LONDON (Reuters) - British Prime Minister Theresa May’s failed gamble on a snap election throws Brexit - and the formal Brexit talks - into uncharted waters.
Voters dealt May a devastating blow in the snap election she had called to strengthen her hand in the Brexit negotiations, wiping out her parliamentary majority and throwing the country into political turmoil.
Following are some scenarios for Brexit:
Formal Brexit talks were due to start on June 19, just under two years ahead of a British exit due in March 2019. But May has no majority and British politics is now deadlocked, meaning talks could be delayed.
While May remains prime minister until a new government is formed, she does not have a clear mandate for her interpretation of Brexit that includes limits on immigration and leaving the single market.
“Theresa May arrogantly gambled with our Brexit and blew it,” said a spokesman for the Leave.EU pro-Brexit campaign. “We demand fresh leadership immediately.”
Germany said there was no time to lose on negotiating Brexit because time was ticking. France said the election result would not call into question Britain’s decision to exit.
Labour leader Jeremy Corbyn said Brexit talks should go ahead as planned.
Given that Britain has already triggered the formal divorce talks, it is unclear what mechanism could be used to delay the negotiations.
If May forms a minority government with support from the Northern Irish Democratic Unionist Party (DUP), then she would enter Brexit talks heavily dependent on one side of the divide in Northern Ireland and on the eurosceptic wing of her own party.
Her ability to drive Brexit reforms through parliament is sharply diminished. With less room for manoeuvre, she may be forced to reject compromises proposed by Brussels and drive a harder bargain.
“The likely narrowness of the majority will give an ability for any small grouping of Conservative MPs to potentially block legislation,” JPMorgan said.
She warned EU ambassadors in January that attempts to punish Britain would be an “act of calamitous self-harm” for EU countries and repeatedly told voters during the campaign that she would be prepared to walk away from talks without a deal.
A disorderly Brexit with no deal would spook financial markets, tarnish London’s reputation as one of the world’s top two financial centres and sow chaos through the economies of Britain and the EU by dislocating trading relationships.
“The hung parliament makes both a ‘soft’ Brexit (staying in the Single Market) and a chaotic Brexit (no deal) more likely than before, potentially even a second referendum,” Citi said in a research note.
Still, “‘hard-but-smooth’ Brexit would remain our base case,” Citi said.
May has insisted that Brexit means Brexit but it is unclear how long she will remain in power or whether another British election will be called.
“If May resigns, the negotiations could be delayed by months due to the leadership contest, potentially new elections and even another process to design the UK’s negotiation strategy,” Citi said.
If talks are delayed for long - and if British political turmoil continues - then the timetable for Brexit will slip while uncertainty could undermine economic confidence.
Before her defeat, May said she wanted to negotiate the divorce and the future trading relationship with the EU before Britain leaves in March 2019, followed by what she calls a phased implementation process to give business time to prepare for the impact of the divorce.
Corbyn, who voted against EU membership in 1975 but said he voted for membership in 2016, told voters the issue of Brexit had been settled. He wants a trade deal and a guarantee that EU worker rights be preserved as part of any Brexit agreement.
“Whatever happens Theresa May is toast – it is just a matter of time,” Brexit campaigner Nigel Farage said. “Quite frankly I don’t know what’s going to happen.”
But Farage said he feared Corbyn could somehow manage to form a minority government that would allow a second Brexit referendum.
The Liberal Democrats, whose votes in parliament could help sustain a Labour government, campaigned on the position that Britons should be able to vote again on the terms of the final EU deal, and stay in the bloc if the deal was rejected.
Scottish National Party leader Nicola Sturgeon has argued that Scotland, where a majority voted to remain in the EU last year, should have the right to hold an independence referendum at the end of the Brexit process.
“As a Brexiteer who believes in it with all his heart and soul, my fear is that Corbyn forms a coalition with the SNP and a few Lib Dems and we look down the barrels of a second referendum in a few years time,” Farage said.
Reporting by Guy Faulconbridge; Editing by Andrew Heavens