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Yesterday evening, after the end of the European Economic Summit, held by the European Council, it was announced that Theresa May’s wishes for a last-minute extension of the Brexit deadline would be fulfilled and she will have more time to salvage her trade deal proposal.
However, this decision by the EU council is not unconditional and seemingly the EU27 is giving the UK a chance to amend its trade deal, all the while the bloc is bracing for the ever-growing possibility of the UK crushing out of the EU without a trade deal. The president of the European Council Donald Tusk said that there are two possible scenarios for a follow-up development of the story.
On the one hand, the House of Commons can accept the PM’s trade deal in the parliamentary vote next week, which would be the third consecutive attempt by Theresa May’s cabinet to push forward her agenda, in which case the EU would agree to an extension of the Brexit deadline until the 22nd of May.
On the other hand, if the British MP's thwart May’s proposal for a third time, then the EU council will agree to an extension until the 12th of April, in which case the EU would expect the UK to take on the initiative and outline the way forward to the resolution. In this second scenario according to Tusk, "until this date all options will remain open", further suggesting that all cards remain on the table for Theresa May, including the possibility of a long extension, leaving without a deal or invoking article 50 and thereby remaining part of the union.
The conditionality of the EU council's decision from yesterday is the fact that the UK has until the 12th of April to decide whether to hold European Parliament elections or not. This provision could potentially sway the whole Brexit negotiations in any direction, depending on whether Theresa May chooses to use the European Parliament elections as leverage. If the UK decides against holding those elections, or it fails to give a definite answer about its final decision by the 12th of April, then the option of a long extension would become retracted, and the prospect of a hard Brexit would increase drastically.
In this case, we can expect to see the UK stock market and the pound crushing down on fears of a no-deal divorce. Theresa May can opt to use the EU Parliamentary elections to her advantage by pressuring the pro-Brexit hardliners to either vote in favour of her trade deal or risk the chance of a much longer extension period, which would be the consequence of holding those elections.
The pound found new strength, after yesterday’s developments, and rose with close to 0.90% against the Euro in today’s trading session because of the averted possibility of a hard Brexit at the end of March.
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