UK Politics: Parliament can still stop no-deal, but it won’t be easy – The Queen has formally agreed to suspend parliament on 10 September, on the advice of PM Johnson, ahead of a new session to begin 14 October. This will leave just 5 sitting days before the suspension. While it is a normal procedure to suspend parliament periodically (usually annually), the timing and the length of the proposed suspension suggests that it is intended to frustrate attempts to block a no-deal Brexit from taking place on 31 October. The move has proved highly contentious, with parliament’s Speaker John Bercow calling it a ‘constitutional outrage’, and some opposition MPs (for instance Clive Lewis and Dawn Butler) saying they would refuse to comply with the suspension.
While the UK continues to move through uncharted constitutional territory, there remains time to prevent a no-deal Brexit on 31 October. In April, the Cooper-Letwin bill was passed forcing then-PM May to seek an extension to the Brexit deadline, and this took just four sitting days of parliament. Such a bill could conceivably be passed when parliament sits next week, or after the new session begins on 14 October. However, this legislation is not watertight – it does not bind the PM to agree to any eventual extension the EU might offer. While PM May acquiesced, PM Johnson might act differently.
The only watertight means to prevent no-deal would be to bring down the government in a no confidence vote, and to install a government of national unity. It is proving difficult to get opposition parties to agree on a caretaker PM of such a government, but recent events could now focus minds and encourage opposition MPs to unite around a caretaker leader. Should that fail, a general election would take place. Indeed, the move to suspend parliament could well be tactical to force MPs to call a confidence vote triggering a general election. According to government sources, the election would take place after the 31 October Article 50 deadline, in early November. This would also scupper legislation preventing no deal, by dissolving parliament – assuming legislation has not already been passed before the no confidence vote. (Bill Diviney)
Euro Politics: Political situation in Italy remains fragile, while fiscal deterioration will continue – Attempts to form a new coalition government of the left-wing populist Five Star Movement (M5S) and the centre-left social democratic pro-European Democratic Party (PD) are likely to become successful, according to reports in the Italian press. President Mattarella could announce a new government later this afternoon or this evening. It is likely that Giuseppe Conte will resume his role as prime minister, although the PD initially opposed this. One of the first tasks of the new government will be to formulate the 2020 budget and make sure it meets the targets that were agreed with the European Commission in December 2018 (a reduction of the budget deficit to 1.8% in 2020 and 1.5% in 2021), or renegotiate those targets. In any case it will likely try to prevent that the ‘safety clauses’ that were agreed with the Commission become effective. These consist of a VAT-hike or other income-generating measures amounting to EUR 23.1bn (equal to around 1.3% of GDP) in 2020, and EUR 28.8bn in 2021. Although Mr Conte as well as the Democratic Party are pro-Europe, and Mr Conte has managed to reach deals with the Commission last year, finalising the budget and getting the EC’s approval will probably be complicated. To begin with, Italy’s government finances currently are deteriorating as Italy’s economy is likely in recession. Moreover, the policy agenda of M5S is much more left-wing than that of PD. Indeed, M5S wants to support low-income households and neutralise the impact of a potential VAT-hike resulting from the safety clause. Although a M5S-PD government reduces the probability of early elections, we think Italy’s political situation remains fragile. In addition, we think that the fiscal deterioration will continue, with the budget deficit likely to sharply exceed current estimates. (Aline Schuiling)
Bill Diviney
Senior Economist
Aline Schuiling
Sr. Economist
PUBLICATION,
Source: ABN AMRO