without an accord on March 29, there will be another vote Thursday on whether to ask the EU for more time and delay departure day. An extension, which markets would welcome, could however provoke furious pro-Brexit officials to quit May’s administration, and even set in train a chain of events that could bring her government down.

That’s because for many staunch Brexit supporters, a delay to exit day will seem like a betrayal of the U.K.’s 2016 vote to leave the bloc, potentially opening the door to reversing it through another referendum.

The stakes could hardly be higher -- and the future less certain -- after May failed for a second time to get Parliament to sign off on a divorce deal that was the culmination of two years of tortured negotiations.

“May is now in a deep crisis, with Tory MPs and even some ministers speculating how long she can last in Downing Street,” Mujtaba Rahman, managing director at Eurasia Group, said. “She will soldier on, but is no longer in the driving seat on Brexit.”

What Next?

Politically weakened, and physically exhausted, May called a vote on whether to leave without a deal after the House of Commons overwhelmingly rejected the agreement she’s secured with the EU for the second time in two months.

If politicians back a no-deal split, May says this will become the government’s official policy, even though numerous ministers have said they will resign in protest at the economic damage that would cause.

Parliament is likely to try to take control over whatever happens next, including how long any delay will last, and could even force a repeat of the 2016 referendum, May suggested.

The pound advanced 0.5 percent against the dollar Wednesday, the best performance among the Group-of-10 currencies. The base case for investors is that Parliament will reject a no deal and vote for an extension on Thursday, according to analysts.

“The interesting question is how long the extension is and what, if any, conditionality the EU attaches since it requires unanimous approval in Brussels,” said Stephanie Kelly, a senior political economist at Standard Life Investments. “This will condition the market response.”

Latest Defeat

Renegotiated late Monday night, the latest version of the deal was defeated by 391 votes to 242. That’s less than the record 230-vote margin she suffered in January, but still a stinging repudiation of two years of painstaking work.

The crisis was triggered when Geoffrey Cox, the attorney general, dramatically announced his legal advice on the new terms that May agreed to with European Commission President Jean-Claude Juncker.

Instead of endorsing the new guarantees on the Irish border backstop, Cox said the risk that it will trap Britain inside the EU customs regime indefinitely was still there.

This killed any hope May had of persuading pro-Brexit Tories to abandon their opposition to the deal and vote for it.

May’s last ditch effort to save her blueprint appeared to have taken its toll on the prime minister. When she stood up in the Commons to respond, her voice had all-but worn out and she could hardly be heard. She was seen sucking throat lozenges in the Commons chamber, to help her to speak.

“I profoundly regret the decision that this House has taken tonight,” May said.

If the Commons votes to stop a no-deal Brexit and to extend the deadline, members of Parliament will have to explain to the EU what the extra time will be used for. Will it be to cancel Brexit, hold another referendum, or choose a different kind of divorce deal, she asked.

Unenviable Choices

“These are unenviable choices, but thanks to the decision the House has made this evening they must now be faced,” May said.

On Wednesday, Chancellor of the Exchequer Philip Hammond will present to Parliament his annual spring financial statement, which will likely emphasize the risks of a no-deal split. Once that is done, May will open the debate on a no-deal Brexit.

She’s expected to argue and vote against leaving the EU on March 29 without a deal, while aiming to keep the option on the table, in an effort to placate staunch Brexit supporters.

Rival groups of politicians will propose amendments to May’s motion on a no-deal Brexit. The proposal that’s likely to be the most contentious is a plan from a group of conservatives including both Brexiteers and more moderate figures, that calls for the government to negotiate an extension of Britain’s EU membership until May 22, and then a standstill period until the end of 2021.

Other amendments include one to rewrite May’s motion to make it clearer that Parliament rejects a no-deal outcome, and one calling for a second referendum. It’s up to Speaker of the House of Commons John Bercow to decide which amendments get voted on.

Meanwhile, in Brussels, the view seems to be that the EU has done all it can to help and that it’s a domestic crisis. The solution to the deadlock, said a spokesman for EU President Donald Tusk, “can only be found in London.”

©2019 Bloomberg L.P.