After Theresa: The Brexit Mess and the EU

By Holger Schmieding*

The new UK prime minister will face almost exactly the same position from the big EU27 as Theresa May did. For two reasons, the position of the EU27 may even be hardening slightly over time:

1. The political turmoil in the UK strengthens the incentive for the EU27 to do whatever they can to safeguard their internal coherence rather than straining it by granting the UK concessions that some member countries object to.

2. The fear of a no-deal hard Brexit is fading somewhat on the continent. The longer this tail risk has already been discussed and prepared for, the less of a shock it would be if it were to happen.

The choice of options

If the new UK prime minister is lucky, she or he will have a choice of four options as the Brexit deadline approaches on October 31st:

1) pass the Withdrawal Agreement for an orderly Brexit,

2) leave without a deal,

3) revoke Brexit, or

4) sign up to a multi-year extension until well after the next scheduled UK general election.

Note that if the new British Prime Minister is unlucky, the EU27 will not even offer the last option of a new extension. There is very little appetite within the EU to let the Brexit issue fester for longer.

Patience wearing thin

Half a year ago, most EU members would probably have preferred that the UK stays in the EU, with only some (France) not sure about it.

After half a year of political theater in the UK, it may well be that, by now, many EU countries would be too afraid of a deeply divided UK disrupting the EU to really want it to stay.

Instead, many on the continent may now see an orderly “velvet” Brexit as the least bad among the realistic outcomes.

*chief economist at Berenberg Bank in London.
** First published in theglobalist.com