• Brexit May-hem
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  • Carl reports from London, where Brexit fever is rising.

    While British politicians can’t figure out how they should stand in Europe, English Premier League clubs are much more confident of their positions. For the first time in a decade, four English football clubs have made it to the quarterfinal stages of the Champions League. On the pitch, at least, there is no rush to withdraw from Europe.

    The U.K. parliament showed similar intentions last week, seeking a delayed departure from the European Union (EU). Early this morning, their European counterparts gave them just two more weeks to conclude an agreement. The cliff has moved, but it is still a cliff; Britain could still crash out of the EU without a deal.

    It is disappointing that this tail risk remains so high. Efforts to define a new relationship between the U.K. and the EU have made little progress in the last two years. On one hand, delaying the deadline for a longer period would be a path of least resistance, but there is no guarantee that the extra time would produce a conclusive outcome.

    Embattled Prime Minister Theresa May is still hoping to bring her Brexit plan to a third vote next week. In the unlikely event that it succeeds, Britain will depart in April. If it fails, a longer delay is possible, but the price set by the EU for the extra time will be a concrete outline of the way forward. Given the extreme dissonance here, assembling that outline may be a bridge too far.

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    Even if the additional extension is granted, substantial complications remain. Firstly, the delay would prolong the economic uncertainty that has led investment, talent and capital away from the U.K. Regardless of how the Brexit issue is resolved, those losses are likely permanent. The sooner something definitive can be reached, the better.

    Several automakers recently announced plans to shift production away from the U.K., citing uncertainty over the country’s trade linkages to the rest of the world.

    Secondly, a prolonged extension raises the uncomfortable possibility of the U.K. being forced to participate in elections for the European Parliament next May. This would be an awkward situation both sides would like to avoid.

    Thirdly, The U.K. is obligated to continue paying membership dues to Brussels during the interim, which must rankle those who thought those funds might better be used elsewhere. The willingness of the EU to continue investing those funds in Britain might be compromised.

    Fourth, it seems difficult to imagine that Ms. May would remain as prime minister over the length of a longer extension. A change of government, whether through a new Tory leader or a general election, would send negotiations with the EU virtually back to square one and could have severe consequences for the pound and U.K. equity markets.