Spooking the markets won't work if traders are already preparing for the worst, experts say.
LONDON — British Prime Minister Theresa May on Monday began the near-impossible task of selling her Brexit deal to lawmaker amid widespread predictions that it will be defeated in a parliamentary vote.
She faces what the Daily Mail newspaper called a "frantic fortnight" in which to turn the tide of opposition to the draft divorce agreement struck with her European Union counterparts.
As Britain enters its Brexit endgame — it is due to leave the E.U. in 123 days' time on March 29 — there has been speculation that only a stock market panic over rejection of her deal would persuade lawmakers to back it in a vote, slated for Dec. 12. A deal is needed in order to keep goods moving across borders that are open under European Union rules, but which will close when Britain pulls out of the trading bloc.
Brexit-watchers are calling it the "TARP scenario" in reference to President George W. Bush's October 2008 Wall Street bail-out; the $700 billion Troubled Asset Relief Program was rejected by Congress, prompting a huge slide in stocks that threatened total economic collapse until Capitol Hill reversed its opposition.
Hidden under TARP?
Business leaders have repeatedly warned that a "no-deal Brexit," in which Britain and Europe do not agree on their future relationship, will cause chaos at border points and cripple supply chains. Some government officials are preparing contingency plans to stockpile medicines and other imports while highways leasing to customs posts would be turned into miles-long parking lots.
Despite this looming crisis, many lawmakers, including pro-Brexit members of May's own Conservative party, believe her proposed deal would be even worse because it surrenders too many political controls to Brussels during a post-E.U. transition period.
This spurred some policy wonks to float the idea that lawmakers could be forced to set aside their opposition to May's plan if financial markets are spooked by a potential no-deal Brexit.
The "TARP scenario" for Brexit was attributed to former government economic adviser Rupert Harrison, who said it was a "prediction not a recommendation."
However, a number of commentators have identified significant differences between May's Brexit predicament and the Wall Street bailout.
Bush's plan enjoyed bipartisan support from both the 2008 election candidates, Sen. John McCain and then-Senator Barack Obama, whereas May is so politically isolated that she barely has the support of her own cabinet ministers.
Perhaps more fundamentally, the financial markets can only be spooked by surprises, whereas a no-deal Brexit has been long floated as a possible outcome.
"In 2008, traders mostly thought that TARP would probably pass," former trader Matt Singh wrote for right-leaning CapX. "But it's safe to say that if almost every pundit in the traditional media and social media thinks that there is little chance of the Commons passing the bill at the first attempt, then this is not something that has escaped traders' attention, and their expectations will be set accordingly."
BBC policy editor Chris Cook noted: "Counting on TARP makes it unlikely to happen."
And while TARP was an urgent measure required to prevent an overnight financial disaster, Brexit is a political crisis that has been in the pipeline since the June 2016 referendum result.
The British pound has weakened on currency markets since the vote, mostly because of political uncertainty, but stock prices have been more fluid.
A Brexit vote defeat "may have some economic (and therefore market) impact, but it's not as immediate as banks potentially running out of money," said Singh.
Another key difference is that Brexit was driven by voter choice in a campaign that emphasized a return to British sovereignty in place of decision-making in Brussels.
"Brexit was billed by its proponents as being a moment of freedom," said ITV Political Editor Robert Peston. "If a Brexit deal … were to be passed because of fear that otherwise the country would be punished by international investors, by big capital, this would be rich and fertile territory for extremists and populists to exploit."
What happens next?
May said Sunday that the House of Commons vote on the deal — comprising the Withdrawal Agreement and the Political Declaration of future EU-UK relations — will take place before the Christmas recess and would be one of the most significant votes "for many years."
The opposition Labour Party has already indicated it will vote against her, while members of small Democratic Unionist Party, who had previously been propping up her minority government, have withdrawn their support.
Facing such widespread opposition in Westminster, May is appealing directly to the public to get behind the deal — writing an open letter to voters this weekend and raising the possibility of a TV debate.
She has made it clear that her deal is the only option on the table, although there are growing calls for a second referendum now that the terms of Brexit are known.
After Brexit, Britain will "begin a new chapter in our national life," May wrote. "I want that to be a moment of renewal and reconciliation for our whole country. To do that, we need to get on with Brexit now by getting behind this deal."
If May wins, the deal goes to the European Parliament in January for final approval.