The U.K. elections have returned a hung parliament. With three seats yet to be declared, the Conservative Party has won just 316 seats — well short of the 326 needed to hold a majority in parliament. The Labour Party has won 261 seats, an increase of 29. For Prime Minister Theresa May, who called the snap election with her Tories holding a 17-seat working majority and a 20-point lead in the polls and expecting to secure a 100-plus seat majority, this is a disaster. BBC sources close to May have said that she will not resign immediately, but it is hard to see how she can carry on in the role beyond the short term.
A hung parliament means the Conservatives must now negotiate with other parties to form a government. This could take the shape of a coalition agreement — similar to the 2010-2015 arrangement between the Tories and the Liberal Democrats — or a minority government, in which other parties agree not to vote against the Conservatives in parliament. If the Conservatives cannot facilitate such a deal, the Labour Party could be given an opportunity to try. If neither can manage it, new elections within months may be required.
Negotiations on forming a government will begin immediately. The first hard deadline is the Queen's Speech — where the queen traditionally opens parliament by setting out the government's legislative agenda — on June 19, by which time the Conservative Party will need to demonstrate that it has support for its package of legislation. If it fails to do so, the opportunity to form a government will pass to the Labour Party. Brexit negotiations were also set to begin on June 19, though these could be delayed if bargaining over the next U.K. government proves complicated.
In truth, the Conservatives should be able to form a government with the help of the Northern Irish Democratic Unionist Party (DUP), which won 10 seats on June 8. The center-right party has many areas of political alignment with the Conservatives, but its priority issue and raison d'etre is Northern Ireland remaining as part of the United Kingdom. The DUP will likely to prioritize the maintenance of a "soft" border with Ireland as one of its demands in exchange for supporting the Tories. The DUP supported a Brexit during last year’s referendum, so the Conservatives could find support from the party for their plan to leave the EU single market. A Conservative-DUP agreement would create an extremely weak government with a wafer-thin majority; there would be a strong possibility of new elections before the government reached the end of its term.
The European Union’s ideal situation would have been a stable British government with which to negotiate the Brexit process over the next two years. Brussels even drafted its negotiation strategy with an eye on May’s plan to leave the single market and attempt to negotiate a free-trade agreement with the European Union. With the political future of Britain now in doubt, Brussels will give British politicians time to form a government. Technical negotiations on Brexit can start in a few weeks, but substantial decisions will not be taken until the situation in the United Kingdom is more stable.
In March, the United Kingdom's formal announcement of its intention to leave the European Union started the clock on a two-year negotiation process, after which time Britain would find itself out of the bloc even if no deal on the terms of the exit has been reached. In theory, the negotiations could be extended beyond the 2019 deadline, but that would require unanimous support from all 27 remaining members of the European Union. No matter who is in charge in the United Kingdom, the European Union is unlikely to change its position on key issues such as protecting the indivisibility of the single market or requesting that London to honor its financial commitments to the bloc.