Brexit: What Comes Next?

CREBO-REDIKER: Hi. Good morning in the U.S., and good afternoon in the U.K., for those of you dialing in. Thank you so much for joining us on this Council on Foreign Relations conference call.

We are very pleased and privileged to have Sebastian Mallaby, who is the Paul Volcker senior fellow for international economics at CFR; and Isabelle Mateos y Lago, who is the chief macro investment strategist for BlackRock, joining us today. Both of them are extremely well-placed to help us think through how the various options on the table for Brexit might look like, and what is a real-time, unfolding, and I think completely uncharacteristically chaotic British drama.

But given the topic of the call today, “Brexit: What Comes Next,” I’d just like to start by taking a line from one of Sebastian’s most recent Washington Post pieces. And he’s—the caveat for this call, all statements about British politics should be assumed to include to the word “probably” at least twice. So I think we’ll have that caveat throughout the call. I want to remind everybody that this call is on the record, and in addition to the CFR members that we have on the call, we’ve invited members of the press. So this is on the record. We’ll have about twenty minutes for discussion, and then turn it over to Q&A. So get your questions ready. We’ll have about forty minutes for the question-and-answer period.

But I think—you know, just to—just to start off, I wanted to flag we have a great deal of uncertainty over Brexit, if it will happen, when it will happen, how it will happen, and I wanted to ask—I wanted to ask Sebastian to tell us a little bit about what is the state of play. Where do we go from here as just a—as a backdrop for this conversation today?

Sebastian.

MALLABY: Sure, Heidi. Thank you very much, and you yourself are a seasoned observer of Britain so it’s good to have you on the call, too.

I’d say that in the last couple of weeks or so since we did another CFR call on this topic, you know, three things have happened. The first development is that the European Court of Justice has ruled that Britain can unilaterally revoke Article 50 and therefore freeze the process of leaving the EU.

Now, that’s extremely important because it was always the case that the worst-case scenarios about Britain crashing out chaotically from the EU were typically sort of a Lehman Brothers type story where it’s through inaction rather than deliberate choice that the worst happens. And the default position had been that Britain would—you know, if nobody could get their act together to get any kind of deal through Parliament and negotiations faltered, the default was that you crash out without a deal. Now Britain can write a letter to the EU and state that it wants to freeze its withdrawal process, and that’s what it takes to get yourself off the default path towards crashing out. And I think that greatly reduces the chances of a disaster in this whole saga. So that’s point number one.

And it’s interesting to note that this is an example where whereas British politics is mesmerized by the perceived legitimacy of a referendum, this European Court of Justice development is the classic example of judicial activism—in other words, the opposite end of the spectrum of democratic process from referendum, which is very populist, to judicial action, which is rather elitist.

And that’s a springboard for the second development that one should note and that is that Parliament has been more assertive in the last couple weeks as this thing, the Grieve Amendment whereby Parliament has won the right to express its view to the executive, to the prime minister, by amending the—both the first and the second instance of a vote to get the government’s Brexit deal through and I think there’s some debate about whether that’s legally binding but it’s certainly politically potent.

And so I think one should note that the shift of initiative away from the executive and towards the legislature of the Parliament and because the Parliament is perhaps less inflexible, more inclined to remain very anti-crashing out, that’s significant development number two.

And then the third development is the one that everyone was watching yesterday and the most dramatic and visible one and that is this confidence vote that took place within the Conservative Party on Theresa May’s leadership. As you will all know, the outcome of this was that Theresa May wins; therefore, she cannot be challenged again by the same procedure for twelve months. So she’s safe in her position vis-à-vis a challenge from her right.

However, she did lose 117 votes. So 117 members of her party, just over a third, voted against her. So it was not a resounding win by any means and that’s a bit of a—you could see that as a kind of stalemate outcome where it was neither a bad enough result for Theresa May to really humiliate her and force her to completely rethink her strategy but nor was it a strong vote of confidence for the hard line clean Brexit faction.

So the stalemate and the balance of power that had existed beforehand persists. But I would just say in closing that this vote, in my view, does have an upside, which is that we’re in a process now where Britain has to cycle through various options that people somewhat, you know, in a spirit of fantasy more than realism believe could get us out of this nasty cul-de-sac that we find ourselves in. So there were those in Parliament who believe, well, we could get rid of the prime minister and have a different kind of deal. Well, that theory has just been tested. And it failed. And it failed by a big margin. So Britain, I think—what we’ll talk about hopefully on this call is that there are other options that Britain now needs to cycle through before it can clarify where it wants to end up with in this Brexit process.

