May’s deal fails 391 to 242 as “legal risks remain unchanged.”

17 Days to Brexit.

17 Days to Brexit.

Ouch.

On the topic of Brexit and with 17 days to go, Theresa May’s recent ‘meaningful vote’ on the proposed EU Withdrawal Agreement (WA), has failed 391 votes to 242.

The reason?

Whilst a lower defeat margin (149) than in January (230), May’s latest deal does not remove the ongoing risk of a permanent ‘Irish backstop’.

The problem, as seen by dissenters and confirmed by the Attorney General, is that May’s WA preserves the risk of the UK being trapped into a permanent and hard Irish border (all 310 miles of it) if no full trade deal with the EU is reached after the transition period.

No one wants to return to hard borders, checkpoints, trade flow friction and worst of all, a major threat to Irish peace.

Around 6 hours before yesterday’s 7PM vote, the Attorney General Geoffrey Cox delivered a fatal blow when he advised Parliament that the deal reduced the level of that risk, but did not remove the risk.

In effect “the legals risks remain unchanged.”

It was pretty much over when Northern Ireland’s Democratic Unionist Party confirmed its 10 MPs would vote against the deal, some 4 hours before the vote took place.

Thereafter, and whilst some Conservatives did ‘switch’ in support of May’s deal, hence the lower defeat margin, the deal was headed for the shredder.

A tense and frustrating groundhog day for May and the Government.

So, what now?

Today, MPs will be asked to vote on a ‘no deal’ Brexit. This would mean an exit with no WA and no ongoing framework. Brave new world or train wreck?

If that vote is defeated, there will likely be a vote on Thursday to extend Article 50. In other words, the can will be kicked, if allowed by the EU.

The other options would have been (and might still be) as follows:

  • Re-negotiate up until the EU Summit on 21 March (probably May’s favored route and also favored by Wales).

  • New referendum (a second chance on a more informed basis still potentially defeats the reason a popular vote was called in the first place, however Northern Ireland peace and other items were not the well canvassed controversial issues they are now).

  • General Election to seek the people’s mandate (demands for this are increasing and avoid the back-pedaling required to call for a second referendum).

  • Remain (this is consistent with the Scottish and Northern Irish votes, plus The European Court of Justice ruled on 10 December 2018 that the UK could cancel the Article 50 Brexit process without the permission of the other EU members, if the UK Parliament voted that way - it doesn’t appear the UK Parliament wants to try this just yet).

On the other side of the House, Labour will continue to push for its own plan. Labour wants the UK to remain in the customs union and the single market during the transition period, during which time the UK and EU would work to negotiate a new customs union without tariffs with Europe and with no need for a Northern Ireland hard border. Sounds sensible, right?

But wait, the Scottish National Party has warned that if Brexit does occur, the party will agitate for another independence referendum. Broadswords. War paint.

Whether the EU negotiators have a different opinion on the breadth of options available, is opaque.

That is because a ‘no deal’ is the likely legal default position if the UK cannot negotiate an extension of Article 50 from the remaining EU members, all 27 of them.

After last night’s vote and disappointment with the UK Government’s inability to deliver, Donald Tusk for the EU suggested that an extension of Article 50 might be warranted, if there is compelling justification.

Stay tuned.

Why is this important for Australia?

If the UK leaves the EU under a ‘no deal’ scenario, the pound will continue to depress for some time, prices will likely rise due to higher priced imports and a weaker pound, and the UK economy is likely to flirt with and/or fall into a serious recession.

Sure, a recessionary UK is not like a recessionary China from Western Australia’s perspective, however it will contribute to global growth concerns and instability.

With the EU still supported by a massive €5.1 trillion lake of free and easy money, and the above-mentioned trade war unlikely to be resolved for good any time soon (if at all), this would be an entirely unwelcome outcome for trade and financial markets. Not to mention the social/populist contagion.

I hope common sense will prevail, but as always, UK/EU facing businesses need to continually reassess their competitive landscapes and build some optionality into their operating, financing and corporate strategies.

Regards, Mike

NextLevelCorporate is one of a very small number of independent corporate finance industry pioneers with decades of experience delivering conflict-free M&A, Growth Capital and Strategic Corporate Finance Advisory solutions. With a focus on solutions that capture competitive advantage, our sole objective is to help our clients to successfully buy, sell, finance or invest in companies and assets of any size, in and out of Australia.