The British Conservative Party loses its parliamentary majority in the 8 June elections.
Even less visibility on the Brexit process.
It is possible to blame (albeit only partly) May’s failed gamble on a disavowal by some Britons of her hard Brexit strategy (i.e., a complete exit from the single market and from the jurisdiction of the European Court of Justice, a preference for “no deal at all” over a “bad deal”, and a veiled threat to use taxes to enhance the UK’s competitiveness). However, the election outcome is unlikely to make negotiations go off more smoothly. In the near term, the question arises of whether May will even hold onto her position, while it is with her that the Europeans had been preparing for months to negotiate. What’s more, a British government with a smaller parliamentary base could be held hostage by small groups of Conservative MPs (including the most Eurosceptic ones) or DUP MPs pushing their own Northern Irish agenda. And, lastly, the possibility of new elections cannot be ruled out before a Brexit deal is reached if that’s what’s needed to get out of a governance impasse. This prospect could limit the scope of any prior headway in negotiations.
The March 2019 deadline looks very tight.
A higher level of uncertainty is therefore probably in store, that could hurt the British more than the Europeans. Temporary doubts could even flare up on whether an agreement is even possible. In the end, however, we still believe that common ground will be found, as British-EU trade regulated only by WTO clauses would be detrimental to both parties. This common ground will probably include free trade in goods, partial free trade in services, and compromises on sticking points such as free movement of persons and the UK’s contribution to the European budget.
Tristan PERRIER, Laurent CROSNIER, Kasper ELMGREEN
Global Views Analyst