Britain may have made a huge Brexit breakthrough -- but it's still possible the UK doesn't actually leave the EU

Screenshot/CNBCPeter Dixon, Commerzbank’s chief UK economist

  • Commerzbank’s UK chief economist Peter Dixon says that there is as much as a 15% chance that Brexit doesn’t happen.
  • Dixon argues that the UK could enjoy a long transition period before voters eventually decide that they don’t really want to leave the bloc.
  • At that point, a second referendum could enable the UK to stay in the EU.
  • Dixon’s comments echo those of Pantheon Macroeconomics’ Samuel Tombs, who has Britain staying in the EU as his most likely scenario.

LONDON – Brexit talks may have seen a major breakthrough on Friday after it was announced that the UK and EU have reached an agreement on the so-called “divorce bill” that Britain will pay on exiting the bloc, but there’s still a not insignificant chance that Brexit will not happen.

That’s the view of Peter Dixon, the chief UK economist at Germany’s second largest lender, Commerzbank. Speaking at a breakfast to launch Commerzbank’s 2018 economic outlook for the UK, Dixon said that Brexit not happening is “not a “non-zero” event” – effectively arguing that there is as much as a 15% chance that Britain stays in the bloc.

Dixon argued any potential u-turn on Brexit would take place 10 to 15 years down the road, after the implementation of a transitional deal.

“If you want to be Machiavellian about it, the EU does not want to see the UK leave. For many reasons – for budget reasons, for trade reasons, and for credibility reasons,” he said.

“So imagine that the EU and the UK come to some kind of transitional arrangement, a bit like they have done overnight, and you get a two year extension. Then in two years time you have to go through the rigmarole again, and prolong the agony.”

Comparing the Brexit situation to what happened in Greece during the country’s debt crisis – when it was widely believed that the country would be forced to leave the EU – Dixon said that the UK could “keep kicking the can down the road” on actually leaving the EU.

“Maybe Brexit gets kicked down the road. Just imagine that the UK continues to underperform economically over time, and a new generation of voters comes through. They then say ‘Actually we kind of like the idea of what we had before, can we have it back please?'”

The politicians in charge at the time, whoever they may be, will say: ‘Well OK maybe we think we can win a referendum this time around.'”

“Who knows, maybe 10-15 years down the track, the UK goes from being this sort of half in half out state, to one where they’re asked [through a second referendum] whether or not they want to be in or out.

“Then, a younger electorate says ‘We actually want to be in please.'”

Dixon ultimately described such a scenario as “unlikely, but not impossible.”

Commerzbank’s economic outlook, released this week, said that a no Brexit outcome would be the “best option all round.”

Dixon and Commerzbank add to a growing chorus of analysts and forecasters who think that Britain might end up staying as a member of the EU. Earlier this week, Pantheon Macroeconomics’ Samuel Tombs said that no Brexit is his “base case” – the option he sees as most likely.

“The key issue is that leaving the single market would entail short-term economic pain in return for the possibility of long-term gain, in the form of closer ties with fast-growing emerging market economies,” Tombs wrote in a client note.

“This sequencing of the costs and benefits means Brexit always will be unpalatable for any politician, given their myopia.”

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