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How Do You Like Your Brexit In The Morning – Hard, Soft, Smooth, ‘English’, Or Late?

Courtesy of ZeroHedge. View original post here.

British Prime Minister (for now) Theresa May is desperately cobbling together a deal today with a small Northem Irish political party that she needs to stay in power after a disastrous election that destroyed her authority days before Brexit talks are due to start.

So how did we get here? Hedge Fund CIO Eric Peters succinctly sums up the state of play…

“We’ve had austerity rammed down our throats, it’s brought about inequality, it’s brought about the type of society that nobody wants – a low pay, race to the bottom society,” announced Mcluskey, leader of Unite, Britain’s largest trade union.

“Jeremy Corbyn came along and offered an alternative.”

And the Brits ate it up. Particularly youngsters, our future. 63% of 18-34 year-olds voted Labour, 27% Conservative.

And they didn’t vote moderate old Labour, they voted new Labour, led by an unreformed Marxist.

“Ms. May made a fundamental strategic error with plans to overhaul social care, which became known as a dementia tax,” confessed a Cabinet member. “I don’t think you can underestimate the achievement of what we’ve just managed,” said a Tory MP.

“Instead of talking about Brexit and the strong economy – we ended up talking about social care, winter fuel payments, and taking lunches off children,” he continued, remarking, “We didn’t shoot ourselves in the foot, we shot ourselves in the head.”

However, despite all this drudgery, the politicial propaganda is running at full steam. As one wise veteran of the British empire noted (h/t Steve C):

The Conservatives claimed victory as they were the largest party.

Labour claimed victory as they had substantially increased their share of the votes.

The Lib Dems were ecstatic as they won more seats than last time.

The SNP were over the moon as they were still the largest party in Scotland.

Even UKIP were happy as they only lost 1 seat, 12 fewer than the Tories!

In fact, it’s very difficult to find a party who aren’t putting a positive spin on their party’s result.

But still, the big question is what happens next?

Well, as Reuters reports, first things first, this week is going to be a busy one for May…

MONDAY, JUNE 12

- Northern Ireland talks

The DUP and Irish nationalists Sinn Fein are due to restart talks to form a new power-sharing government in Northern Ireland and avoid devolved power reverting to the British parliament in London for the first time in a decade.

The sides have until June 29 to secure a deal, but observers fear any concessions to the DUP by May’s Conservatives could complicate the talks, deepening the region’s political crisis.

- May’s top team of ministers to meet

May has confirmed five of her most senior ministers will remain in their pre-election roles, but has yet to announce whether there will be any changes to other jobs within her top team of ministers, known as the cabinet.

Defence Minister Michael Fallon said on Sunday the cabinet would meet “early next week”. Cabinet meetings usually take place on a Tuesday but British media have reported it could meet on Monday.

TUESDAY, JUNE 13

- May to meet with DUP leader Arlene Foster

Discussions were held between May’s Conservatives and the DUP over the weekend with a view to the Northern Irish party supporting May’s minority government on key votes in parliament.

Foster is due to travel to London on Tuesday to meet May to discuss the details of a possible arrangement.

- May meeting with Conservative lawmakers

May is due to meet with Conservative lawmakers in parliament. The chairman of the influential 1922 Committee of Conservative lawmakers Graham Brady has said the meeting is due to take place on Tuesday but could be brought forward to Monday.

British media have reported that moves were afoot within May’s party to dislodge her after her election gamble – aimed at increasing her party’s majority in parliament ahead of Brexit talks – backfired.

A leadership contest can be triggered if 15 percent of the Conservative’s 318 lawmakers write to Brady saying they no longer have confidence in May.

- Parliament returns to elect speaker

Parliament reconvenes following the national election to elect a speaker for the lower house, the House of Commons. Swearing in of lawmakers will then begin, and continue for the rest of the week.

THURSDAY, JUNE 15

- Bank of England’s Mark Carney and finance minister Philip Hammond speak

The two men in charge of Britain’s economy deliver their annual Mansion House speech on Thursday when they are likely to try to calm businesses and investors worried by May’s precarious grip on power and the uncertain outlook for the UK economy which has lost a lot of its momentum of 2016.