CREBO-REDIKER: That was perfect and a very complicated, you know, political situation to start the call. She did survive the vote of confidence. That is a positive signal. But she still needs to get—she still needs to get her deal—you know, as one of the primary options—her deal through Parliament. And the prime minister is in Brussels today meeting with the European Council and hoping to persuade her fellow EU leaders to cut her a better deal. So I’m wondering if I could ask Isabelle, you know, what is it that Theresa May is looking to achieve? Do you think that she’ll get it? And whatever she gets, do you think that she can meet the demands and get her negotiated deal through the U.K. Parliament? I think she has up until—she’s given herself up until January 21, after delaying the vote this week.

MATEOS Y LAGO: Yes. So there is—there is several dimensions to this. The first one, that perhaps I would highlight, is that even though she had, indeed, survived a leadership challenge by her own party, she’s still vulnerable to a confidence vote being called by the opposition. And this is very much something that is in play. This morning the Shadow Chancellor John McDonnell, when asked if Labour was going to call a vote of no confidence said, well, we’re going to wait until Monday to see what she brings back from Brussels. So that puts in context the significance of this Brussels meeting today.

Now, the prime minister herself has said she is not expecting a breakthrough. And then every EU leader, in their comments to the—to the press walking into the meeting this afternoon, have said the deal is not—well, the withdrawal of the agreement is not open for renegotiation. However, we are willing to provide some clarification. And so some language has been drafted which is not yet agreed, which would clarify that the EU doesn’t like the backstop either, that they very much regard it as a temporary solution, and they very much hope it will not need to be used. But that’s very unlikely to be sufficient to get Mrs. May’s deal through the House of Commons, because people who object to the backstop right now are saying: We want it gone, or we want some legally binding assurances that the U.K. will be able to get out of it unilaterally. And the probability of EU leaders conceding this is zero. And it’s zero today. And it’s zero down the road.

So that’s the—that’s the complication. The decision that Mrs. May will need to make after today, after this summit, is does she put her deal to Parliament, having obtained only very limited assurances from EU leaders? But then she faces almost certain defeat, and the possibility of Labour pushing through a vote of no-confidence. Or does she wait, but wait for what? It only really makes sense to wait further if she—if she’s prepared to kind change her strategy. And of course, as of now, she’s kind of said there’s no plan B. It’s my deal or the highway. But the only thing we know for sure at this point is that the probability of a no-deal Brexit has gone down very dramatically.

And the two possibilities, frankly, that have become more likely are, number one, a much softer deal. A lot of people here are talking about a Norway option—a Norway-plus option. The Labour Party keeps repeating they would support a deal that entailed staying in a—in a customs union with the EU. So that’s option number one, a much softer deal. Option number two is a new—is a return to the electorate. And that could be in the form of a general election or in the form of a second referendum. Again, she hasn’t said at all that this is one of the options, but this is obviously something that is being considered.

CREBO-REDIKER: So I think—you know, I just spent most of last weekend in London. And I was—I was really struck by how much the political discussion was all very much domestic focused. And in coming and meeting with the rest of the European members, that both in terms of the political discussion, and the discussion in the press, and the discussion on the street, it was very much an internal—you know, internal challenges. When May goes today, the EU’s going to have the challenges to the European project—Russia sanctions, migration, euro zone reform—all sorts of things on the—on the agenda. So the—I guess in terms of her leverage on even really getting anything, it seems like you agree that it’s not—that she’s not likely to get a whole lot of flexibility from Europe. Is that—is that right?

MATEOS Y LAGO: Yeah, definitely. Definitely. I mean, certainly in terms of the backstop, the EU’s position has been very much: This is—this is not negotiable. And, frankly, they all know that, you know, a number of EU members are unhappy with the terms of the withdrawal agreement. And if it were to be reopened, it would be a whole can of worms with a lot of, you know, different asks being put on the table. So this is just not going to happen. The best they could do is give assurances on the sidelines. But it’s very unclear whether that would suffice to have a majority in the House of Commons in support of Theresa May’s plan.

CREBO-REDIKER: So that is sort of—that was one of the potential options. The other is that you mentioned the two possible alternatives, a general election or a referendum. Those would—you know, the mechanics of those, both politically within the U.K. and, I guess, you know, how it would, you know, potentially further divide an already divided electorate are pretty—are fairly daunting, with a short amount of time between now and March 29. The U.K. is really already in the switching gears into full-on, no deal emergency planning. So I guess if you were looking at the referendum option, the press is filled with stories of rationing medicine, changing the rules on how pharmacists will get emergency powers to overrule doctors of suppling medicine to people. This is sort of—we think a lot about the—we think a lot about the financial sector, autos, other industries and the impact that Brexit—the various options of Brexit would have. But what is this—are the—are the hard Brexiteers right that this is fearmongering? Will this play into a second referendum? Will it further divide the electorate? What do you see, Sebastian, from your position in London about what this might mean for a second referendum?

