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Brexit deal will pass, Goldman Sachs says

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Theresa May
Politicians are so divided that they won’t be able to
stop May’s Brexit deal, Goldman says.

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  • Adrian Paul, a European economist at Goldman Sachs says
    Prime Minister May’s Brexit deal will ultimately achieve
    parliamentary approval.
  • Paul’s view that the deal will be ratified by British
    politicians is based on what he calls an “uneasy alliance” of
    MPs who currently opposed to the deal will ultimately vote for
    it, perhaps on a second vote.
  • There is, Paul says, a delicate equilibrium in
    Westminster, with all the groups opposed to May’s deal also as
    equally opposed to one another.
  • That effectively gives May a lot more power than she
    appears to have.

For the two or so weeks since British Prime Minister Theresa May
first announced that she had secured an initial Brexit deal with
the European Union, that deal has almost constantly appeared to
be close to collapse, as politicians from all sides roundly
criticize the agreement.

May insists, however, that the deal is the best available to the
UK, and doggedly continues to push it towards a parliamentary
vote. She was handed a small boost on Sunday
when EU leaders ratified both the Withdrawal Agreement and the
Political Declaration on Brexit.


Whether or not the deal meets parliamentary approval remains to
be seen,
but one optimist who sees the deal getting past MPs
is Goldman Sachs economist Adrian Paul. 

While the bank doesn’t provide its view on whether the deal is
good or not, Goldman does say that it will ultimately be passed
by the House of Commons, allowing the UK to begin its transition
out of the EU, and setting the scene for the beginning of crucial
trade negotiations.


Read more:
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houses

Paul’s view is based on what he calls an “uneasy alliance” of MPs
currently opposed to the deal will ultimately vote for it,
perhaps on a second vote.

“In a stylized sense, the preferred objective of different
factions in Parliament can be summarised as: (i) those supporting
‘this deal’, (ii) those supporting ‘another deal’, (iii) those
supporting ‘no deal’, and (iv) those supporting ‘no Brexit’,”
Paul wrote on Sunday.

Effectively, groups one, two, and three all oppose May’s
deal, but do not — at the moment at least — have the strength of
numbers to individually force through their own objective. That
much was made clear by the bungled attempt from the pro-Brexit
European Research Group to oust May last week, and push forward a
no deal scenario.

This, Paul says, creates a delicate equilibrium in
Westminster, with all the groups opposed to May’s deal also
equally opposed to one another.

As he puts it: “T
he MPs within that uneasy
alliance of critics differ among themselves on the specification
of their preferred objective at least as much as they differ from
the Prime Minister on the merits of the current deal.”

Such a situation, which Paul terms an “equilibrating
dynamic,” actually makes May a lot stronger than she appears
right now.

Two things reinforce that view, he says:

  • 1. “It is the PM herself who is empowered to set
    the agenda. To reconcile the irreconcilable preferences
    professed in Parliament, the PM is in a position to hold out
    the threat of “no Brexit”, for example, to coerce the
    proponents of ‘no deal’.”
  • 2. “The Future Framework is vague enough to appeal to
    conflicting interests. As the domestic response to today’s EU
    summit illustrated, the Withdrawal Agreement can be sold as
    merely ‘a staging post’ on the path to multiple long-run
    objectives.”

“On our base case, the Brexit deal is ultimately ratified. The UK
embarks on a ‘status quo’ transition phase, beginning in March
2019,” he continues.

There are risks to such a set of forecasts, Paul says, noting
that
the chance of the deal ultimately failing have risen somewhat in
recent days.
He says that it is particularly under threat if
two or more of the disparate groups opposing the deal come
together.

“Were the factions within that uneasy alliance of opposition MPs
able to coalesce around one specific alternative objective —
rather than each advocating their own — the threat to the PM
posed by the arithmetic in parliament would become all the more
pertinent,” he said.

Get the latest Goldman Sachs stock price here.

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