The historic, humiliating defeat British parliament dealt Prime Minister Theresa May’s Brexit plan raises a burning question: What now?
The answer is frustratingly muddy. The deadline for the country to quit the European Union looms in just 72 days. The hope for a negotiated exit along the lines of what May has spent the past 18 months forging look dashed by the 230-vote margin that sunk her plan. But there is no clear alternative, with options from a Brexit 2.0 referendum to a hard crash out of the E.U. all possible.
See the announcement of the 432-to-202 vote here:
First things first: May faces a no-confidence vote in Parliament today after surviving such a challenge from within her own party last month. If Labour Party leader Jeremy Corbyn can muster the votes, that would lead to a general election. But May is expected to prevail again.
Assuming she does, what standing she will have afterward to seek a new consensus is a subject of speculation. “The fear will be that Britain is now careering towards a no-deal Brexit, but in fact Tuesday night’s vote may yet prove the high-water mark for the Brexit hardliners,” the FT’s Robert Shrimsley writes. “Having thrashed Mrs. May’s plan they must now watch her reach out towards Remainers. A softer Brexit or even no Brexit at all, now looks more likely than the no-deal they crave.” (To back way up and get a primer on how Brexit got started in the first place and the major fault lines that have defined it since, see this question-and-answer style rundown The Post’s Adam Taylor.)
Indeed, in a sign of just how jumbled the matter remains, partisans of all stripes saw events swinging their way after Tuesday’s vote.
“Hardcore Brexiters, such as former foreign secretary Boris Johnson, cheered the result as increasing the chances of Britain leaving the European Union with no deal and no compromises — or a much, much better deal than May or E.U. leaders say is realistic,” The Washington Post’s William Booth, Karla Adam and Michael Birnbaum report. “At the same time, those who want to see a second referendum on Brexit, who want to stay in the union, think May’s loss gets them closer to their goal.”
And investors didn’t flinch, with all three major U.S. stock indexes closing in positive territory after the vote. (Recall that markets tanked around the world after the referendum back in June 2016.)
The New York Times assembled a helpful decision tree illustrating the options British leaders must now confront:
As far as May going back to the E.U. to ask for new concessions, European leaders indicated they aren’t likely to entertain such a conversation and their patience is wearing thin. French President Emmanuel Macron said meaningful changes aren’t possible, “because we’ve reached the maximum of what we could do with the deal, and we won’t, just to solve Britain’s domestic political issues, stop defending European interests.”
And here was European Commission President Jean-Claude Juncker:
Besides, the breadth of May's defeat suggests tweaks at the margins of the deal will be insufficient to get her package the support it needs. She has until Monday to announce how she intends to proceed.
Some British lawmakers are pressing for a re-do referendum. Recent U.K. polling shows a clear majority would now vote to remain if given a second chance:
And anti-Brexit commentators say with the failure of May's deal, the time has never been riper. Here's Edward Luce, the FT's U.S. national editor:
Following May's huge defeat, Britain now has its best, and only realistic, chance of a 2nd referendum to reverse Brexit. Never been less unlikely. I'd implore wavering Brits to agitate for a people's vote. UK helped trigger this nativist-populist b'shit. It can help to reverse it— Edward Luce (@EdwardGLuce) January 15, 2019
European Council President Donald Tusk suggested the U.K. could walk away from Brexit altogether :
If a deal is impossible, and no one wants no deal, then who will finally have the courage to say what the only positive solution is?— Donald Tusk (@eucopresident) January 15, 2019
And, as the FT’s Shrimsley argued last year, a second referendum would not be the panacea some of its champions suggest. “A close win for Remain will settle nothing. And for all the Remainer confidence — and belief in an energised youth vote — there is no guarantee they would win,” Shrimsley, himself a Remain supporter, wrote back in October. “But most fundamental is the damage it will do to democracy. If Remain were to nick it back, where do the former 52 per cent turn next? The phenomenon of populism cannot be wished away and one of its causes was the sense of a political class that does not listen.”
