No-Deal Brexit Odds Greater Than You May Think

With the backing of DUP MPs, Theresa May Survived a Vote of No Confidence 325-306.

Most expected that result, as did I. However, Labour leader Jeremy Corbyn is free to repeat the maneuver down the road, and he is nearly certain to do so. Thus, today's vote changed nothing. If anything, the vote highlights the fragility of May's predicament.

If May agrees to do anything that DUP doesn't like, they will abandon her. At some point, a dozen or more Tories might decide the same thing for various reasons.

Corbyn Declines to Meet With May

Following the vote of no confidence, Theresa May declared a get together with all the parties to prepare a way forward. Corbyn rejected the invite unless May took hard Brexit off the table.

She couldn't do that even if she wanted to because enough Tories would then abandon her in the next motion of no confidence.

See where this is headed? Same impasse.

Brexit Delay

The Financial Times reports EU Indicates it Could Accept a Delay to Brexit - With Conditions.

Some interpret this as an indication there will be a delay forever until May gets her way.

There are numerous problems with the notion.

It requires unanimous consent from all EU member countries. France in particular is leery of allowing that. DUP is unlikely to allow that. A sufficient number of Tories might also get tired of the tactics.

Moreover, France wants a commitment that the UK honor the Irish backstop for the duration. The backstop is precisely the problem for DUP and many Tories.

Finally, there are European Parliament elections in May. Is the UK in or out? No one has worked out a solution yet. They will likely work out a fudge, but this is the least of the problems with perpetual delay.

Opposing Views, Same Place

1. Jeremy Warner says the Brexit dream is over, or so say the markets, and they are probably right
2. Tim Stanley says Why are Remainers so happy? Right now, Britain is on course for a no-deal Brexit

Both articles are from the Telegraph, and both were posted today. They both cannot be correct.

I side with Stanley. And I posted numerous reasons yesterday.

No-Deal Odds Greater Than You May Think

Let's tune in to today's Eurointelligence report vs what I said yesterday in No-Deal Brexit is the Most Likely Outcome: 2nd Referendum the Least Likely

Eurointelligence: Looking at last night’s Brexit vote in the cold light of the morning, our first thought is that automatic departure from the EU on March 29 remains the law of the land. In that sense, yesterday’s vote has changed nothing. The financial markets concluded that the risks of a no-deal Brexit are reduced. We think the opposite is the case, but for reasons that may not be immediately obvious.

Mish: Forget about a 2nd referendum or an election saving the day. It's far more likely proponents of "remain" actually cause a no-deal Brexit by clinging to ridiculous hopes.

Eurointelligence: After the 230-vote defeat in the House of Commons, we picked up two important pieces of information. The first is that Jeremy Corbyn’s strategy will consist of piling on one confidence vote after another - as opposed to supporting a second referendum. He will do so hoping that one of those votes will eventually succeed as the Brexit deadline approaches. The confidence vote scheduled for today will almost certainly fail. Barring some new developments, this also means that he will not support a second referendum. Corbyn, not Theresa May, will run down the clock.

Mish: Corbyn tabled a motion of no confidence. Unlike motions from within the party, there is no limit to the number of times he may try that tactic. The UK "Remainers" are cheering today's vote as if they have a chance at a second referendum. It's theoretically possible, but it's the least likely outcome.

Reasons Against Second Referendum

1. People don't want it.
2. MPs don't want it.
3. The EU is highly unlikely to wait for one
4. Heck, no one even knows how to word it

Eurointelligence: The other piece of strategic information is that May will try to maintain her equidistance between no deal and no Brexit. If she were to rule out no Brexit and support no deal, her strategists fear a sufficient number of hardline Remain MPs might eventually support a no-confidence motion. At the same time, she cannot support a second referendum either. After yesterday’s crushing defeat, May's deal as it now stands is off the table. What about Norway-plus? There is no great merit in a Norway-style deal compared to what May has negotiated, except to give MPs an opportunity to support the withdrawal agreement without loss of face. But we doubt that Norway-plus is going to be acceptable to Corbyn. For all his tactical prevarications, the Labour leader has a clearly-stated Brexit preference - membership of the customs union. But there is almost no support for this option in the Tory party, as it would preclude the UK negotiating third-party trade agreements.

Mish: If at some point a majority for a Norway deal surfaced, DUP [or Tories] could scuttle it by siding with Labour in a motion of no confidence. Corbyn would likely chomp at the bit.

Eurointelligence: We see no parliamentary majorities for outright revocation, or for a second referendum either - not by a long shot. What about a request to extend Art. 50 without a deal - as a sheer act of desperation? If there really is a firm majority to stop a no-deal Brexit, then surely this majority could at the very least come together to extend and pretend, and possibly do so indefinitely. We look at the EU side of such a Faustian bargain below, but we should ask ourselves first why Corbyn would support a blind extension when he has May on the ropes. He wants elections, and the surest way to get there is a looming cliff edge. One Berlin correspondent quoted a German politician calling for an unconditional, not time-limited extension of the Brexit deadline. But that person seems not to have read Art. 50: it would be have to be requested by the UK first. And, from the perspective of the EU, it would be political madness to go down this path as it would have severe implications for the balance of power within the EU itself.

Mish: Given what happened today, and based on the above analysis, a no deal Brexit is the most likely state of affairs, one way or another.

Eurointelligence: We could see a scenario in which May’s deal may survive, but not May herself. Another leader, capable of reaching out to the opposition, might be needed. May has lost too much trust during the last two years to be able to negotiate a cross-party compromise.

Mish: The above complications all point to May being outed and replaced by [Boris] Johnson, who wants a hard Brexit.

Eurointelligence: Pro-Remain UK commentators have marveled at the unity of the EU during the negotiations, but this unity was critically premised on the assumption that the UK would never crash out of the EU without a deal. Once the realization sets in that this may not be so, expect divergent interests to come to the surface. From a simple perspective of political risk management, Germany has no interest in exposing its car industry to tariffs from the UK as well as to tariffs from the US, especially when the Germany economy may be on the verge of a recession.

Mish: No matter how one twists and turns, a no-deal Brexit is the default option. The only wildcard left is the EU. If the EU offered a hard guarantee there would be no permanent backstop, May's deal could potentially garner enough support. A no deal Brexit is the most likely state of affairs, one way or another. Many paths lead to a no-deal outcome. There are too many possibilities to say no-deal is likely. Rather, it's the most likely option of the bunch.

Standing With My Analysis

Counting of the financial markets to ascertain the outcome seems more than a bit silly. The Financial markets never thought people would vote for the referendum, but they did.

My comments in Mish vs. Eurointelligence were presented before the Eurointelligence report came out.

I am standing with my analysis and Eurointelligence reached a similar conclusion today. There may be an extension and an extension is needed, not to prevent Brexit but rather to better manage a WTO-Brexit.

Let's stop the absurd fearmongering, without which there would likely be overwhelming support for a managed WTO-Brexit. The extension is necessary only because May wasted two years negotiating the worst trade deal in history.