A banner reading ‘Brexit: is it worth it?’ is held aloft during ongoing pro and anti Brexit protests outside the Houses of Parliament in London, U.K. (Photographer: Luke MacGregor/Bloomberg)

Your Guide to Brexit as the March Deadline Looms

(Bloomberg) -- Just as the Brexit saga was about to come to an end, it got more dramatic and a lot more confusing. An already uncertain process was thrown into disarray when the U.K. Parliament rejected, by a historic 230-vote margin, the divorce deal that Prime Minister Theresa May had spent 18 months negotiating with the European Union. Britain now faces a March 29 exit deadline that may or may not be extended, growing panic among businesses scrambling to prepare for a possible "no-deal" exit, an exasperated EU trying to move on, and calls to redefine Brexit or abandon it altogether.

1. Where’s this drama going?

After her plan was routed in Parliament on Jan. 15, May vowed to renegotiate the deal. The EU says that can’t be done -- and that even if it does make some tweaks around the edges, that won’t happen until the very last minute. The EU wants the U.K. to peer into the abyss first. May is trying to unite her Conservative Party behind a compromise and also bring some opposition lawmakers who represent Brexit-backing areas on board. There’s evidence she’s having limited success. But she still has a mountain to climb. Tune back in on Feb. 14 for what promises to be another marathon session in Parliament, when rank-and-file politicians will try to redefine the terms of divorce or even postpone it.

2. Aren’t they cutting it a bit close?

Yes. That’s why a lot of people are starting to think an extension to the March 29 deadline is likely. It’s been openly discussed by officials on both sides. May is sticking to the line that her country will leave on schedule -- though she stops well short of ruling out an extension. Currency traders are betting the exit will be delayed. The U.K. would have to ask for an extension and get EU countries to unanimously agree, which they probably would. It wouldn’t necessarily be straightforward though: Some countries are worried an extension would just prolong the agony, and others are considering imposing conditions. And Brussels is clear that a delay shouldn’t be used just to postpone difficult decisions.

Your Guide to Brexit as the March Deadline Looms

3. What’s a no-deal Brexit?

There’s still a chance that Britain could crash out of the bloc on March 29 with no agreement or grace period. That would leave the U.K. with no legal arrangements to smooth trade and other transactions with its neighbors, snarling cross-border commerce. Bottlenecks could bring shortages of everything from food to drugs to manufacturing components. Both sides are preparing for the worst, for example taking steps to prevent a financial-markets meltdown. But while the measures can mitigate some of the more catastrophic outcomes -- and keep planes flying -- they won’t address the obstacles to trade that would suddenly emerge.

4. Why has May failed so far?

She faces opposition on all sides: from pro-Brexit hardliners in the Conservative Party, from pro-EU Conservatives, from the Northern Irish party that props up her government and from most of the opposition Labour Party, which wants to keep close trading ties to protect jobs. From Conservatives and the Northern Irish, the main objection to May’s deal was to the guarantees it includes to make sure a new physical border doesn’t emerge between Northern Ireland, which is part of the U.K., and the Republic of Ireland, which will remain in the EU. Critics say those guarantees -- which constitute what’s known as the "backstop" -- risk binding the U.K. to EU rules forever. They argue that May caved in to the EU and betrayed the electorate’s call to regain sovereignty, while treating Northern Ireland differently to the rest of the country.

5. What did the rest of the deal look like?

Alongside the divorce treaty was a non-binding political declaration on what future ties between Britain and the bloc should look like. It was vaguely worded, an intentional move designed to help May get the deal through a divided Parliament. But that vagueness became a liability as lawmakers complained May was asking them to sign off on a "blind Brexit" -- a departure from the EU without a clear sense of what the future holds. A permanent deal on economic and trading ties was meant to be thrashed out during the 21-month transition, or grace period, that starts the day Britain leaves (but only if the divorce deal is ratified).

6. Might the EU offer May a better deal?

EU leaders have repeatedly said that the withdrawal agreement cannot be changed. But they are open to re-writing the political declaration, or offering some reassurances in a separate document. The EU has always hoped to keep close trading ties -- and to keep the U.K. abiding by the bloc’s rules as a quid pro quo. Re-writing the political declaration won’t address the issue of the Irish backstop, though it may make it less likely that the much-loathed measure would ever come into effect.

7. Can the whole thing be called off?

Yes. But there are some huge obstacles. At least for now, there isn’t a majority in Parliament for a second referendum. Labour leader Jeremy Corbyn says it’s an option that should be voted on in Parliament, but he would still prefer to trigger a general election. May says it would undermine faith in democracy and rip the country apart. In any case, it’s not clear what the result would be: Polls indicate that support among voters is now more strongly in favor of remaining in the EU than leaving, but that was true last time too. Leave won in 2016 with 52 percent of the vote.

8. How is the uncertainty affecting global business?

Companies operating in Britain have bemoaned the government’s lack of clarity over Brexit’s impact, warning that unanswered questions about everything from trade policy to immigration laws are throttling hiring and investment decisions. Manufacturers who import or export goods now don’t know what will happen after March 29. The prospect of Brexit has already prompted global banks to move operations, assets and people to Frankfurt, Paris and other cities. Manufacturers and broadcasters have also started moving facilities, while companies are stockpiling to prepare for the worst.

The Reference Shelf

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