Another Brexit Note with "scenarios"!!

So the PM decided to call off the meaningful vote on the withdrawal agreement that she had agreed with the EU a few days ago. It was rather unsurprising given the fact that the only debate in town was how big the margin of defeat for PM May would be!

I have read some ten-million articles on Brexit (yes, I do feel my time has come!), watched every video explainer, followed every tweet on #Brexit and talked to every human, dog and tree who was willing to talk about it, and here is what I have managed to learn so far:

What is the situation?

On 29 March 2019, the UK is officially required to leave the EU. The UK and the EU (hereafter referred as ‘the parties’) are presently busy in figuring out what happens after that date (yes, it is still not clear!) As of now, there are two major choices:

• The parties come to an agreement: We get a ‘transition period’, which would mean 21 months of status quo, followed by what’s known as the “backstop”, which is nothing but a temporary phase to be used as extra time, to sort out the details of the actual future trading relationship between the parties
• The parties do not come to any agreement: We get what’s called a ‘Hard Brexit’, trading relationships are disrupted, there are checks at the Irish Border, their cooperation on security ends, could disrupt the supply of food and medicines and even the landing of flights.

Obviously, the first option is preferable. So what is the predicament? Let’s see. The opposition to this deal is driven by two broad factors:

• The Backstop: Remember the period that was supposed to begin 21 months after UK’s exit from the EU? Turns out, as per the current deal, Northern Ireland will be treated differently as compared to the rest of the UK (England, Wales and Scotland), which means the ECJ and EC will continue to hold sway in Northern Ireland, goods crossing the Irish sea will need customs declarations and for regulatory purposes, mainland Britain “is essentially trade as a third country” by Northern Ireland for incoming goods. And if that wasn’t bad enough, this backstop could last… indefinitely! 
• While the backstop does present some legitimate concerns, not all in the House of Commons are truly concerned. There are people who don’t see eye to eye normally, but are united in their opposition to May’s deal, albeit driven by entirely different motivations: 

1. The hardliners believe that if they reject this deal, it pushes the UK towards a ‘cleaner’ break from the EU (never mind the mess that it would make) 
2. The Europhiles believe that if they reject this deal, it pushes the UK towards a second referendum 

Bottom-line: We do not yet have an agreement with between the EU and the UK, because the UK does not really know what it wants from the EU, and the EU cannot just say yes to everything the UK wants anyway!

Where this all gets even more empty-headed, is the position of the EU, which could be summarized as: We want either an indefinite backstop to avoid issues around the Irish Border, or immediate checks and disruptions on the Irish Border! How does that make any sense? The choices right now should be:

• Entering a 21 month transition period, to be followed by a backstop agreement that stays in place till EU-UK sign a better deal
• Entering a 21 month transition period, to be followed by WTO rules that stay in place till EU-UK sign a better deal

In other words, the transition period should be a certainty, and not dependent on an actual deal. Having said that, the fact that the transition period is in fact dependent on a deal between Westminster and Brussels, actually increases the hope that there would be a deal before March.

What happens now?

Why would you ask such a question? The honest answer is, no one knows (and this is true because even the Prime Minister does not know). Let us speculate on some probable outcomes here, because what else do we have left to do:

• PM May takes the deal to the EU and asks for more concessions – the EU gives some freebies, and she brings the deal back. MPs could then back the deal, afraid of incurring the wrath of the market. Note: The EU won’t be giving too much away, but they can put in place a separate agreement that they don’t intend to keep the UK in the backstop forever.  
• PM May fails to bring something back from the EU that impresses the MPs at all. Corbyn decides to call a no confidence motion.

1. The government loses, and we get a general election – where Corbyn will run on getting a better deal. The Article 50 deadline is likely to be extended beyond March. This is a clear negative for GBP
2. The government wins. Corbyn could now be forced to ask for a second referendum. Either way, this is a good result for GBP.

• There is another possibility that the UK parliament decides to opt for something like a Norway model (it has been in the rounds although it compromises on free movement) and then ask the EU to approve it.

As far as the BoE is concerned, they are rightfully playing the "we need to assess the relative disruptions to supply (hawkish) and demand(dovish), although I am not sure how they can possibly commit to cutting rates in a No Deal scenario - since that would reduce whatever little incentive people have of holding GBP!

Overall, we could get a new PM, a second referendum a No Deal or an agreement by March. And the BoE could cut or hike and GBP could fall or rise. 

Did you already know that? Did I list all possible options? Yeah I did. I never said this would be helpful!