MONDAY, JUNE 19

- Brexit talks begin

Talks on Britain’s exit from the European Union are due to begin. May has said her government will go ahead with these discussions as planned.

- State opening of parliament and Queen’s Speech

Parliament is due to be formally reopened. Queen Elizabeth will deliver the “Queen’s Speech”, setting out the government’s plans for the new parliamentary session.

The debate on the Queen’s Speech usually lasts about five or six days. The vote at the end of this debate is considered an important symbolic test of the ability of a government to command the confidence of the House of Commons.

If May can get through this vote with the help of the DUP she can continue in government. If not, the opposition Labour Party would expect to have an opportunity to put forward an alternative Queen’s Speech and see if it could win the support of a majority in parliament.

If neither party can command a majority in parliament for their Queen’s Speech, it is likely a fresh election would be called.

And, if all that goes as planned, the fun really begins with Brexit negotiations kicking off.

As Reuters’ Alastair Macdonald reports, Theresa May’s insistence on starting Brexit negotiations next Monday is questioned by Britons who think the prime minister’s calamitous election setback means she should now seek to stay in the EU single market. However, in the year since Britain voted to leave the European Union, the other 27 EU states have hardened their common position and narrowed British options for avoiding a “hard Brexit”. The following scenarios touch on what may happen now voters have dashed May’s hopes for a bigger majority to negotiate and left her dependent on pro-Brexit Ulster Protestants and on political rivals reportedly eyeing their moment to oust her.

1. HARD, SMOOTH BREXIT

May, a former supporter of EU membership, filed for divorce in March, meaning Britain would leave the single market and customs union and end EU court oversight, EU budget payments and free migration from the EU to Britain.

After a transition period, May wants an EU-UK free trade pact.

Under Article 50 of the EU treaty, Britain will no longer be a member on March 30, 2019, whether or not the two sides agree a deal to avoid leaving businesses and citizens in a legal limbo.

The EU priority is “damage control” by limiting the economic disruption and saving the Union. That would curb discord and any further breakaways by showing Britain was no better off out.

EU Brexit negotiator Michel Barnier has instructions to seek a deal that preserves the rights of 3 million EU citizens in Britain, recovers money owed by London (possibly $65 billion) and limits any damage to Irish peace from a “hard” EU-UK land border.

If “significant progress” is made on that, EU leaders may then open talks on a transition to a free trade agreement.

In this ideal scenario for Brussels, the outline divorce is set by the end of this year, agreed in full by late 2018 and ratified by lawmakers by March 2019.

There would then be several years of transition to a new treaty, even deeper than a trade pact with Canada, plus close cooperation on security and science.

BUT…Brussels hoped May would win a big majority to help her sell compromises needed for this scenario. Some EU officials now doubt she can remain in power if she accepts too many European demands.

2. HARD BREXIT WITH NO DEAL

May has said “no deal is better than a bad deal”.

BUT…EU leaders think she is bluffing because no deal would spell economic and legal chaos. Yet EU officials have grown increasingly worried that both sides may box themselves in, with little time left.

Before the election, May and her ministers said they would not pay the EU billions on leaving and want trade talks now. Barnier, meanwhile, cannot stray from his mandate without a new, unanimous agreement of the 27.

While neither side of the negotiations wants potentially chaotic limbo, a breakdown could leave both with a messy and unpopular last-minute fix.

3. NO BREXIT

A year ago, 48 percent of Britons voted to stay in the EU, including most lawmakers from the main parties, most Scots and most in Northern Ireland. Some still cling to the hope of the Brexit process being reversed.

BUT…That hope seems forlorn now that both big British parties now accept Brexit, as does Brussels.

  • First, Britain would need a new government which wants to stop it. Neither a Conservative party coup against May nor a left-wing coalition led by Jeremy Corbyn’s Labour, possibly after a new election, seems likely to deliver that.
  • Second, it would have to overturn a British legal opinion that the request to leave under Article 50 cannot be revoked.
  • Third, it would need the EU to agree, most likely by unanimous vote of all 27. And it might mean taking time for another British referendum.

