Here is the massive tail risk around extending Article 50

Author: Adam Button | Category: News

The EU needs to agree

The EU needs to agree
Article 50 has until 11 pm CET on March 29 to leave the EU with a deal. With today's vote that's less likely.

On Thursday, Theresa May said her plan is to put an extension of Article 50 to a vote. That might rub some in the EU the wrong way because the decision isn't up to her. An extension requires unanimous approval from the 27 heads of state that make up the European Council.

It would be a dramatic move for one leader to deny it but Lithuania's Dalia Grybauskaite (pictured above) hinted at it in January when she said that a no-deal Brexit would be better than the uncertainty of extending Article 50 for a prolonged period.

I believe there is an argument for doing so. It might force another vote in parliament where the UK is faced with three options:
  1. No deal Brexit
  2. Taking May's deal
  3. Withdrawing Article 50
If the UK withdraws, it would set the clock back for leaving by at least two years. If the EU firmly believes that parliament will balk at a no-deal Brexit (they will), then this would be a magnificent power play -- although whoever does it will risk the wrath of the UK in the future.

Since it's a genuine tail risk, it could weigh on the pound in the time between when the UK asks for an extension and the EU grants it.
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