Brexit Monitor - 60% probability of a long Brexit extension

Key takeaways

• See update game tree on page 3.

• Most likely no vote on the full Brexit deal before EU summit on Thursday

• We now believe that a long Brexit extension is more likely than a short one (60% and 30%, respectively). Higher chance of no deal by accident if EU leaders do not grant the extension (10% probability of this not happening).

• A long extension may increase the pressure on the Brexiteers to such a degree that they end up backing the deal. Deal may be put forward for a vote again next week – if the Speaker allows it.

• Overall, it seems like we will get a long extension or May's deal will pass soon. We still think May's deal passing is the most likely final outcome and a second EU referendum (after a long extension) is the second most likely final outcome.

EU to decide unanimously on Thursday

After the many votes last week, we think it is a good idea to take stock of Brexit again (see updated game tree page 3). As of today, it seems unlikely that there will be a third vote in the House of Commons on May's Brexit deal before the EU summit starting on Thursday, 21 March. This is not only because of the lack of support but also because Speaker John Bercow has made it clear that he will (at least in principle) not allow for a third vote unless there are "substantial changes" to the current deal. The reason is that two votes on the same motion are not allowed during the same "session" (parliamentary year). The current session ends this summer. Of course, there are workarounds but all else being equal, it does not make life easier for Theresa May, as she may need to wait until July before putting it forward to a vote again. A clear workaround would be if May suddenly found a majority backing her deal, which would demonstrate to the Speaker that there is demand for voting on the deal again. Another, but less likely, workaround would be if the exit date were changed to a later deal.

The big question is how the EU27 leaders will respond when they meet on Thursday. Against what many thought before Brexit negotiations (and may still think), the EU leaders have been the real Brexit hawks, while Juncker, Tusk and Barnier have been more willing to compromise. It is clear that the EU27 leaders are annoyed about spending time on Brexit, as they have also other things to deal with, also domestically. Still, we think the EU27 leaders will end up grating the UK an extension. Yes, Brexit may be annoying and time-consuming and an extension is not only for the better, but probably still better than adding a no deal Brexit to the current mix of a slowing economy and politics turning violent (including outright terror attacks) in some countries.

If we are right, it is more about whether the EU27 will accept a short (3-6 months) or long extension (perhaps even as long as lasting until year-end 2020). The decision has to be taken unanimously by the EU27 leaders. While we previously thought a short extension was in the case, we have changed our minds and now expect a long extension (60% likely versus 30% probability for a short extension). The EU leaders will probably recognise that the benefits of a long extension are greater than for a short one.

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