What You Need to Know as the Brexit Deadline Nears

Mar 20 2019, 5:00 AMMar 20 2019, 9:11 AMMarch 20 2019, 5:00 AMMarch 20 2019, 9:11 AM

(Bloomberg) -- Just as the Brexit saga was about to come to an end, it got more dramatic and a lot more confusing. An already uncertain process was thrown into disarray as the U.K. Parliament twice rejected the divorce deal that Prime Minister Theresa May negotiated with the European Union. The exit day deadline of March 29 looks set to be extended, perhaps even for a year or more, giving Brexit’s opponents more time to reverse or at least soften the split. At the same time, the threat of a disruptive no-deal exit hasn’t gone away and businesses are scrambling to prepare.

1. Where’s this drama going?

After her plan was first routed in Parliament on Jan. 15, May vowed to renegotiate the deal. The EU offered some legal assurances but they didn’t go far enough for critics at home, and the deal was defeated again on March 12. May’s strategy had been to bring the deal back for a third vote in the hope of pushing it through at the last minute, but Speaker John Bercow scuppered that plan in a dramatic and controversial intervention on March 18. He ruled that the deal has to be changed substantially before it can be put to Parliament again. The EU says talks are over, leaving May with little choice but to ask for an extension to Brexit day. She will probably then have one more go at getting the deal through, presenting MPs with a choice: her deal or an extension so long that it could kill Brexit altogether.

2. How would an extension work?

May will ask the EU for more time at a summit on March 21, and it looks likely she will be granted it. The nitty-gritty is still to be worked out, and it’s not yet clear how long an extension May will seek. If her proposed Brexit deal is approved by Parliament, a three-month delay to exit day should be enough to tidy up the legislation. If her deal doesn’t go through, a much longer period will be necessary. The EU has made clear that the U.K. can’t have an extension just to buy time -- and that it has to use the extra period to redefine its Brexit policy. If it’s a long extension, the EU will also require the U.K. to take part in the European Parliament elections -- not a good look three years after the Brexit referendum.

3. What’s a no-deal Brexit?

There’s still a slim chance that Britain could crash out of the bloc on March 29 with no agreement or grace period. That would leave it with no legal arrangements to smooth trade and other transactions with its neighbors, snarling cross-border commerce. Bottlenecks could bring shortages of everything from food to drugs to manufacturing components. Both sides are preparing for the worst, for example taking steps to prevent a financial-markets meltdown. But while the measures can mitigate some of the more catastrophic outcomes -- such as flights being grounded -- they won’t address the obstacles to trade that would suddenly emerge. A second cliff-edge is now on the horizon -- at the end of June. If the U.K. doesn’t hold European Parliament elections and doesn’t have a deal by then, it will be ejected from the bloc on July 1 with no way back.

4. Why has May failed so far?

She faces opposition on all sides: from the pro-Brexit and pro-EU flanks of her Conservative Party, from the Northern Irish party that props up her government and from most of the opposition Labour Party, which wants to keep close trading ties to protect jobs. The main objection to May’s deal from Tories and the Democratic Unionist Party is to guarantees it includes to ensure that a new physical border doesn’t emerge between Northern Ireland, which is part of the U.K., and the Republic of Ireland, which will remain in the EU. Critics say this so-called “backstop” provision risks binding the U.K. to EU rules forever. They argue that May caved in to the EU and betrayed the electorate’s call to regain sovereignty, while treating Northern Ireland differently to the rest of the country.

5. What did the rest of May’s deal look like?

Alongside the divorce treaty was a non-binding political declaration on what future ties between Britain and the bloc should look like. It was vaguely worded, an intentional move designed to help May get the deal through a divided Parliament. But that vagueness became a liability as lawmakers complained May was asking them to sign off on a "blind Brexit" -- a departure from the EU without a clear sense of what the future holds. A permanent deal on economic and trading ties was meant to be thrashed out during the 21-month transition, or grace period, that starts the day Britain leaves (but only if the divorce deal is ratified).

6. Can the whole thing be called off?

Yes. But there are some huge obstacles. At least for now, there isn’t a majority in Parliament for a second referendum. Labour leader Jeremy Corbyn has come out in favor of a second referendum, but with reservations. May says it would undermine faith in democracy and rip the country apart. In any case, it’s not clear what the result would be: Polls indicate that support among voters is now more strongly in favor of remaining in the EU than leaving, but that was true last time too. Leave won in 2016 with 52 percent of the vote.

8. How is the uncertainty affecting global business?

Companies operating in Britain have bemoaned the government’s lack of clarity over Brexit’s impact, warning that unanswered questions about everything from trade policy to immigration laws are throttling hiring and investment decisions. Manufacturers who import or export goods now don’t know what will happen after March 29. The prospect of Brexit has already prompted global banks to move operations, assets and people to Frankfurt, Paris and other cities. Manufacturers and broadcasters have also started moving facilities, while companies are stockpiling to prepare for the worst.