The Salzburg EU meeting did not go according to Theresa May’s plan. While it was unrealistic to expect a ringing endorsement of her Chequers plan, there were enough hints prior to the meeting that the Salzburg meeting could be constructive in helping move the UK towards sealing a withdrawal deal in October or November.
Talks at an impasse after Salzburg
However, after a series of miscalculations and misunderstandings, what she got was a pretty blunt rejection of her Chequers plan, with European Council President Donald Tusk saying that her deal “will not work” because it risks “undermining the Single Market”. In response, May gave a strong rebuttal upon returning to the UK, accusing her counterparts in Europe of showing the UK a lack of respect, declaring that she would not be bullied.
With the talks at an impasse, a ‘no deal’ Brexit was back on the agenda, and some observers predicted May’s leadership would come under threat at the Conservative Party Conference. Boris Johnson was supposed to steal the spotlight and derail’s May’s Brexit plan, but his performance did no more than remind people of his popularity with party members. One MP announced that he had written a letter of no confidence in the Prime Minister to the Chair of the 1922 Committee, but the hype around a leadership challenge turned out to be totally misplaced.
May recovers her footing at Conference
Instead, May delivered a solid speech, which helped silence her critics for the moment, defended free-market capitalism and Conservative views, launched a strong attack on the opposition leader Jeremy Corbyn, and painted a vision beyond the life of Brexit.
We are of the view that May’s leadership is more secure, and a no-deal Brexit is less likely than what the political noise suggests.
Regarding the Conservative Party leadership, launching a challenge against May right now would increase the risks of a general election and losing the government to Jeremy Corbyn, as there appears to be no credible alternative Conservative leader who would gain enough support from the House of Commons. The ultra-Brexiteers also probably do not have enough support to win the challenge, which would then grant May immunity from another challenge for the next 12 months. This political calculation suggests that Brexiteers would be better off using May as a shield to get through Brexit in March 2019 to ensure the UK leaves the EU.
The big question still hangs over future trading arrangements
Regarding the chances of a no-deal Brexit, it is important to distinguish between withdrawal arrangements and the trade deal. It is the former that needs to be signed, sealed and delivered by March of next year and the message here is that a deal is about 80% done. As for the latter – the future trading arrangements – what is required is a political declaration as part of the withdrawal deal.
It is clear that there is still some distance between the UK and the EU proposals on trade, but the difference of opinion could be fudged in a vague political declaration that the British could describe as consistent with May’s plan while the Europeans could describe it as consistent with a Canada-style free trade deal. Indeed, a new ‘backstop’ offer surrounding the Irish border issue seems to be brewing, and sources on the EU side are briefing that a deal is very close.
And then there’s the question of the Irish border…
The UK has not formally lodged a new proposal yet, but based on media reports, the Irish backstop solution appears to involve the entire United Kingdom remaining within the customs union – but not the single market – for as long as it takes to do a trade deal. News sources also suggest the EU will be happy with customs checks to be done away from the Irish border and as near as possible to the source of the goods rather than their destination. The backstop would also involve regulatory alignment on goods between Northern Ireland and the Republic of Ireland at least as far as livestock is concerned, with some checks taking place along the so-called wet border in the Irish Sea.
Although the UK and the EU appear to be moving in the right direction, the above proposal does not necessarily guarantee a withdrawal deal being signed in October or November. While the proposal is in line with the EU’s ‘Canada+++’ framework for its long-term trading relationship with the UK, the UK sees it as a temporary backstop that it hopes will never come into force.
Moreover, the compromise will look like capitulation to the Democratic Unionists, who have described their red line on any border between Northern Ireland and Great Britain as “blood red”. This having been said, there already is a hard border of sorts for livestock travelling between Great Britain and the island of Ireland. Remaining within the customs union would also complicate the process of doing trade deals, which will rile the Brexiteers – in theory, a trade deal could still be done on items not covered by the customs union, but in practice such a deal would be very hard to do.
A ‘no deal’ exit is not a given – yet
In the end, the Brexit saga comes back to the House of Commons and whether the Prime Minister can muster enough votes to support whatever deal she comes back from Brussels with. It will be a monumental task to get the Democratic Unionists, the Remainers and hard-line Brexiteers in the Conservative Party, and moderate Labour MPs to line up behind May’s deal.
But even if May fails, the UK does not automatically walk through a no-deal cliff exit. Instead, a variety of political scenarios may arise after May’s withdrawal bill is voted down. First, the campaign for a second referendum, which has already been brewing in the background, could suddenly gather much stronger momentum. Second, we know that there is a strong consensus in the Parliament against a cliff-edge Brexit, so the Parliament would likely instruct the Prime Minister to return to the negotiating table, in which case the UK may ask for an Article 50 extension. Third, the Labour Party – which has so far been reluctant to throw its support behind a second referendum – may change its position at that point in order to secure a general election.