The U.S. Government Is Shut-Down and Divided. But the U.K.'s Brexit Chaos Is—Somehow—Even Worse

Much is rightly made of the paralyzing political division in the United States, but—in terms of sheer chaos—it’s arguably outdone by the discord tearing apart the U.K. right now.

Last night the British Parliament rejected Prime Minister Theresa May’s negotiated Brexit deal by 230 votes—the greatest defeat for a government initiative in the country’s democratic history. Today, there will be a vote of no confidence in May’s government, brought about by the opposition Labour Party. The government will most likely survive that vote.

So what happens then? Nobody knows for sure.

A couple of months ago, there were three options: May’s deal with the EU; an economically catastrophic no-deal Brexit; or a cancellation of Brexit. That first option is now off the table, rejected by the British Parliament by more than two votes to one. While some British politicians claim the EU will now be panicked into making further concessions to the Brits, they are wrong. The EU has always held the winning hand in this game and won’t fold now.

That leaves a no-deal Brexit or no Brexit. Judging by sterling’s boost after last night’s vote, the markets believe the latter is more likely.

“Currency traders took an optimistic view, looking past the news to what could ultimately be a better result for the U.K. economy,” London Capital Group said in a note this morning. “Rather than seeing this as a step closer towards a no-deal Brexit, as Theresa May had originally threatened, traders are seeing this as a move towards… delaying Brexit. The perceived probability of a no-deal Brexit [is] diminishing, which is pound positive.”

I fear the currency traders are wrong—though, as someone with a British passport living in Berlin, I hope they’re not. The problem is, as always, division. And unlike in the U.S., where the split runs broadly along partisan lines, the U.K.’s main parties are opposed to one another while also being desperately riven themselves.

Part of May’s Conservative Party really does want to leave without a deal; part believes another deal is possible; part wants to stay in the EU. And Labour also fails to speak with one voice on Brexit—the membership wants a second referendum, but leader Jeremy Corbyn implausibly claims he can secure a better deal than May could.

Could there really be another referendum—a so-called People’s Vote? Only if lawmakers face reality and risk reprisals from constituents who voted for Brexit and still expect it. And thus far, courage and honesty have been in short supply.

In short, it seems there is no possible majority for anything, and therefore the country is skidding toward the default outcome, which is a no-deal Brexit at the end of March. The least-worst-case option would be a delay of a couple months, giving businesses more time to prepare. As I say, I hope I’m wrong on all this. But right now, barring a sudden outbreak of leadership in Westminster, the markets and everyone else should brace themselves.

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