MALLABY: Well, I think you’re right that, you know, the debate over the scare stories on crashing out is framed in this—you know, is it fearmongering or is it not? And there was this famous phrase, project fear, which was applied to negative economic forecasts before the referendum in 2016, which provided excessively pessimistic, at least in the short run—although, the U.K. economy, one should not, has suffered a real loss to GDP. It’s just not an absolute loss. It’s relative to the forecast and relative to other members of the G-7. So I think the economy has paid a price, it’s just that people don’t see it because it’s against the backdrop of the strong global economy over the past couple of years.

But be that as it may, I mean, I think the point about crashing out is that there are so many different ways in which Britain is intertwined with continental Europe, whether it’s rules about aircraft landing, what happens when you try to hire a car when you’re a trip to the continent, to the treatment of, you know, tourists, to how goods cross borders, medical safety. I mean, there is just simply—even if you believe that through a miracle of eleventh-hour coordination you could smooth over, you know, let’s say, fifty of these big problems, there would still be 150 left which you hadn’t got to. So it really would be the case that crashing out would be—would be bad because there’s just too many things that have to be straightened out.

And I think the key thing here and the lens that I hope people on the call will remember is that the chief way, I think, to gauge progress over the next month is whether the U.K. political system is effectively grappling with these different options and considering them enough that you can actually rule them out. And so my point about yesterday’s vote is that one thing that was bound to happen at some point was that the right wing in the Conservative Party would try to kick the prime minister out of her job. We’ve now run that test, they failed, and they can’t bring back the same test for twelve months. That’s good. Equally, we need people to face up to the fact that, as Isabelle says, you can go to Europe, you can try to persuade them to change the deal or clarify it, but you’re just not going to get very much of significance. We need to cycle through that option as well and face the truth about what little can be got from that type of tactic.

On hard Brexit, you know, people need to, you know, face the reality of how bad it would be. And I think it’s through this process of elimination that you make progress towards a consensus that maybe, although there are problems with a second referendum—because it could divide the country, it could unleash a whole ‘nother bunch of, you know, toxic and sort of dishonest campaigning, it would be resented by people who will say that, you know, the first referendum was a legitimate one and to go back to people and rerun the same test is simply not accepting the popular verdict—there are all these risks in a second referendum, but if through process of elimination of the other options that Britain has a chance of understanding that this might be the least bad one.

CREBO-REDIKER: So before we open it up to questions, I want to just throw it over to Isabelle in terms of, you know, Sebastian just gave, I think, a more optimistic view than I was—than I was anticipating about what—you know, what the path forward might look like. We do still have this massive amount of uncertainty for business and for investors. And you know, we could see this uncertainty, especially given what you’ve just laid out, play right up until the deadline. What are some of the impacts you’ve seen on investors and flows over the past couple of weeks? And what do you think the market impact might be of the various options on the table that you’ve—that you’ve just talked about today?

MATEOS Y LAGO: Yeah, I mean, look, I think—well, first of all, I agree with Sebastian’s assessment that I think it’s now become very clear that no deal would be a very unpalatable outcome. And we now know that there’s at most 117, you know, people in the House of Common(s) who would be prepared to contemplate it, out of six hundred and some. So that’s clearly not enough, so the likelihood of that is very low.

But unfortunately, the uncertainty isn’t going to go—isn’t going to go away, I’m afraid, anytime soon. And the reason for that is that, well, unless we were to have a second referendum that decides on the U.K. staying in the EU, you will still have to work out what’s going to be the long-term future relationship. You know, remember that everything that is being discussed now is about the past and the backstop. In terms of the future relationship we only have a political declaration that leaves a very wide range of options open. So if you’re a business operating in the U.K., even on March 30 if the U.K. has left and there’s a transition period, you will have no idea what is going to be the long-term relationship and the terms of trading and operating with the EU.

And this uncertainty has really, you know, had a—had a heavy cost for both the U.K. economy—as Sebastian was saying, it’s gone from being one of the fastest-growing in the G-7 to being at the very bottom, along with Italy. And if you look at market performance, it’s been—it’s been pretty—it’s been pretty dire as well. Now, you know, if you compare to Europe ex-U.K., you know, they’ve both done badly. But, you know, we’re looking at U.K. equities being down 13 percent measured in dollars year to date. And that’s because both the currency has weakened, and the stock market has been really beat up. And so I think this uncertainty is very clear. I mean, when you talk to investors, I mean, you have to be—you have to be mandated to invest in the U.K. market right now to really take some risk there. Otherwise, you know, the rewards are just—the risk-return equation is just not—it’s just not appealing at all. Now, of course, all this could change very quickly once the uncertainty is resolved. But it seems it’s going to take a little bit—it seems it’s going to take a little bit longer to resolve that uncertainty.

