The odds on this Thursday’s Brexit vote are swinging solidly back to Remain.
If there is a “Leave” vote, negotiations over Article 50 are unlikely to begin until October.
The EU is preparing contingency plans to stem political dislocations, but still seems unable to move decisively until the end of next year.
Markets are cheering the results of a weekend Brexit poll showing Remain back in the lead. That cheer has been further reinforced by the fact that the poll was conducted largely before last Thursday’s assassination of pro-EU Labour MP Jo Cox.
*** After several weeks of multiple polls showing a steady momentum towards the “Leave” vote, it seems the tragic Cox assassination may mark a pivotal turning point in public sentiment that was already starting to turn back towards the Remain vote, with the well-regarded “Survation” telephone poll showing Remain at 45% versus 42% for Leave. Furthermore, estimates are that Leave would need a 2-3% margin to overcome last minute undecided swings towards the status quo. ***
*** EU officials have nevertheless been quietly putting in place contingency plans in case the UK does vote for Brexit, built around the need to protect the EU’s self-interests and effect a smooth divorce from the UK if it were to come to that. It will all start, however, with some tough rhetoric (“out means out”) at the European Council meeting on June 28/29, reflecting the tone already taken in some EU political quarters towards the UK and Leave campaign. ***
*** That will be followed by a long period of “wait and see” for the political dynamics in London to resolve itself, and for Article 50 separation proceedings to be subsequently triggered. That is not expected to happen until October to December of this year, depending on whether there are UK elections. And with concerns looming over elections in France and Germany next year, ignore all talk of the need for further integration in the wake of a Brexit vote for what it is – further talk. ***
The Shifting Polls
With just three days to go until Britain’s historic election on June 23 to decide whether or not to remain a member of the European Union, all eyes will be glued to the polls to see if there is further confirmation of a weekend poll showing the Remain vote finally regaining the lead from a surging Leave campaign.
But perhaps most encouraging to markets and the Remain camp are indications in a series of weekend polls that the tide had already started to shift back to Remain before the tragic assassination of Labour Member of Parliament and ardent EU supporter Jo Cox last Thursday by a deranged neo-Nazi.
Indeed, it appears the last few weeks’ momentum towards Brexit and change has, on cue, started to give way to last minute concerns and fear in the polling public of the dramatic change in the status quo Brexit would entail, most specifically over economic risks and personal financial concerns.
And there may be further cushion in those numbers for Remain in what has been a working assumption among pro-EU Tory members that Leave would need a lead of anywhere from 2-3%, or even as high as 5%, going into Thursday’s vote to overcome the undecided voters’ expected leaning toward the status quo and pull out a win on Thursday (see SGH 6/10/16, “Brexit: Remain Struggling Dangerously”).
But regardless of this last minute swing, the weeks of momentum for the Leave campaign has been enough to galvanize the European Commission into at least considering its Plan B in case there is indeed a vote in the UK to Leave.
The First Days and Months
For all the denials to the contrary, there is indeed a “Brussels” plan to react to Brexit, but its details are confined to a small circle that only includes Commission President Jean-Claude Juncker, European Council President Donald Tusk and other EU heads of states and governments.
If Britain votes out, the European Council, which will meet on June 28-29, will acknowledge the result and issue a statement. From what we understand the initial tone and response from Brussels will include some strong rhetoric as the EU waits for Westminster to take the first step.
We understand France and Germany will be particularly eager to show a firm reaction, as the biggest risk for EU disintegration is not seen to be from the euro-skepticism in, for example, Poland and Hungary, but in the core countries such as the Netherlands, France, and Denmark.
However, the actual stance of the EU in the negotiations, when the UK triggers Article 50 to initiate the process of separation for the EU, will be far milder. The EU of course needs the UK, and vice-versa.
EU leaders will not formally begin negotiations with UK Prime Minister David Cameron at the 28-29 Council. Indeed, in case of a Brexit vote he is not expected to participate anyway, as EU leaders are assuming the pressure will be intense on him to resign.
Even if Cameron does not immediately resign, EU leaders will consider him “dead” as a negotiating partner if he loses the referendum. The ironic bit is that for all the mess he created with the EU vote, most EU leaders have always been and still feel positively towards Cameron, and he is not at all isolated in Brussels. “C’est la vie.”
The Timing for Separation
And from the UK side it is now clear that even in the case of a Brexit vote, the UK will NOT be prepared to trigger an Article 50 request by the June summit.
There has been plenty of speculation over whether a Brexit vote will trigger new UK leadership elections – we do think it likely – and that will first need to be sorted out, and will take some time. And that is before there can even be any agreement over the exact nature of the requests the UK will make of the EU as it negotiates its Brexit.
And so expectations for an Article 50 request within the British cabinet appear to be not until between October and December – the exact timing of which within that window will depend on whether or not there is an election.
In the interim months to come, before the UK triggers the exit procedure, there is widespread agreement within the EU that Britain will not be participating or voting in European Councils.
If Leave wins, but even if Remain prevails, there will be a broader debate on what steps the EU will need to take to stem any further centrifugal force. But even that debate cannot start in earnest until after the French and German elections, in May and October of next year.
As case in point the lowest hanging fruit for the EU for further integration is to finally agree on the EDIS (European Deposit Insurance Scheme) for the banking sector that all members have long signed on to, in theory.
But even as Eurogroup Chair Jeroen Dijsselbloem tries to push the EDIS initiative back on track, German Finance Minister Wolfgang Schaeuble has all but killed any hopes for near term progress on that front.
Beyond narrow financial sector issues, a leave vote on the EU side will clearly be a challenge to the Union’s credibility, and EU Council President Donald Tusk has been adamant the EU cannot keep talking a Federal dreamland as voters around Europe have time and again rejected the idea, no matter what happens on the 23rd.
But in reality EU officials rule out any initiative pointing to further integration in any event. So for now everyone can forget the “closer integration” bit. There is little enthusiasm even for initiatives such as closer cooperation in security, at least not until France and Germany go to the polls in 2017.