Recent developments and next steps: Early this month, the UK Parliament passed a motion instructing the Prime Minister (PM) Boris Johnson to request an extension of the Brexit deadline by 19 October, and rejected the PM’s request for elections before 31 October (the current Brexit deadline).
This week, the UK Supreme Court judged “unlawful” the advice to suspend the legislature given by Boris Johnson to the Queen. These events strengthen our view that another extension of the Brexit deadline is the most likely scenario. In this case, we would also expect a snap election to be called. Current polls say that the Tories may secure an outright majority, meaning that the no-deal risk would remain significant after the extension (although our central scenario is that the extension is followed by a deal).
The EU position: While the EU wants to avoid a disorderly exit and the related economic cost, it is first and foremost preoccupied by the integrity of the EU’s single market, the risk of moral hazard if excessive concessions are made to a country leaving the block, and the need to stand by one of its members (Ireland).
Even in case of an orderly Brexit, a major long-term risk for the EU is that Brexit encourages the “leaver” political offer in other EU countries, especially if the UK’s economic performance, after the initial shock, is not that bad. On the positive side, the departure of the UK may facilitate future decision-taking, notably regarding new projects to deepen and strengthen the EU architecture.
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