That may strike a chord with Americans hoping to reverse the populist tide here that Brexit heralded.
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— White House: Shutdown damage worse than predicted. NYT's Jim Tankersley: "The partial government shutdown is inflicting far greater damage on the United States economy than previously estimated, the White House acknowledged on Tuesday, as President Trump’s economists doubled projections of how much economic growth is being lost each week the standoff with Democrats continues.
"The revised estimates from the Council of Economic Advisers show that the shutdown, now in its fourth week, is beginning to have real economic consequences. The analysis, and other projections from outside the White House, suggests that the shutdown has already weighed significantly on growth and could ultimately push the United States economy into a contraction... White House officials are now cautioning Mr. Trump about the toll it could take on a sustained economic expansion."
Per the administration's revised estimate, the shutdown has already shaved a half point from first-quarter GDP growth.
Federal workers called back. The Post's Erica Werner: "The Trump administration on Tuesday said it has called back tens of thousands of federal workers to fulfill key government tasks, including disbursing tax refunds, overseeing flight safety and inspecting the nation’s food and drug supply, as it seeks to blunt the impact of the longest government shutdown in U.S. history. The nearly 50,000 furloughed federal employees are being brought back to work without pay — part of a group of about 800,000 federal workers who are not receiving paychecks during the shutdown, which is affecting dozens of federal agencies large and small."
From Bloomberg's Jennifer Dlouhy:
Trump's Interior Dept is bringing furloughed employees back on the job to prepare sales of offshore #oil drilling rights, arguing that failing to hold the auctions would have a negative impact on the federal treasury & investment in the Gulf of Mexico.($) https://t.co/6exUQd4pyC— Jennifer A. Dlouhy (@jendlouhyhc) January 15, 2019
IRS employees will also be back on the job to prepare for tax filing season, though most won't be paid if the shutdown continues, the Wall Street Journal's Richard Rubin reports.
— Senate GOP hugs the sidelines. The Post's Sean Sullivan: "It’s been a bumpy couple of weeks for [Senate Majority Leader Mitch McConnell (R-Ky.)], who has cultivated a reputation for being a savvy political strategist, deft dealmaker and Senate institutionalist... By choice, he has stepped away from the talks to resolve the impasse over $5.7 billion for [Trump’s] border wall, which is at the core of the dispute, while refusing to vote on House bills to reopen the government... Still, he has retained the support of most fellow Republican senators, who appear to be largely united behind his strategy, despite some growing concerns about the impact of the lapse in government services."
From The Post's Bob Costa:
The tweet drew some outraged responses. Washington Post political columnist Karen Tumulty summed it up:
Think about this: Elected representatives who are afraid to do their job are hoping federal workers, who live paycheck to paycheck, will have the guts that they don't. https://t.co/Mf4DGY9H3B— Karen Tumulty (@ktumulty) January 15, 2019
— Ocasio-Cortez, other progressive freshman join Financial Services. Politico's Zach Warmbrodt and Heather Caygle: "A group of fiery progressives led by Rep. Alexandria Ocasio-Cortez of New York is poised to take seats on the powerful House Financial Services Committee, posing a big challenge for new Chairwoman Maxine Waters... In addition to Ocasio-Cortez, attention-grabbing freshmen Reps. Katie Porter (D-Calif.), Rashida Tlaib (D-Mich.) and Ayanna Pressley (D-Mass.) are all expected to land spots on the committee, which oversees Wall Street and the nation's housing market. The addition of lawmakers who shunned corporate campaign donations and have taken on their party's establishment is a major victory for progressives looking to counter the influence of more business-friendly Democrats."
