Damaging risk of no-deal Brexit just refuses to go away

For Irish businesses and for the Government's Brexit economic planning, the latest events threaten that the uncertainty will just roll on, perhaps into the latter part of next week, just before Brexit is scheduled on March 29th. They also show that the risk of a disruptive no-deal Brexit is not off the table.

The dramatic intervention of European Council president Donald Tusk, who said on Wednesday afternoon that a short extension would only be granted if the House of Commons approved the withdrawal agreement, raised the risk that if this does not happen the UK will crash out at the end of next week with no agreement in place.

This would be the nightmare scenario for the Irish economy and it is notable that Tusk’s statement came just as Taoiseach Leo Varadkar called on the EU to cut the UK some slack.

Even if the agreement is rejected again. there would most likely be a last-minute move to avoid a no-deal exit. Tusk referred to the possibility of another EU summit next week. The UK might be offered a choice between a longer extension of Article 50 and a no-deal exit, for example. Observers note that Tusk made no reference to a long extension to Article 50 in his comments on Wednesday. But as of now, a no-deal exit at the end of next week is again a risk, even if it is not what either side wants to happen – a crash-out “by accident,” as Varadkar put it.

Theresa May lashes out at MPs for failing to agree way to implement Brexit on time

---

Crash out Brexit threatens ‘economic cold war’ between UK and EU

---

Pound slides sharply as EU resists May’s three-month Brexit extension

---

Drug companies warn of ‘hard Brexit’ risk to medicines in EU

---

The last couple of days have changed things in a number of ways – and increased the risks for Ireland. One is that a long extension in the Article 50 Brexit process – perhaps delaying the UK's exit until the end of the year or later – which was raised as a possibility by the UK government as late as late week, is looking less likely. Theresa May has turned her face against a long extension, under pressure from the Brexiteer lobby. Meanwhile, a lot of the EU leaders – notably French president Emmanuel Macron – seem to just want this all to be over.

It is also clear that even a short Brexit extension is problematic, both because of timing, but more because of context. Theresa May is seeking at extension until the end of June. But the European Commission is advising EU leaders that an extension to May 23rd, the date of European Parliament elections, is the longest that should be granted without the UK having to commit to electing MEPs. The alternative, it suggests, according to a document seen by Reuters, is an extension until at least the end of 2019. It is not the commission but EU leaders who will decide on this – and Tusk suggested the June idea had "merits" too.

However the bigger barrier to an extension is the context and the requirement mentioned by Tusk for the withdrawal agreement– twice rejected – to be passed. This followed signals that France, in particular, is going to take a hard line at the council in relation to the terms of any extension of Article 50.

On schedule

Will the UK leave on schedule at the end of next week? Only if it is a no-deal exit. If the deal is approved in the House of Commons, then time will be granted to pass the necessary legislation. If the deal is voted down, most observers believe there might be one last attempt to avoid a no-deal. But a “crash-out by accident” is possible as the clock runs down.

It is possible now that the Irish Government and businesses here may not be clear on what is going to happen until next week – and possibly well into next week.

For Irish business and the economy, the difference between an agreed and a no-deal exit is the difference between night and day. In an agreed exit, the transition period kicks in and current trading arrangements continue until the end of 2020, at the earliest. If a no-deal exit, everything changes overnight and some sectors – notably parts of the food industry and SME exporters – face a serious threat from tariffs entering the UK and other bureaucracy and delays.

Contingency plans

The Government is likely to wait until after the EU council this week to outline further its no-deal contingency plans. It would come under immediate pressure to support some sectors, notably the beef industry and farmers. It has been working on these plans in the fervent hope that they will not have to be used. But as of now, a little more than a week before Brexit is due to happen, nobody knows whether these plans can be quietly locked in a drawer, or will need to be deployed, possibly sooner rather than later.