MPs who oppose a no-deal Brexit have joined together across party lines to try and stop Prime Minister Boris Johnson from 'proroguing' (a fancy term for suspending) Parliament. And as several legal challenges to Johnson's plan make their way through British courts, Wall Street analysts are trying to parse the most likely outcomes.
One team of analysts at Deutsche Bank, who have been closely following the increasingly convoluted Brexit process for more than a year, has updated their odds for various Brexit outcomes, along with a "simplified" flow chart that is almost comical.
According to the latest 'Brexit Update', entitled "Constitutional Warfare," the team, led by Macro Strategist Oliver Harvey, examined several potentialities for how the Brexit process might play out between now and 'Brexit Day' (Oct. 31).
As we noted earlier, PM Boris Johnson on Friday warned that MPs who have joined in the legal or political challenges to Johnson's plan have ironically increased the odds that the UK will leave the EU without a deal on Oct. 31.
Should all of the legal challenges to proroguing fail, MPs could opt to pursue a vote of no confidence in the government, or legislation to prohibit a 'no deal' exit. But if the past is any guide, the legislative approach would likely take too long, leaving the motion of no confidence and the formation of a government of national unity as the more likely option.
But an all-out rebellion against Johnson carries its own risks. For example, picking a leader for a national unity government could become a serious sticking point, as anti-no-deal Tories would vehemently oppose installing Labour leader Jeremy Corbyn as interim prime minister.
Already, several opposition MPs have ruled out supporting Corbyn as interim Prime Minister, leaving the question open as to who could lead the interim government. And there is also disagreement about whether the interim government should request an Article 50 extension from the EU27, as well as whether the UK should seek to revoke Article 50 altogether, effectively cancelling Brexit.
While most observers have effectively given up on the possibility that the withdrawal agreement might be renegotiated, DB believes there's still a chance. "In our view, there is room for compromise on the backstop. The EU27 would be willing to entertain additional guarantees concerning the backstop, including possibly a time limit," the analysts wrote.
However,if Johnson remains in power, the political consequences for a last-minute compromise with the EU27 on the backstop are clear. Should Johnson do a 180-degree turn on the backstop, he faces the prospect of possible defections to the Brexit Party from his own MPs, raising the prospects of another general election where the conservatives lose a sizable number of MPs to the BP, led by former UKIP leader and Brexit architect Nigel Farage.
Circling back to the odds of various outcomes mentioned above, the breakdown looks something like this:
- Successful no confidence motion before 10th September or in late October: 50% probability.
- Of which, unity government formed, followed by elections: 30% probability.
- Of which, no unity government formed, followed by no deal Brexit: 20% probability.
- Johnson administration completes a no deal Brexit on 31st October followed by snap election: 30% probability.
- Johnson administration completes successful renegotiation with EU27 and ratifies Withdrawal Agreement by end October: 10% probability.
- Parliament passes legislation to prevent no deal and Johnson government requests Article 50 extension: 5% probability.
- Parliament passes legislation to prevent no deal and Johnson government calls election before Oct. 31: 5% probability.
When it comes to what the market will be focused on in the near term, that will depend on what anti-no-deal MPs do next week: That is, whether they decide to try and legislate away the prospects for 'no deal', as MPs tried to do under Theresa May or whether they opt for a no confidence motion.
If MPs successfully pass legislation seeking to prohibit a 'no deal' exit, the ball will be back in the government's court, the DB analysts wrote. Johnson could choose to ignore the legislation - in which case MPs could opt for the no confidence motion and unity government route.
But there's always the possibility that Johnson might succeed in negotiating a new deal with the EU. After all, as we've explained in the past, despite the EU's insistence that the backstop is a non-negotiable part of the withdrawal agreement, the fact remains that it is completely unenforceable. By insisting that it be discarded, Johnson has effectively called Brussels' bluff. If they finally acquiesce, Johnson just might walk away with the 'holy grail' of Brexit talks: a reworked withdrawal agreement that he could sell to Parliament.