An opening of the Brexit deadlock nears

Subject Brexit outlook. Significance If Prime Minister Theresa May can get the Withdrawal Agreement (WA) and Political Declaration on future relations approved in Parliament this week, the United Kingdom should leave the EU on May 22. However, it remains unlikely that her deal will gain a parliamentary majority, setting up a different deadline. The United Kingdom must come up with an alternative plan by April 12 or face the prospect of crashing out of the EU with no deal. Impacts The United Kingdom could have a new prime minister within weeks; a general election cannot be ruled out. The EU will remain distracted by Brexit as it heads into a season of political change beginning with European Parliament elections in May. As a final option, May could commit to resigning to get support for the WA from Conservative Party MPs.

Significance The next challenge for UK Prime Minister Theresa May is to reconcile the requirements laid down by the EU and domestic political pressures in progressing the Brexit talks still further. Impacts The EU’s proposals would not allow the United Kingdom to sign trade deals before the end of transition. A Canada-style trade agreement would damage the United Kingdom’s services sector. Failure to negotiate a transition period within the next few months could lead to some companies beginning to relocate.


Subject The package of reforms on a new EU-UK relationship. Significance The agreement between the United Kingdom and its EU partners sets the stage for the UK referendum on EU membership, which Prime Minister David Cameron has set for June 23. Cameron said he had negotiated new terms that would allow the United Kingdom to remain in the EU. Impacts The deal bolsters the campaign to remain in the EU, but the referendum outcome is still highly uncertain. The deal will only come into effect if the outcome is for remaining, forestalling a second referendum for better terms. If the outcome is for leaving, a new relationship with the EU would have to be negotiated during a two-year transition period. It would also probably lead to a second Scottish independence referendum and UK break-up.


Significance The bill establishes a new statutory regime for goods and services trade within the United Kingdom, which is essential for signing trade agreements. However, it also contains clauses on the Northern Ireland Protocol which threaten to override the legally binding EU-UK Withdrawal Agreement (WA), while giving London new powers over the devolved administrations, including on state aid. Impacts The EU is unlikely to collapse the trade talks with the United Kingdom. An EU-UK deal is still possible because the alternative would seriously threaten Prime Minister Boris Johnson’s political survival. The new bill, on top of COVID-19, will give the opposition Labour Party an opportunity to overtake the Conservatives in the polls.


Significance The summit represented an opportunity for UK Prime Minister Theresa May to discuss her Brexit plans directly with other heads of state and government rather than doing so via the European Commission’s Article 50 task force. Impacts The negative mood music from the Salzburg summit is weakening May’s position in her Conservative Party. The poor personal relationship between May and her Irish counterpart Leo Varadkar is complicating discussions on the Irish border. The unity of the EU27 could crumble once trade negotiations bring their divergent interests to the fore. The EU is maintaining its insistence that there can be no ‘hybrid model’ between Norway and Canada.


Subject Brexit and trade. Significance As both candidates for the Conservative Party leadership say they would countenance the United Kingdom leaving the EU without a deal on October 31, the likelihood of a no-deal Brexit is increasing. Impacts A no-deal Brexit would leave the legal status of UK citizens residing in the rest of the EU uncertain. It would cause the pound to depreciate, partially offsetting tariffs and the costs of customs procedures. The EU will likely insist that any future trade agreement is contingent on London fulfilling its financial obligations for leaving the bloc.


Significance The move comes in response to London’s apparent determination to pursue a ‘hard' Brexit, taking the United Kingdom out of the European single market. While UK Prime Minister Theresa May has so far refused to grant the order, Scotland’s First Minister Nicola Sturgeon is adamant that "Scotland's future will be in Scotland's hands". Impacts Council elections in May will give some indication of public feeling on independence. While the stakes in this referendum will be higher than in the last, it is likely to be peaceful. London's need to maintain an open border with Ireland will negate any threat of a hard border with Scotland.


Subject Prospects for the United Kingdom in 2018. Significance UK politics in 2018 will still be under the long shadow of the surprising setback Prime Minister Theresa May suffered in the early election she called in June. Meanwhile, growth forecasts for the economy have been downgraded and downside risks remain high. Since the Brexit vote in 2016, the United Kingdom has gone from one of the fastest-growing G7 economies to the slowest.


Subject New UK government agenda. Significance Prime Minister Boris Johnson’s Conservative Party won a substantial majority in the December 12 election by winning dozens of seats that traditionally had been Labour Party strongholds. While Brexit played a crucial role in appealing to first-time Conservative voters, Johnson plans significant investment beyond south-east England to boost the Conservatives’ credentials in the ‘left-behind’ regions of the United Kingdom. Impacts There will be little opposition within the Conservative Party to public-sector reforms designed to improve delivery. The legally binding pledge to leave the EU by December 2020 would increase the chances of a limited EU-UK free trade deal, at best. Poor election results for the DUP and Sinn Fein increase pressure on both parties to revive Northern Ireland's devolved government.


Significance Cameron is gauging his counterparts' positions before presenting his reform agenda at the June 25-26 EU summit. He seeks the other EU states' support for a package of reforms that will enable him to claim that he has secured a better deal for the United Kingdom in the EU, and thus campaign for an 'in' vote in the EU membership referendum he has promised by end-2017. Cameron is seeking to build backing for some reforms that would apply across the EU, rather than only seek special treatment for the United Kingdom. However, some of the reforms he has mooted are unacceptable to many other EU states. Impacts The greatest impact of the reforms that Cameron secures could be on the scale of the split in the Conservative Party over EU membership. Some of Cameron's reforms could bring important changes across the bloc, as well as set precedents for other member states. The UK renegotiation will generate bargaining between member states that will affect their negotiation of other issues.


Subject Prospects for the United Kingdom to end-2018. Significance The government’s focus to end-2018 will be to negotiate a withdrawal agreement with the EU and balance the different Brexit factions within the ruling Conservative Party. Meanwhile, GDP growth is slowing as global activity is losing momentum and domestic political uncertainty combined with tighter fiscal and monetary policy is discouraging consumer and investment spending.


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