This has been a tough week for
Theresa May. On Tuesday, the prime minister’s Brexit proposal suffered the
biggest loss by UK government in parliament. This led to calls for her to
resign. Labor leader Jeremy Corbyn immediately tabled a motion of no-confidence
against her. Yesterday, the members of parliament voted on this bill and she
won narrowly. This empowered her as she embarks on a difficult journey of
finding a solution that will be accepted by both sides. After the vote, the
sterling was little moved as shown in the chart below.
The reason for the muted response
of the currency was because investors had already priced-in the scenario. This
is because all the parties in the house don’t want to go for another election
at this time.
With Theresa May’s Brexit deal
failing to pass through parliament, the UK’s chances of a no-deal Brexit
increased. This is because the premier must now balance the needs of the
European Union with those of parliament. In other words, the bill that she
brings to the house must be acceptable to the UK parliament. Already, she is
facing challenges in this. After winning yesterday’s vote, the opposition party
started putting conditions for them to participate in the talks. They insist
that the prime minister must leave the options for delaying the vote and also
for another referendum. This is because these parties want closer ties to the
European Union and the membership into the customs union.
The problem is compounded by the
fact that the bill they pass must be accepted by the Europeans too. The silver
lining in all this is that the three sides – conservatives, opposition, and the
EU – want a deal before the UK leaves.
Whatever way you look at it, it
is clear that May faces the biggest test of her career. This is because she now
needs to hammer a deal with the three parties in the next 10 weeks.
In all this, there are a few
issues that must be addressed with the most important one being on the
backstop. The backstop issue was created to address the problem of border controls
in Northern Ireland and Republic of Ireland. The former is part of the United
Kingdom while the latter is a member of the European Union. May’s proposal was
to keep a hard border from returning by keeping the UK in a customs union with
the EU. This deal gave the EU and UK until 2022 to find a real solution. The
opposing side argued that the UK could not exit the backstop unilaterally.
Instead, it had to have a mutual agreement with the EU. As a result, that deal
would prevent the UK from making deals with other countries. They also oppose
it because it would make the EU have a lot of say in the UK affairs.