Theresa May Might Have Outmaneuvered All Her Brexit Critics

(Bloomberg Opinion) -- To many, this week’s handling of the Brexit saga by the British government has appeared chaotic and inconsistent, leading some to predict the demise of Prime Minister Theresa May’s leadership and the risk of the UK stumbling into a disorderly Brexit. That is certainly a possibility. Yet game theory suggests that, with external constraints starting to bind a lot more, the government could well end up using a strategy that allows it to outmaneuver its critics, both within and outside the UK.

As I argued previously using simple insights from game theory, the approach taken by the UK government, including repeated negotiations with Brussels, would succeed in buying time. But, together with the costs and risks of continued long delays in virtually all of the government’s pro-growth work and related legislative agenda, this “no war, no peace” situation would not by itself lead to a sustainable outcome. What was required was either a bold political call within Britain or some binding constraint from outside. 

The government’s continued pursuit of an incremental approach secured marginal concessions from Brussels. But these have proved insufficient so far to mobilize enough support in parliament, exposing the government to two humiliating large defeats on its proposals, together with a growing sense of loss of control of the parliamentary process that played out this week as lawmakers debated and voted on a series of proposals and amendments. 

Parliament has not been much better at getting to a sustainable outcome. Despite gaining greater control over the Brexit process, it has yet to come up with a concrete offer for Europe. With that, the process has become more chaotic, harder to explain to outsiders, and seemingly inconsistent over time. 

Some, especially certain officials from the EU, haven’t been able to resist criticism and “told-you-so’s,” warning that parliament’s inability to figure out what it wants exposed the country to the mounting risk of a catastrophic EU exit. 

While this is certainly a risk, it is also possible that May has managed to corner both her internal position and the EU, opening a wider window for the government to secure support for her deal in the coming weeks. To understand this, consider how the bargaining positions are changing not just because of the pending March 28 deadline but also, and more importantly, because of the European elections scheduled for May 23-26. 

More than the March 28 deadline, the European elections could well constitute a binding practical constraint on both the UK and EU, thereby significantly raising the probability of forcing the clarity and sufficient unity and cooperation needed for a workable proposal.  In game theory terms, it would result in the type of cooperative solution that has proven frustratingly elusive for all sides. 

With many European officials likely to oppose UK participation in the elections, the prospects of a disorderly hard Brexit essentially imposing itself will prove very threatening to British politicians on both sides of the argument. In other words, a May-proposed deal that includes some further EU concessions will certainly still not be optimal for them but will be better than being widely blamed for the alternative. And Brussels would go ahead, also fearing the alternative. 

Here’s how this likely, though not yet overwhelmingly probable scenario would proceed: The May government would get agreement from parliament on a short-term extension to the March 28 deadline. This would be accepted by Brussels and allow for negotiations on some further concessions. Parliament would consider the revised deal and, after lots of noise and jockeying, agree to it before the European elections in which the UK would not participate. 

A longer Brexit delay is also a possibility. But because it significantly strengthens that band of those who ultimately wish to remain, including the active minority angling for a second referendum, it constitutes a real threat to the Brexiters. A such, the latter  would be better off opting for the May proposal.  

The political compromise of a soft Brexit a la May would be sure to displease people on both sides of the argument – whether they hoped for a clean break or wished to remain in the EU. It would, however, mark a victory for a May government that, after months of what many saw as indecision that would inevitably cause total failure and resignations, would have managed to out-maneuver her critics in both the UK and the rest of Europe.

To contact the editor responsible for this story: Philip Gray at philipgray@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Mohamed A. El-Erian is a Bloomberg Opinion columnist. He is the chief economic adviser at Allianz SE, the parent company of Pimco, where he served as CEO and co-CIO. His books include “The Only Game in Town” and “When Markets Collide.”

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