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March 8, 2019 | EU Offers UK a Slap in the Face Deal: Assessing the Current Brexit Odds

Mike 'Mish' Shedlock

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.
The EU offered Theresa May a “new” deal, but a quick perusal shows it was a deal that the UK rejected long ago.

The Financial Times reports EU Offers New Brexit Backstop Plan.

When I saw the headline, I thought genuine progress was made. About 10 seconds in I realized otherwise.

One Eurosceptic Conservative MP said: “Barnier’s offer is a framework which is difficult to leave, couched in woolly language which explicitly splits our country in two. Do they think we are stupid?”

The “new” deal that May rejected before involves a “unilateral exit clause” as long as the backstop applies to Northern Ireland.

Slap in the Face

Theresa May appears set for a second humiliating defeat when she brings her Brexit deal back to parliament next week, after the EU’s chief negotiator, Michel Barnier, rebuffed her pleas for last-minute concessions. “European leaders tell me they worry that time is running out and that we only have one chance to get it right. My message to them is: now is the moment for us to act.”

But Barnier immediately appeared to rebuff the prime minister, by responding with an offer of reverting to his original plan, the Northern Ireland-only backstop, which May repeatedly said no prime minister could accept, because it risked creating a border in the Irish Sea.

The Northern Ireland-only backstop was vehemently rejected by the government’s partners in the DUP, who fear that it would effectively sever Northern Ireland from the rest of Britain by requiring checks as goods pass back and forth. And the DUP’s deputy leader, Nigel Dodds, said on Friday: “This is neither a realistic nor a sensible proposal from Michel Barnier. It disrespects the constitutional and economic integrity of the United Kingdom.”

A senior EU official admitted that Barnier’s response could be seen as a “slap in the face”.

Theresa May Caused This

Theresa May gave away too much, too fast, for no reason and received nothing in return. Now, it’s a game of chicken

Three Brexit Votes Coming up

Slap in the Face Certainty

The only certainty about the above diagram is that May will go down in a scorching defeat on March 12 unless Barnier comes up with a last second genuine offer. Timewise, that might not even be possible.

It’s even possible that May’s defeat on March 12 is nearly as bad if not worse than her loss by a majority of 230 in January.

Seriously Impossible to Figure Out UK Side

Anyone who believes they know what’s going to happen is fooling themselves.

For example, does anyone know what Theresa May’s second preference is? I don’t.

Is it a hard Brexit or a customs union? How about a resignation washing her hands of the whole affair?

Not that I would trust her, but she has never stated a plan B, or even hinted at one.

The one thing I an very confident of is that another referendum and a vote to remain out right are the least likely direct outcomes. A referendum does not solve the problem as no one knows the outcome.

Seriously Impossible to Figure Out UK Side

I believe the EU thinks the UK will be brutally punished if there is a hard Brexit. But I am certain that the EU will be hit much harder. His beliefs matter, not mine.

Is Barnier willing to cut a last second deal after the second meaningful vote? I don’t know. That may very well depend on what the EU thinks the damage a Brexit might cause on the EU.

It also depends on political arrogance. All 27 EU nations have to agree to changes. A single country that believes it will not be damaged just may decide to not offer any concessions or delays.

Assessing the Odds

Ultimately this will be decided by either a last second concession by the EU (it is possible they have already agreed to one privately), or more likely, by what Theresa May’s second choice is.

On that score, I do not believe anyone knows other than perhaps May’s husband. Perhaps she does not even know herself.

General Order

  1. May’s Deal
  2. No-Deal with a delay
  3. No-Deal with no delay
  4. Customs Union
  5. May Resigns – Punting the Problem – Does not solve anything other than relieve May of some responsibility
  6. Referendum with unknown consequences, assuming the EU agrees to suspend Brexit.
  7. Outright direct cancellation

I rate options one and two as approximately equal likely. May’s deal may very well take three votes with a last second EU clarification.

By the time you get down to options 6 and 7, the odds are very slim. Either may require number 5 to happen. Number 7 is viable technically, but not politically. That’s why I have it last.

The remainers voting against May’s deal hoping for number 6 or 7, may very well trigger number 2 or 3.

If May’s second preference is No-Deal the odds of 2 and 3 rise dramatically while option 1 falls to the third place. If her second preference is a customs union, then bump up number four.

Mike “Mish” Shedlock

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March 8th, 2019

Posted In: Mish Talk

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