Should markets be nervous? Yes, says Horizon Investment's Greg Valliere. "Ocasio-Cortez is likely to have two major impacts," he writes in his morning note to investors. "First, she'll be a headline risk for the financial services industry as she takes a coveted seat on the House Financial Services Committee, joining firebrand Chairman Maxine Waters. The committee has no chance of getting legislation enacted, but it has subpoena power and will make life miserable for industry execs with endless hearings.
"Her other impact will be more significant: Ocasio-Cortez has stunning support for her agenda, and that's likely to persist as the media flocks to the telegenic 29-year-old. A poll released this week showed 59% of respondents nationwide favor her call for a 70% top tax rate for the wealthy; an astonishing 45% of Republicans support the idea."
— Stocks rise as tech leads the way. CNBC’s Fred Imbert and Ryan Browne: “Stocks rose on Tuesday as Netflix led a rally in tech-related names after news that it would hike its monthly membership prices. The Dow Jones Industrial Average rose 155.75 points to 24,065.59... The S&P 500 gained 1.07 percent to close at 2,610.30 as the tech sector climbed 1.5 percent. Tuesday was also the first time since December that the S&P 500 closed above 2,600, a key level watched by trader … Shares of Netflix jumped 6.5 percent after a report said the company would hike prices to its monthly memberships by 13 to 18 percent. This would be Netflix’s biggest price hike since it launched its streaming service more than a decade ago.”
— Fed president says a pause on rate hikes is likely. CNBC’s Jeff Cox: “The Federal Reserve likely will need to pause before implementing further rate hikes as it assesses the economy’s direction and the impact of its previous policy moves, Kansas City Fed President Esther George said Tuesday. ‘A pause in the normalization process would give us time to assess if the economy is responding as expected with a slowing of growth to a pace that is sustainable over the longer run,’ George said . . . ‘Failure to recognize these lags could lead to an overtightening of policy, a downturn in economic growth and an undershooting of our inflation objective.’ Echoing recent comments from several other Fed officials, George said policymakers have the time now to be patient in assessing whether further rate hikes are necessary.”
Tame inflation may make for a patient Fed. Lucia Mutikani at Reuters: “U.S. producer prices dropped by the most in more than two years in December as the cost of energy products and trade services fell, adding to signs of tame inflation that may allow the Federal Reserve to be patient about raising interest rates this year. Other data on Tuesday suggested manufacturing activity slowed further at the start of the year, with a measure of business confidence in New York State tumbling to more than a 1-1/2-year low in January.”
— Goldman: Rich people will hurt the economy. Bloomberg's Joanna Ossinger: "The stock-market sell-off is going to be a significant drag on the U.S. economy this year as wealthy households feel its impact, according to Goldman Sachs Group Inc. Lower equity prices could take half a percentage point off U.S. gross-domestic product growth in 2019, with overall tighter financial conditions restricting expansion by around 1 percentage point, Goldman economist Daan Struyven wrote in a note Tuesday. In October, he had said the positive wealth effect from equity gains in 2017 and early 2018 had likely evaporated. 'The hit to the wealth level from a 1 percent decline in stock prices is now about three times larger than in the late ’80s for the top-10 percent of households and a third larger for those in the 50-90th percentiles,' Struyven said, citing the increase in equity holdings as a share of disposable household income."
— U.S. trade rep says no progress has been made in China talks. Humeyra Pamuk at Reuters: “United States Trade Representative Robert Lighthizer did not see any progress made on structural issues during U.S. talks with China last week, Republican U.S. Senator Chuck Grassley said on Tuesday as plans emerged for higher-level discussions at the end of January. Grassley, who held a meeting with Lighthizer on Friday, said the top trade negotiator commented positively on China’s soybean purchases, which resumed in modest amounts last month after Washington and Beijing agreed to a 90-day truce in a trade war that has disrupted the flow of hundreds of billions of dollars of goods. ‘But he (Lighthizer) said that there hasn’t been any progress made on structural changes that need to be made,’ Grassley said.”