What I would say, though, is that the current level of the pound in particular, which has been the main barometer, it seems to me that a lot of tail risk is still priced in, much more so than is warranted. And so if you take a slightly longer-term horizon, there is—there is scope for a rebound. But if you’re a real business, you know, having to make real investment decisions, it’s much trickier because of this lingering uncertainty that we’re facing.

CREBO-REDIKER: Well, thank you for starting off this discussion with a lot of—a lot of material to work with. And I want to open it up to questions right now. I will remind everybody who’s on this call that this is on the record. So if I can ask the operator to give instructions for asking a question, and I’ll hand it over to Jonathan.

OPERATOR: Thank you. Ladies and gentlemen, at this time we will open the floor for questions.

(Gives queuing instructions.)

CREBO-REDIKER: So while we’re waiting for the questions to queue, I want to just circle back to something that Sebastian raised about the role of the House of Commons, not wanting to let the U.K. crash out of the EU with no deal. The onus is now on Parliament. Can you talk about some of the changes there that—recent changes, that—about the role of Parliament in this—in this configuration on both the politics and in terms of the mandate?

MALLABY: Sure. I mean, this is all striking because it comes against a background where in British politics typically you have an elected dictatorship. I mean, the prime minister win an election at the head of a party, forms a Cabinet, and by definition has a majority in the legislature because, you know, that’s how they got to be prime minister. And therefore anything that the Cabinet decides gets pushed through the legislature on a party-line vote, and there’s very little ability to resist the prime minister until the next election.

So what you see now, where the prime minister, A, doesn’t have an overall majority in her own party and relies on ten votes from the Northern Irish party, the DUP and, B, doesn’t even command the loyalty of her own party on the key issue of the day, namely Brexit, because you’ve got these 117 or so rebels, as the confidence vote yesterday showed. So you’ve got a breakdown of that traditional mode of British government. And into this this paralysis, into this vacuum, comes initiative from members of Parliament who are not in the Cabinet but who have campaigned successfully to force the Cabinet and the prime minister to accept, for of all, the quote-unquote, “meaningful vote,” on the Brexit deal.

That is to say, Theresa May’s initial position was that she would negotiate with Brussels and then not bring the package back to be ratified by Parliament. She was forced early on to say that she would have it ratified, hence the whole drama of Monday, where she was meant to bring it in for a vote and then cancelled it. So that was the first victory for kind of parliamentary initiative. But recently there have been a string of smaller ones, which all amount essentially to saying: Parliament has the right to amend the government legislation, to express its will. And you’d have these votes on various amendments, you know, some of which may not be legally binding, but which do kind of drive the government to listen.

So a good example just recently was that the government wanted to keep the legal opinion it has received on the question—regarding the Brexit deal, and particularly on the backstop—it wanted to keep this private. And I think it had perfectly good reasons, because legal advice is better kept private, in general. But parliamentary initiative, you know, forced a members bill vote, an amendment vote, which then drove the government to release that legal opinion. And looking forward, I think one of the most hopeful possibilities is that there’s talk of a series of quote, unquote, “indicative votes,” in the House of Commons, whereby Parliament would express its view and its support for a series of options—you know, whether it’s hard Brexit, whether it’s a second referendum, whether it’s a Norway-style deal, whether it’s a Canada-style free trade deal.

And I think that would be fantastically clarifying, to know how many votes each of these options would receive, because even if none of them have an overall majority, you would at least get a rank order of which are the least plausible politically, to be able to eliminate those. And it goes back to this issue of fighting through the options because I think, you know, the problem with Theresa May as a leader is that she’s rather inflexible. She’s unkindly nicknamed the May-bot. And she gets her idea, and she goes with it, and she doesn’t really want to shift. And right now, her idea is that somehow through a miracle she’ll get her negotiated Brexit deal through Parliament, which just doesn’t seem plausible. So we need the initiative to move away from her a bit, towards the Parliament a bit, to float some of these other options and to test the political waters around them.

CREBO-REDIKER: So I think that’s some very interesting, I guess, you know, insider looks at the U.K. political system, that I think sometimes get missed in—if you’re just looking at headlines in the English press. Can I turn it over to the—to the operator to see if we have a first question in the queue?

OPERATOR: Yes. Thank you. We’ll take our first question from Manik Mehta with Bernama.

Q: Yeah. Hi. Good morning to all of you. This is Manik Mehta representing Bernama News Service.

