'No-deal' Brexit chances rise as EU reportedly claims the UK has no other plan

Key Points
  • Europe now reportedly believes that the U.K. government views "no-deal" Brexit as base case scenario.
  • Diplomat from Brussels quoted as saying that the U.K. has no other plan.
  • U.K. government source says Downing Street still wants to negotiate a new deal.
An anti-Brexit activist flies an EU flag during a demonstration outside of the Houses of Parliament in London on February 28, 2019.

The prospect of the U.K. leaving the European Union without any agreement or a framework for future relations looks increasingly likely.

Reports in U.K. media suggest that a meeting between senior EU and U.K. diplomats has left Brussels with the firm impression that a no-deal Brexit is now the "central scenario" of the new U.K. Prime Minister Boris Johnson.

Sterling has slipped in value over recent weeks in response to the fresh assertive line coming from Downing Street, sitting near two-year lows at around 1.22 versus the dollar.

Johnson sent his envoy to Brussels last week with the specific message that unless European officials ditch their commitment to the Irish backstop, then Britain will leave without any deal. The Bank of England has said if the U.K. does leave with no plan, there is a one-in-three chance of a U.K. recession.

The backstop is an arrangement designed to ensure no hard border is erected on the island of Ireland between the Republic of Ireland and Northern Ireland. Both sides of the debate have insisted they will not build border infrastructure but euroskeptic lawmakers in the U.K. are against any backstop, claiming it would keep Britain perpetually tied to a customs union with the EU.

On Tuesday, a U.K. government spokesperson, speaking to reporters on the condition of anonymity, suggested that Britain remained ready and willing to do a deal with Europe before the deadline of October 31.

The spokesperson claimed it was "sad" that Europe would not enter into fresh negotiations and that the U.K. government was "ready and willing" to talk.

Prior to those comments, The Guardian newspaper reported that EU officials don't believe the U.K. realistically wants to explore any new deal, claiming that Britain "does not have another plan."

Larry Summers at 2015 WEF in Davos, Switzerland.
David A. Grogan | CNBC

Former U.S. Treasury Secretary, Larry Summers told BBC's "Today" radio show on Tuesday that the U.K. risks losing all negotiating leverage and leaving with no deal would be like "leaving your job before trying to get another one."

Summers said that insisting on Brexit by the end of October whatever happens was "the worst way to give you leverage with any new potential partners."

The insistent and hard-line nature of the newly formed U.K. government has led some political commentators to the conclusion that Johnson and his advisors see a no-deal exit as the only viable solution to rescuing support for the Conservative Party.

The Conservatives hold a fragile majority of just one lawmaker in the House of Commons and it's expected that some of their own Members of Parliament will vote against the government in any bid to leave the EU without a deal.

On the right of the political spectrum, the Conservatives are trying to see off the threat posed by the Brexit Party, led by prominent Brexiteer Nigel Farage, while to the left, some polls show a less-than-convincing lead over the main opposition Labour party.

Johnson's gamble appears to be that by taking Britain out of Europe, even without a deal, Brexit supporters will return to his party, allowing a subsequent general election to take place which will deliver a stronger majority in Parliament.

Labour leader Jeremy Corbyn has raised the possibility that Johnson, who has barely warmed the seat of 10 Downing Street, could be removed by a vote of no confidence in September, thereby precipitating an early election.

But Dominic Cummings, one of Johnson's key advisors and architect of the Vote Leave campaign that spearheaded the push to leave the EU in 2016, told reporters that even if the prime minister lost a such a vote, he would not give up power before the Brexit date of October 31 and Britain's departure could even take place in the middle of an election campaign.

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