Brexitension: New timing
After rejecting the Withdrawal Agreement (WA) for a second time, British MPs have effectively put the fate of Brexit back in the hands of the European Union, with the Prime Minister heading to Brussels requesting an extension, but without having secured support for the agreement. At last, the EU gave the UK a much-needed extension until April 12. Until then, a decision has to be taken as to whether the UK takes part in the European elections. That means if Theresa May manages to get her deal through Parliament after all in a third (or fourth or fifth) attempt, the EU will give her until May 22 to implement the necessary formalities. As a result, the UK would then no longer be a member of the EU at the start of the European elections on May 23. Instead, the transition period lasting until December 31, 2020, agreed in the Brexit deal, would then start, during which – and this is also relevant for the financial markets – the future relations would be agreed. If May does not manage to find enough supporters for her plan she would have until April 12 to decide whether Great Britain leaves the EU without a deal or whether to apply for an extension of EU membership with the aim of implementing a yet to be defined plan B – even if that meant having to participate in the European elections.
EU President Donald Tusk said that all options would still be available to the UK until April 12, including no Brexit and the possibility of a longer extension. The ball is now in the UK’s court. In a series of Brexit debates and votes this week, probably including the third vote on May’s deal, the UK parliament will get a chance to forge a way forward and possibly take the opportunity to seize control of the Brexit process and reduce the risk of a hard Brexit. If parliament votes down May’s deal and agrees on a process to contemplate the alternatives, the likelihood of the UK submitting a request for a longer delay would be high. In that scenario, the risk of the resignation of May would also be high, which would increase the uncertainties regarding Brexit. A leadership change before April 12 would leave critical decisions under the control of a caretaker government, which will only act to further heighten policy uncertainty. Nevertheless, it would not change the parliamentary arithmetic around Brexit in a significant way - a majority of MPs would still want to retain close ties with the European Union.