Thank you for that interesting exchange. However, I have a couple of small questions. First of which is about Northern Ireland. There’s a lot of confusion here in the U.S. with regard to the issue of Northern Ireland, and how it figures in the overall Brexit debate. And secondly, you might also like to comment on the reactions coming from Germany’s Angela Merkel and France’s Emmanuel Macron to the entire wrangling going on in the U.K. over Brexit. Thank you.

CREBO-REDIKER: Thank you so much. Who would like to take that question on? Isabelle or Sebastian?

MATEOS Y LAGO: I could have a go. It’s complicated enough we could spend the rest of the hour talking about this Northern Ireland border issue. I mean, basically the situation is that since the agreement that put an end to the civil war in Northern Ireland, the Good Friday Agreement, there has not been any kind of border infrastructure between Northern Ireland and the Republic of Ireland. And there’s a very strong sense that restoring any kind of border infrastructure at this stage could put at risk the peace that has been in place in recent decades. So very early on the Republic of Ireland secured a commitment from all the other EU countries to make sure that no matter what happens in the Brexit negotiations, there would be absolutely no question of restoring a border. And last December, the U.K. government agreed to this.

Now a deal has been—now the shape of a deal has emerged which would preserve the freedom of the United Kingdom to continue—well, to basically not be in a custom’s union with the European Union and follow its own regulatory arrangement, as a result of that you would think there would need to be some border controls between the U.K. and the EU. However, because of that prior commitment, there’s been essentially—well, what the deal says is we will find a solution to avoid any border infrastructure. And if we cannot find a technical solution, then Northern Ireland—no matter what happens in terms of the future relationship between the rest of the U.K. and the EU—Northern Ireland will effectively remain in the customs and regulatory territory of the EU.

Now, this is not meant as the best case. This is meant as a backstop in case nothing else can be found. But to the Democratic Unionist Party, which is backing up Theresa May’s government in the House of Commons, this is absolute—this is absolute heresy because this party doesn’t want Northern Ireland to have a different legal regime to the rest of the United Kingdom. And so—and to others in the Tory party, this backstop idea, definition, is also a heresy. So that’s why there is now huge demand from the—from within the government’s coalition to get rid of that backstop. But unfortunately, the U.K. government committed to avoiding a hard border or any kind of border. And there’s just no other way that anybody’s aware of right now of avoiding that border.

Now, in the future there may be technological solutions. Or, if the U.K. were to decide after all to stay in the single market and the customs union there wouldn’t be any problem. But failing that, the backstop has to be available as a backstop. And that’s basically the EU’s position, that they’re just being very firm. They are not willing to reopen.

CREBO-REDIKER: That was—that was excellent. I don’t know if Sebastian wants to add anything, or maybe take the question about German and French position on Brexit.

MALLABY: Well, just generally, on the German, French, and wider EU handling of this matter, I think what’s striking is how unified Europe has been. They’ve maintained a united front. And they’ve kept their cool and stuck to their position. And they’ve been flexible on some things. I mean, the deal offered to Britain includes the ability for Britain to remain inside the merchandized trade customs union without paying into the EU budget and without accepting freedom of movement of people across the border. So to some extent, you know, that is a concession. And as Isabelle noted earlier, if you were to reopen this deal, there’d be plenty of EU members who wouldn’t be happy with it, who would want to put amendments on the table.

But I mean, I think—you know, its impressive that despite all the distractions within Europe over other issues, despite the domestic political fragmentation in a lot of the leading member states, the EU has done a pretty good job of negotiating with Britain. It’s only sad that Britain has been less effective on its side.

CREBO-REDIKER: Thank you so much. Can we go to the next question, please?

OPERATOR: Thank you. We’ll take our next question from Janet (sic; Joan) Spero from Columbia University.

Q: Hi. This is Joan Spero. Can you hear me?

MALLABY: Yeah.

CREBO-REDIKER: Yes, we can hear you.

Q: OK. Hi. Thank you to all of you for such an interesting but complicated discussion. Sebastian, I wanted to follow up a bit on your point about what kind of alternatives are being developed by what we might call different rebel groups. What are the serious options that they might come up with, since they seem to be in a stronger position? And what would the Norway option look like? Thank you.

MALLABY: Sure. OK, well, just going through them briefly, there’s on one extreme hard Brexit, which we’ve discussed, crashing out without a deal. The next along the continuum is, I’d say, a Canada-style free trade deal, which rather than crashing out would be managed. So that would be an improvement. And rather than falling back on WTO rules, which is what the crash out would do, a Canada-style free trade deal would provide some additional tariff reduction between Britain and the EU. So that’s the second option.