— China tries to counter economic slowdown. The Associated Press: “China plans to slash taxes, step up spending and provide ample financing to private and small enterprises to help counter the country’s worst slowdown since the global financial crisis and the impact of a bruising trade war with the U.S. The People’s Bank of China is confident it can keep the value of China’s currency, the yuan, steady while maintaining a stable but flexible monetary policy … The yuan, also known as the renminbi, or ‘people’s money,’ sank to a 10-year low of 6.9756 per dollar at the end of October, coming close to breaking the level of seven to the greenback. It has strengthened since then to about 6.7580 per dollar. A further slide in the yuan could fuel U.S. complaints about Beijing’s currency controls. It also might prompt potentially destabilizing outflows of capital, which would raise borrowing costs and hobble efforts to shore up growth.”
- "Barr fields questions on Mueller probe, independence from Trump at attorney general confirmation hearing." The Post's Matt Zapotosky, Karoun Demirjian, Devlin Barrett and Seung Min Kim.
- "William Barr’s big caveat on publicly releasing the Mueller report." The Post's JM Rieger.
- "Barr confirms he shared his Mueller memo with lots of people around Trump." The Post's Aaron Blake.
- "Mueller not ready for Trump aide’s sentencing, filing says." AP's Chad Day.
- "Trump discussed pulling U.S. from NATO, aides say amid new concerns over Russia." NYT's Julian E. Barnes and Helene Cooper.
— Netflix raises prices. The Post’s Taylor Telford and Steven Zeitchik: “Netflix is raising monthly subscription prices by as much as 18 percent in the United States, the largest rate hike in its history, as company executives look for more money to pay escalating content bills. Although Netflix has hiked prices in the past, this is the first increase that will be applied to all U.S. subscribers, as well as subscribers in Latin American and the Caribbean, where Netflix bills in U.S. dollars. The most popular subscription plan will now cost $13 a month, up from $11. The cheapest subscription will run $8.99, up from $7.99. The move is an attempt by Netflix to increase its revenue as its subscription growth in the United States slows. The company has 58 million domestic subscribers.”
— PG&E’s bankruptcy could have far-reaching consequences. WSJ’s Russell Gold, Sara Randazzo and Rebecca Smith: “PG&E Corp.’s plan to file for bankruptcy protection has enormous repercussions for everyone from the homeowners suing the utility for California wildfire damages to the companies that furnish it with green energy. California’s largest utility said Monday it was preparing to file for Chapter 11 protection before the end of the month as it faces more than $30 billion in potential liability costs related to its role in sparking wildfires in recent years. Electricity and natural gas would continue to flow to homes and businesses, PG&E said.
“But a bankruptcy process would complicate attempts to recover wildfire damages and likely affect the state’s plans to reduce carbon emissions … The more than 750 civil suits brought by thousands of homeowners and insurers suing PG&E over wildfire damages would be immediately halted and resolved in a bankruptcy proceeding along with other claims. Meanwhile some of the long-term contracts PG&E struck to buy electricity from wholesale power providers could be dissolved in a bankruptcy. Many of the contracts to buy power from wind and solar farms are well above current market rates because PG&E was among the first utilities to buy large quantities of green power, when it was far more costly than it is today.”
- Brookings hosts an event on the "top priorities for Africa in 2019" on Thursday in Washington.
- The Center for Strategic and International Studies hosts an event on the Indian economy in 2019 in Washington on Thursday.
- The Wilson Center hosts an event on the "domestic and international impacts of kleptocracy" in Washington on Thursday.
- The Bipartisan Policy Center hosts "Energy Innovation: Fueling America’s Economic Engine" in Washington on Thursday.
- The Bipartisan Policy Center looks at "The Year Ahead for Capital Markets" on Jan. 22 in Washington.
- The Heritage Foundation hosts "Taxing Wars: The American Way of War Finance And the Decline of Democracy" in Washington on Jan. 28.
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