Formally, EU leaders insist they would rather Britain not leave. But the prevailing view in private is that the Union is safer without a big member that has always been lukewarm on the project and is now so divided as to be unreliable.

4. LATE BREXIT

Political chaos in Britain has prompted calls for more time to negotiate, possibly on different terms from those May has sought. Article 50 allows for an extension to the two-year deadline if the other states unanimously agree.

BUT…EU leaders will hesitate to open a divisive issue among them and want Britain out before European Parliament elections in May 2019. The two-year deadline is designed to weaken the leavers’ hand.

5. ENGLISH BREXIT

Scotland’s government wants a special deal to stay in the single market or, if not, to secede and stay in or rejoin the EU.

Ireland’s EU commissioner has espoused the idea of keeping Northern Ireland in the EU customs union. May’s unionist allies in the province also want to avoid a hard border.

BUT…On Scotland, May and the EU doubt a “differentiated deal” on trade and migration can work, while Spain, battling Catalan separatists, may block it. Electoral losses for the Scottish nationalists have also weakened their hand to threaten a new independence vote.

On Ireland, such a scenario appears hugely complicated without raising some form of trade barriers between Northern Ireland and the rest of the UK. That would be anathema to the hardline Protestant DUP.

6. SOFT BREXIT

This could be the key battleground in the coming months.

Many Brexit opponents suggest that, if it goes ahead, Britain should at least stay in the single market for the sake of jobs and trade.

BUT…While EU leaders do not rule that out, they have set tough conditions similar to those imposed on Norway, which can access EU markets in return for cash contributions, taking EU migrants as well as refugees and observing rules overseen by EU courts.

Such terms are far from what Brexit supporters want and also rob Britain of its big say on EU policy.

And Europeans, as well as May, rule out “cherry picking” deals that give Britain access to certain EU markets, like banking. EU leaders say that would risk undermining the whole single market.

British proponents of soft Brexit say the EU, especially big exporters to Britain, could be persuaded. But the bloc seems for now committed to not breaking ranks. So talks on “soft Brexit” could be a waste of time.

In October, EU summit chair Donald Tusk said: “The only real alternative to a ‘hard Brexit’ is ‘no Brexit’.” Pushing soft Brexit over hard is seen increasing the risk of replacing a smooth Brexit with rough.

For now, the delusion remains as Bloomberg reports that some of Theresa May’s most senior ministers are plotting to soften her plans for a hard Brexit, even suggesting the U.K. could stay in Europe’s single market and customs union, as the prime minister fights to stay in power.

Chancellor Philip Hammond is said to be positioning himself as the grandfather of a softer Brexit. He told May he would only agree to serve in her cabinet if she gave him more influence over the withdrawal negotiations, according to one person familiar with the matter who declined to be named on confidential discussions.

“It’s very hard to see how a hard or disruptive Brexit can come out of this,” Tony Travers, professor of politics at London School of Economics, said in an interview.

The British public have in effect voted “to leave the European Union but in a way that doesn’t affect their lives or their jobs or anything to do with them or their sector,” he said.

Which of course is farcical. How anyone can imagine EU dureaucrats now backing down and allowing UK to leave with anything other than pain inflicted is a joke… “whatever it takes” was what Draghi said and they’re not about to flex to the Brits and offer every other marginal nation under their union the chance for a soft exit from their control.

The economy is likely to face a number of headwinds over the next two years of negotiations with the EU including a squeeze on real incomes and uncertainty about future trade arrangements once the country leaves the bloc in 2019, and as Bloomberg Intelligence’s Dan Hanson notes, the loss of growth momentum at the start of 2017 is likely to mark a period of sub-par expansion for the U.K. 

The Bank of England will probably continue to prioritize growth and look through above-target inflation, keeping policy unchanged until after the U.K. has left the trading bloc.

Prime Minister Theresa May’s loss of her majority in Parliament increases the risk of a disorderly Brexit. Even a smooth transition to a limited trade deal is likely to leave the economy smaller. BI Economics’ forecasts output being 2% lower by 2021 than if the U.K. had voted to remain.


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