Then there is a kind of Theresa-May-style deal which has elements of a free-trade deal and the Irish backstop, but also includes Northern Ireland being in a sort of deeper economic relationship with the EU. So that’s a more integrated thing along this continuum.

Next would come a Norway deal, which you particular asked about. Now that would mean not being a member of the EU, but being a member of the single market like Norway, which would mean accepting freedom of movement of people from the EU into Britain and vice versa, which is the main reason I didn’t think it’s likely to be adopted. I mean, one of Theresa May’s principal negotiating red lines was not to accept freedom of movement, and it’s a fair reading of the referendum that the British people expressed their opinion particularly on that point, that they did not want unlimited migration from the EU into Britain.

Now it’s unfortunate that that referendum took place in 2016 precisely at the time of maximum paranoia about migration—incidentally, not migration from the EU; it’s migration from outside the EU that was causing the paranoia, particular in continental Europe. But be that as it may, that has become a political red line, and I think that’s why the Norway option involving deep political integration but freedom of movement as well is politically not so likely.

And then, completing this continuum, there are various—there are two kinds of ways of just remaining and not leaving the EU at all. One would be that you revoke Article 50. You might do that while saying that you are doing this because you want to regroup and reconsider Britain’s negotiating tactics; that you are going to come back to the table later.

But, you know, Turkey has talked about joining the EU forever and never joined; Britain could talk about leaving the EU forever and never leave. And so I think one way of—one way of Britain remaining would be to prove out that old maxim that there is nothing so permanent as the temporary, and simply revoke Article 50 and never come back.

Another way of staying in would be to have a new referendum and for the Remain side to win. If there were a new referendum, the odds—or the polls suggest that there would be a slightly better-than-even chance for Remain winning, but it wouldn’t be a slam dunk, and a lot would depend on precisely how the questions in the referendum were phrased.

CREBO-REDIKER: Did that go to answering your question? Yeah, sorry, go ahead.

MATEOS Y LAGO: I could just add a point on this—on this pausing the Article 50 process. The ruling by the European Court of Justice earlier this week made very clear that what the U.K. could do unilaterally was to withdraw its Article 50 notification and—provided that this would be done following a proper constitutional process, meaning a parliamentary vote, so not just, you know, somebody sending a letter—but that same judgment made clear that the intention had to be very clearly to make a U-turn and decide not to—and decide not to leave after all. This cannot be—this process cannot be used just to pause the process and regroup.

In order to pause the process and regroup, the U.K. would need to have the consent of all the other EU members. Now these other EU members would very likely be willing to give that consent if it were necessary for the exercise of democratic process in the U.K.; for example, in order to have enough time to organize a general election or a referendum. But if it were just a request to say, oh, we’ve really lost our mind, we don’t quite know what to do, it’s very unlikely that the other 27 members would say, oh, yeah, sure, fine, let’s do that. So just a bit of nuance here on this aspect.

CREBO-REDIKER: That is an excellent point.

Can we go on to the next question, please?

OPERATOR: Thank you. We’ll take our next question from Anne Gearan with The Washington Post.

Q: Hi. This is Anne Gearan with the Post.

But so I’d like to, if you don’t mind, ask a more U.S.-focused question here. Where does this leave Theresa May in her dealings with Trump and, by extension, you know, as one of the leaders of the Britain, France, and Germany group of grownups or elder states, however you’d like to put it, who have kind of tried to steer Trump toward some multilateralism or kind of work around him when he’s not interested in it. Is she strengthened, weakened, the same, through this entire Brexit exercise?

MALLABY: So I’ll have a shot at that. I mean, I think that, you know, ever since the referendum in 2016, which proceeded the election of Donald Trump, you know, Britain has entered a kind inwardly focused preoccupation around its Brexit strategy. And all other policy issues have taken a backseat. Those other domestic policy issues, now the foreign policy issues. You know, the mere fact that the Foreign Ministry job initially was used to park Boris Johnson, to kind of give a(n) important political rival something harmless to do, tells you how foreign policy was perceived by Theresa May when she took office. So I really don’t think that I hold that much hope that Theresa May, you know, whose skills do not really include brilliant persuasiveness one-on-one, would really moderate Donald Trump.

And I think you can also take your question the other way around, and say to what extent, you know, would the hope of a trade deal with the U.S. factor in Britain’s own view of its future. There have been times when Britain—you know, that the pro-Brexit camp has held out the hope of a free trade deal with the U.S. as a reason to say that, hey, you know, we can attenuate our relationship with continental Europe because we’ve got these great English-speaking friends on the other side of the Atlantic. Well, you know, that’s less and less appealing with a Donald Trump who doesn’t seem to—you know, prefers to undo trade deals than to do them. It’s also—it’s also less appealing because, you know, the nature of this deal that Theresa May’s ended up with in this backstop, which I personally think would probably become the front stop—or something like it would become the front stop if Theresa May’s deal were to go through. You know, Britain would be part of the customs union in Europe, therefore would not have the power or the right to negotiate separate trade deals. So there would be no U.K.-U.S. trade deal, because under the terms of the Irish backstop you’re not allowed to do that. So, again, that puts a damper on the transatlantic relationship.

