Sterling has turned sharply lower on a the reports indicating that the EU would strongly oppose a long extension in the Brexit process (i.e. delay beyond May 23), according to reports citing a Reuters source story.
May wants an extension to June 30. The key here is the timing of the European Parliament elections, with the EU apparently insisting that the UK will have to exit before these are being held, or accept a very long delay and hold elections also in the UK. UK officials meanwhile have been arguing that because the EU parliament won’t sit until early July, an extension until the end of June would also exclude the UK from the obligation to hold EU parliament elections.
Meanwhile, the BBC, among other media sources, earlier reported that Brussels views Prime Minister May as having failed support a credible process that would allow parliament to find a cross-party solution after her own deal failed twice to win sufficient support to pass.
This ups the ante in Westminster and breaks what had been a sanguine attitude in markets about the risk of a disorderly no-deal Brexit. As things presently stand the government is due to table an amendable motion in the House of Commons on Monday, and will attempt to hold a third vote on May’s Brexit deal.
With the EU unlikely to concede any further ground on the Irish backstop issue, it’s hard to see that it would be permitted by the house speaker, who has demanded “substantial changes” before it cold be voted on again. It’s possible that May sill persists by adding that the deal would be subject to a ratifying referendum, which the UK’s attorney general has said would qualify as substantively different. A no-deal Brexit scenario is still unlikely to happen, though markets are right to be nervous.
Furthermore, a second referendum on EU membership, could take place only during an extension of Brexit (short or long one).
In case of a lengthy extension everything comes back in play, such as Revocation of Article 50 (No Brexit), General Election via a no-Confidence Vote on the government, Second Referendum, New Deal (complete renegotiation) ( i.e. the government could propose to negotiate a completely new Brexit deal), Exit EU without a Deal.
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Andria Pichidi
Market Analyst
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