Markets in Review: A Brexit breakdown

#BrexitShambles, a term that's trending online right now, took on a whole new meaning this week.

The first ‘meaningful vote’ of the Withdrawal Agreement didn’t even make the floor of the House, having been withdrawn on Monday. A no-confidence vote was then lobbed at the Prime Minister, Theresa May, which she survived to then hear rumours Labour is considering a no-confidence vote in Parliament and looking to force a general election. 

So, after a week of chaos, where are we at with Brexit now?

• Prime Minister May survived the no-confidence vote 63 per cent to 37 per cent – by no means a convincing survival. May then publicly announced that she will not lead the Conservative Party to the next election in 2022. She said she will stand down post-Brexit, whenever that happens to be. This is particularly interesting because of the current UK rules. If a no-confidence vote is triggered, another one cannot be held for 12 months, therefore, the UK would be left with a ‘lame duck’ Prime Minister as a result.
   
• The no-confidence vote means the distinct factions within the House of Commons, all driving specific agendas, will now probably see their influence reduced. That’s not because the Prime Minister herself is more secure in her position (not at all the case), but because she knows that a change of leader is more detrimental at this point in the Brexit cycle than her staying. That begs the question: Will it embolden the Prime Minister to resist Party opposition to the compromises they sought in the Withdrawal Agreement? Without a ‘hard’ Brexiteer as leader, Eurosceptics pushing for a harder Brexit deal will likely fail.
   
• Another take-out from the no-confidence vote is there’s a likelihood that Brexiteers in the Tory party find May’s deals and political leanings more palatable than the alternative. This alternative would be a Jeremy Corbyn-led Labour government and a possible new referendum. However, by no means should we rule out that alternative, even this week’s developments considered.

• The fact that May survived gives her even more metal for her negotiation tactics – ‘it’s this deal or no Brexit’ – a crash out is the least favoured option for all involved.

• This week also demonstrated there is very limited scope for renegotiation with the European Union. Both Donald Tusk and Jean-Claude Juncker stated Tuesday there will be no change to the Withdrawal Agreement. However, that’s not to say it can’t be tweaked at the margins, The Irish 'backstop' issue is one of – if not the – biggest point of contention for the Brexiteers. In the eyes of some, the backstop effectively cleaves off Northern Ireland from the UK at the Irish Sea rather than the Irish border. Under the backstop rules, the ‘flow of trade and people’ is not allowed into mainland UK, but is allowed into Northern Ireland.

Now we have capped off the actuals, let’s consider some of the hypotheticals:

• Let’s assume Prime Minister May can negotiate some form of new assurances from the EU, enough to persuade a majority of Eurosceptics or dissident Members of Parliament to change their positions. Will the deal end up being a ‘half-and-half’ deal that leaves the UK in economic limbo?
   
• Going back to the first part of that point, what if the assurances are not enough to persuade enough MPs to change their vote?
   
• Could Labour call a no-confidence vote in the House on the notion the House is unable to govern due to what would technically be the second failure of the bill?
   
• If that was to fail, could Labour convince pro-EU Tory MPs to cross the floor by proposing a second referendum?
   
• If May was to lose the January 21 ‘meaningful vote’ on a tweaked Brexit deal, the most likely scenario would be a cross-party coalition that is pro-EU. That would set the stage for negotiating a pro-EU deal. This would alleviate the risk of a crash out, something that would occur if Brexiteer ideas were adopted right now (think ‘Norway-styled’ membership, a Plan B if you will – however, this is not a true Brexit).

After a week of Brexit Shambles, what’s the conclusion then? No one likes the May deal, but it may well endure as everybody’s second-best solution. That secondary support makes the deal more durable, and more likely to pass in the House before March 29.