CREBO-REDIKER: Isabelle, want to add anything?

MATEOS Y LAGO: Yeah, just to say that Theresa May yesterday, in order to secure as many votes in support as she could, had to concede that she would not lead the party into the next general election. So de facto, she’s, you know, very much a lame duck. She’s basically there to finish the Brexit job, and then—and then could have a very short lifespan as prime minister. So, again, in terms of the relationship with Trump, this is probably something that he would—that he would consider.

MALLABY: And just broadening out a bit, I mean, to Anne’s point, you’ve got a situation now where, you know, Angela Merkel is still the chancellor, but she’s not the head of her party . And there’s a sell-by date on her tenure as well. The same is now true of Theresa May, as Isabelle says. And in France you’ve got a president who is in office, but not entirely in power because of the street protests against him.

CREBO-REDIKER: So that is—and I guess, I would just add, it’s really hard to overstate how the Brexit debate in the U.K. is just been all-encompassing. It’s really hard to get attention to anything else, which is unfortunate given the backdrop that Sebastian and Isabelle just described.

Can we go to the next question, please?

OPERATOR: Thank you. We’ll take our next question from Trudy Rubin from the Philadelphia Inquirer.

Q: Hi. Thanks. Thanks for doing this. I want to pick up on a couple of points that you’ve raised. Sebastian, you were saying that the second referendum would not be a slam dunk for remain. Could you talk a little bit about what the impact has been on public opinion in Britain since the first referendum of learning that things would not be so simple as the leave camp had predicted? I mean, the famous payment into the health fund, you know, a lie. The exit, if they have been exiting, of continental medical personnel from the health service, and so forth. The impact on the city. Has there been no impact from learning that the negative aspects that were never predicted by leave are upfront and real? You know, I’m curious. And is the lack of such a realization due to the fact that nobody is really campaigning to remain? And just as part of that question, Boris Johnson, after the lies and the leave campaign, is he really a future conservative prime ministerial candidate?

MALLABY: I think a way of, you know, beginning to think about this question is to just think for a second about the U.S. context where, you know, if you were anti-Trump in the 2016 election, you know, what you’ve seen since the election, you know, confirms, reconfirms, and then triple confirmed your misgivings about him. But it doesn’t stop the fact that people who begun by supporting him seem pretty keen to stick by him. And so the more he does things that, you know, infuriates his critics, and the more those critics attack him, the more the president’s supporters seem to rally around him. So what you actually get is not a shift of opinion so much as a deeper polarization of opinion.

And I think to some extent the same dynamic is visible in Britain, where, you know, those who believe that, you know, we should have remained in the first place, and thought that Boris Johnson was telling a pack of lies, have been, you know, confirmed, and reconfirmed, and triple confirmed in that view, and become more and more passionate and desperate in that belief. And so you see that in terms of people coming out on the streets in really quite big numbers to demonstrate for remaining in the EU. Your suggestion just a second ago that there isn’t a lot of campaigning for it isn’t really right. I mean, there is passion. And if you read the newspapers there are lot of commentators who believe in remain. And they say so day in, day out. You go down the street near my house on a Saturday afternoon and there’s a little market, there are people giving you remain buttons to put on your shirt. You can buy Christmas coffee cups that say: Don’t blame me, I voted for remain. You know, there’s a lot of feeling, right?

But at the same time, those who wanted Brexit in the first place are inclined to view this through the lens of, you know, the elite media is telling us the same old nonsense. We don’t believe that crashing out is bad, because they told us that our economy were to go down the tubes if we voted to leave, and it hasn’t gone down the tubes. And the notion that, yes, but in a relative sense we have isn’t necessarily understood. So I think there’s a lot of resistance to changing opinion. There’s a lot of, you know, normal people who are just not particularly political, who are sick of the whole process and want the country to move on and the notion of being asked to vote again would just be a drag. And they were told that the last vote was the big one that counted, and they showed up to vote for that. Turnout was very high, 72 percent. And they really would feel affronted if they were asked to do it again.

