Theresa May and the Holy Grail

Theresa May’s deal with the EU pleases no one. It’s not the Holy Grail that was promised, but it might be enough to pass muster.

In the film Monty Python and The Holy Grail, the Black Knight valiantly (or foolishly) stands his ground against King Arthur.

A duel follows. The Black Knight first loses his left arm but shrugs off his injury. “’Tis but a scratch!”

His right arm is hacked off next. “Just a flesh wound…”

Still he resolves to keep fighting, despite his situation getting increasingly desperate…

Reminds you of someone?

I see a few parallels between the Black Knight and Prime Minister Theresa May as she fought a desperate battle to defend her deal with the EU in parliament yesterday.

May stood there, wounded, in part because she foolishly lost her majority in an ill-considered election in June last year.

“’Tis but a scratch!”

In July, she lost two prominent ministers in Brexit Secretary David Davis and Foreign Secretary Boris Johnson after they couldn’t get behind her Chequers Plan for Brexit.

“Just a flesh wound…”

This week the government finally agreed terms with the EU on the UK’s exit. More ministers, including the new Brexit Secretary Dominic Raab, abandoned May.

Though May limps on, and the markets are spooked, the PM is still likely to get a deal approved and avoid defeat.

The Holy Grail

Brexit is Theresa May’s Holy Grail. Her entire period in charge has been dominated by (and will be remembered as) the struggle to find the right kind of exit from the EU.

The PM wanted to respect the referendum result. Brexit meant Brexit. At the same time, a complete break with the EU seemed economically irresponsible given the importance of frictionless trade with the EU.

More than 19 months after May started her pursuit of this elusive Brexit deal, she has found something. But the vast majority of MPs, Europhiles and Brexiteers alike, agree what she has found doesn’t look anything like the Holy Grail.

The plan is for the UK to stay part of the EU’s customs union until at least December 2020. Time stands still, nothing changes, as the UK and the EU try to agree on future trade ties. The UK can’t implement new trade deals with third countries during this period.

May and her deal have come under fire from her opponents as well as her own ranks.

Labour leader Jeremy Corbyn called the deal “half-baked”, former Labour leader Tony Blair a “capitulation”. Meantime friendly fire came from both the Europhile and Eurosceptic wings of the Conservative Party.

Pro-Europeans say the deal is much worse than membership and want another referendum. Brexit backers believe it betrays the outcome of the referendum and fear the UK will be stuck in the EU’s customs union forever.

Pantheon Economics, an economic research consultancy, has done the maths and figures May needs 50 MPs from the opposition to cross the aisle for her deal to pass.

It concludes the odds of May’s deal winning majority support on the first try aren’t looking good.

“Even if the Prime Minister fends off an emerging leadership challenge … her chances of getting parliament to back her Withdrawal Agreement in its current form are slim.”

But that won’t be the end of it. May will hop on the Eurostar to Brussels, go through the motions of a superficial renegotiation, and present a few minor tweaks as major concessions.

It may just be enough for a second Brexit deal to scrape through the Commons.

“The Prime Minister likely will not give up at the first failed attempt and Tory rebels won’t vote against the government in a no-confidence vote, as the resulting general election might cost them their seats.

As the economy shows increasing sign of strain and the pound falls further, the pressure on MPs from all sides to avert a no-deal Brexit will grow. At the same time, the PM likely will renegotiate and obtain a superficially refreshed Withdrawal Agreement that enables some MPs to abandon their original opposition, or to switch to abstaining from the vote.”

All’s well that ends well, right?

Hypersensitive markets

What about the markets? Are they equally confident that Theresa May will pull off a Houdini-like escape?

Er… no.

Markets experienced a mini déjà vu. Hopes that Remain had won initially pushed the pound higher on 23 June 2016, before the currency fell hard the next day because of a Leave victory.

On Wednesday this week, the pound rose on the news that the UK and the EU had finally reached an agreement. But with May’s allies quitting on her the next day, sterling suffered losses again.

The pound fell almost 2% against the euro and the dollar. Normally only emerging market currencies like the Turkish lira or the Mexican peso fall by this much in a single day of trading.

Banking stocks suffered heavy losses as well. Royal Bank of Scotland (RBS) shares fell 9.6% – a £2.8bn loss in market value – yesterday. Lloyds dropped 5.4%, Barclays tumbled 5%.

UK banks are highly vulnerable to a no-deal scenario in which case they would immediately lose their “passporting rights” (the right to offer services in the EU).

But more UK stocks came under pressure. Housebuilders Barratt Developments, Persimmon, and Taylor Wimpey saw more than 7% knocked off their share prices. Berkeley Group lost more than 6%.

The problems resulting from a no-deal Brexit, which is often perceived as a “chaotic” Brexit, aren’t the only things weighing on investors’ minds.

Many investors consider a Labour government, led by the left-wing Corbyn, an even bigger threat. May’s weak position raises the odds of new elections. In that case a Labour win would be a realistic outcome.

Still, it’s worth keeping in mind that markets are reacting in a hypersensitive way to any Brexit news at the moment. And with 134 days to go until the 29 March 2019 deadline, there’s still ample time for May to find support for an exit deal.

“All right, we’ll call it a draw,” the Black Knight tells King Arthur as he sits bleeding, unable to move because his opponent has amputated his two arms and legs.

For Theresa May, a draw won’t be good enough when her Brexit deal is put to the test in Parliament. Only if she wins the vote might her political career limp on for a little while longer.

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