What to Expect From the Next Season of Brexit Saga

(Bloomberg) -- It's been three years since Britain voted to break away from the European Union, but the country still hasn't managed to leave. Delivering a departure turned out to be trickier than the referendum slogans suggested, and the country has yet to decide what Brexit should really mean. The risk of a messy no-deal split remains real, and companies continue to spend millions preparing for the worst. Brexit has already brought down two prime ministers: Don't rule out another general election before the divorce is resolved.

1. Where's this drama going?

Prime Minister Theresa May spent two years pursuing a compromise but was ultimately foiled by hardliners on both sides of the debate. One of her most strident critics -- the Brexit campaigner Boris Johnson -- looks set to replace her as prime minister, and he vows to succeed in negotiations with Brussels where she failed. But the timing is tight: the new prime minister won't be confirmed until the end of July, and the deadline for leaving the EU -- twice extended -- is Oct. 31. It's possible, but by no means certain, the EU would allow another extension. Johnson has said he wouldn't ask for another delay.

2. How will the next leader be chosen?

The ruling Conservative Party is consumed by an internal battle to replace May with a prime minister who can unite the deeply divided party, deliver Brexit and win the next general election. Johnson, an ex-journalist who served as mayor of London and May's foreign secretary, is the front-runner and clear favorite. The party's 160,000 members -- who are overwhelmingly pro-Brexit -- will choose the winner by mail-in ballot from the shortlist of Johnson and current Foreign Secretary Jeremy Hunt. The new prime minister is expected to be announced the week of July 22.

3. What happens then?

Both candidates have promised to renegotiate the divorce deal that May struck with the EU. In particular, they aim to strip out the controversial Irish backstop, a fallback position designed to prevent a hard border between the Republic of Ireland, which is staying in the EU, and Northern Ireland, which is leaving along with the rest of the U.K. Critics of the backstop say it could trap the U.K. in the EU's orbit forever. But the EU has said the exit deal can't be renegotiated. And though the U.K. will have a new prime minister, the Conservatives -- who don't have a majority -- will still govern with the support of a Northern Irish party that fiercely opposes the backstop. There's a growing sense that a general election may be needed to break the impasse.

Read more: Why Ireland's Border Commands Its Own Brexit Backstop

4. Could the U.K. leave without a deal?

Yes. Johnson has said the U.K. “must” leave the bloc on Oct. 31, come what may. But he has also said he doesn't want to leave without a deal and has softened his rhetoric in recent appearances. Parliament has repeatedly voted against a disorderly exit, and lawmakers are trying to work out how they would stop a future prime minister dragging the country out against their will. One option for a determined prime minister is to effectively suspend Parliament to push a no-deal through. It would be politically toxic and, constitutionally questionable, and Johnson has said -- at least to some people -- that he doesn't want to take that route. Hunt has said no-deal would probably prompt an election, which could be suicide for the Tory party. But he prefers no-deal to canceling Brexit.

5. What would a no-deal Brexit mean?

It would leave the U.K. lacking legal arrangements to smooth trade and other transactions with its neighbors, snarling cross-border commerce. Bottlenecks could bring shortages of everything from food and drugs to manufacturing components. Both sides are preparing for the worst, including taking steps to prevent a financial-markets meltdown. But while the measures can mitigate some of the more catastrophic outcomes -- such as flights being grounded -- they won't address barriers to trade that would suddenly emerge. No-deal also raises questions about the Irish border. Both sides have said they would try to avoid a hard border, but one would probably become necessary eventually.

6. Can the whole thing be called off?

Yes, and the delays could make that more likely. But there are still major obstacles. At least for now, there isn't a majority in Parliament behind proposals to hold a second referendum. Jeremy Corbyn, leader of the opposition Labour Party, has come out in favor of another plebiscite, but with reservations. May was adamant that a re-vote would undermine faith in democracy and rip the country apart -- a view many share. In any case, it's not clear what the result of a re-run would be -- or indeed what question would be put to voters. Polls indicate that support among voters is now more in favor of remaining in the EU than leaving, but that's what surveys showed last time, too. Leave ended up carrying the 2016 referendum with 52% of the vote. The U.K. does have the legal right to cancel the divorce, by revoking the so-called Article 50 notification that triggered the exit process -- but exercising that without a referendum would be political dynamite.

7. What's the fallout?

Companies operating in Britain have bemoaned the lack of clarity over Brexit's impact, warning that unanswered questions about everything from trade policy to immigration laws are throttling hiring and investment decisions. The prospect of Brexit has already prompted global banks to move operations, assets and people to Frankfurt, Paris and other cities. Manufacturers and broadcasters have also started moving facilities, while companies and households have been stockpiling.

Read More: Britain's Businesses Have Already Lost, Brexit or No Brexit

The Reference Shelf

• The end of Theresa May: a tale of secrecy, suspicion and stumbles.
• Bloomberg Businessweek: “Britain's Businesses Have Already Lost, Brexit or No Brexit,” and England's disconnect with the rest of Britain.
• QuickTake explainers on a hard Brexit, how a customs union could define post-Brexit trade and how “equivalence” will shape financial services.
• Add data sharing and repatriation to the list of Brexit bumps for the U.K. and EU.
• Bloomberg Opinion presents views from Therese Raphael and the editorial board.

To contact the reporter on this story: Emma Ross-Thomas in London at erossthomas@bloomberg.net

To contact the editors responsible for this story: Flavia Krause-Jackson at fjackson@bloomberg.net, Andy Reinhardt, Stuart Biggs

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