So, you know, having said all that, there has been a shift in favor of remain. But it’s been subtle. You know, it’s from 48-52 in the referendum to the last numbers I saw were 55 percent for remain and 45 percent to leave. But the complication is that, you know, you—we don’t know how these questions would be framed. You could argue there should be three options on the ballot. There should be hard Brexit, Theresa May compromise, and remain, because there’s bodies of opinion around each of those. Or you could show it should be—give two choices. So then which two? If there are three, what’s the voting procedure to eliminate one and then choose the winner of the remaining two? So how you design the ballot would have a material impact on how it turned out.

CREBO-REDIKER: Thanks. Isabelle?

MATEOS Y LAGO: Yeah, no, I mean, just—I mean, I agree a hundred percent with what Sebastian said, and you know, the detailed analysis of the polls suggest that very few people have changed their mind.

What could be different is participation because, in the referendum two years ago, there was fairly low participation from young people, who are overwhelmingly against Brexit, and so to the extent that this time around they appear to be very mobilized, that is what could shift the needle. And that’s probably in part what the opinion polls are capturing.

But, you know, be that as it may, unless there is not a leave-without-a-deal option on the ballots, it would be a very close—it would be a very close call.

CREBO-REDIKER: No, there is—I get this feeling that there is sort of this—it’s more wishful thinking around this second referendum, you know, especially due to the complications that Sebastian just flagged, and the—you know, the potential that you might get—participation is, I think, a really—it’s a key difference if you were to hold a second referendum. But the hurdles are rather high to actually get there, if that’s what I’m hearing.

MALLABY: Yeah, I mean, I think you only get to it through a process of elimination of the other options, and that’s my point about, you know, the test of whether we are making progress or not is whether we are cycling through these other options, properly confronting them, and my hope is this notion of indicative parliamentary votes would start to flush out where people really stand on these different possibilities.

CREBO-REDIKER: OK, do we have another question in the queue? And we want to—this will probably be the last one as we’re getting towards the close of our call today.

OPERATOR: Thank you. We’ll take our next question from Gordon Dee Smith with Strategic Insight Group.

Q: Yes, hello. Can you hear me?

MALLABY: Yes.

Q: Hello?

CREBO-REDIKER: We can hear you.

Q: Yes. Thank you very much—great discussion.

My question has to do with the EU, and it is—behind closed doors, how worried do you think they are about the broader effects of Brexit if it were to happen, and how much does that inform how flexible they will be—or will become—over the next, you know, few months as the process continues? Thank you.

CREBO-REDIKER: Isabelle, do you want to take that?

MATEOS Y LAGO: Yeah, let me take that. So two things: first of all, it’s just—I’m based in London, but I’ve spent quite a bit of time on the continent. It’s just shocking how little people are talking about Brexit on the continent. You go—I go on to news shows on a day where something major, Brexit-related happens in the U.K., and nobody wants to ask a single question about it. It’s just completely outside of the news and of public opinion and debate on the continent.

So to the extent that there is an answer to your question, it’s very much in terms of what are the leaders thinking. And the leaders are mostly thinking—the fact that it’s such a mess right now in the U.K., you know—not just that we’re seeing the economic impact, the market impact, but that the whole political system is in such a mess, they are loving it because, to them, it’s a great argument to say, you know, don’t try it at home. So they are loving it.

And I think, by the same token, if the U.K. were to engage in the path of, you know, saying, OK, it’s too complicated; we want to reconsider, they would be welcome with—they would be welcomed back with open arms.

CREBO-REDIKER: Sebastian, do you want to add just a very quick thought to that?

MALLABY: Yeah, I mean, I think Isabelle makes a very vivid point about the way that, on the priority list in continental Europe, you know, Brexit isn’t the first thing, or the second thing, or the third thing; it’s somewhere after that. And I think that’s a sobering point which people in Britain, in the debate here, completely fail to get. I mean, there is this sort of arrogance that, you know, yes, we know we’re going to get a special deal because we’re so important to Europe.

Well, you know, that’s just one more of these illusions that needs to be tested, as I’ve been saying, and we have to cycle through it, and in some sense—just to sort of wrap up with a news—coming back to where we are today, you know, Theresa May, talking to the other European leaders today, is precisely part of that process of testing where the rest of Europe might be willing to give, discovering that it won’t give very much, and hopefully will face those realities.

CREBO-REDIKER: So, with that, I wanted to thank—I want to do CFR protocol and make sure we end on time. Mea culpa that I did not raise the Labour Party much, or Jeremy Corbyn, or what that adds to the political calculus, but I’m sure that can be for the next CFR call on Brexit because I’m certain that there will be one.

Thank you, Sebastian. Thank you, Isabelle. Thank you for all of you who joined the call today, and at this point we close—we close this call.

MALLABY: Thank you.

CREBO-REDIKER: Thanks.

MATEOS Y LAGO: Thank you.

(END)