June 23, 2016
The United Kingdom votes to leave the European Union, an endeavor that later became known as Brexit. But does Brexit just stand for Britain’s exit? According to the British people that voted yes in 2016’s referendum, no, Brexit is a statement of national sovereignty.
March 29, 2017
Nine months later, UK Prime Minister Theresa May triggered Article 50. Under the 2007 TEU (Treaty on European Union), each member nation has the right to withdraw its membership from the EU, and the only way to do that is to invoke Article 50. Upon invoking article 50, Britain has been given a two-year transition period in which they have to negotiate the terms of their divorce with the EU, essentially making 2019 the deadline.
The European Union functions like a single economy – I guess kind of like the United States and with the UK being a very big part of trade, regulations would naturally make it more difficult to move goods across the English Chanel. This combined with the fact that many large multinational corporation headquarters are currently based in London is very likely to critically complicate the UK’s transition as many people could end up losing their jobs, which would ultimately take a toll on the economy. Quick statistic below.
% of Europe’s largest companies’ headquarters:
- London: 40%
- Other: 44%
- Paris: 8%
- Madrid: 3%
- Brussels: 2.5%
- Amsterdam: 2.5%
As we previously established, the EU functions as a single economy which allows for free movement between member nations. In simple terms, if you’re from Europe traveling to Europe for either leisure or to permanently move, you can do so without having a VISA. But what happens now that the UK doesn’t want to be a part of the bloc? Well, no one really knows and that’s exactly why there’s this long period of negotiations between the UK and the EU’s member nations where they have to hash out the details of issues like tariffs, trade, immigration, agriculture and much more.
It seems that European officials are not too keen or enthusiastic about a future relationship with Britain, which UK chancellor, Philip Hammond has labeled as “backward-looking and paranoia.” Mr. Hammond very openly stated that he believes the EU is more fixated on punishing Britain for its decision rather than figuring out what can be done to minimize damage. He went on to add that “we hear a willingness and enthusiasm in the USA and from many other countries around the world to make new trade deals with us, but we don’t hear that from Europe.”
This, of course, is debatable as it isn’t too irrational that the EU would punish a member for leaving. After all, if the EU would just allow for this to happen without any substantial consequences, wouldn’t that give an incentive to other member nations to do the exact same thing if they decided that their government was better off on its own? Mr. Hammond explained, “I can understand that paranoia. But imagine you are running a successful, thriving golf-club. If one member leaves, you don’t immediately panic that all the other members might leave, but are confident they will want to remain.”
Now the question that remains is would Britain be willing to embrace a free trade arrangement with the European Union that doesn’t include services? Mr. Hammond commented that he doesn’t believe this to be a “realistic proposition” as 80% if not more of the UK’s economy is services based. He went on to add that “in our goods trade with the rest of the EU, we have an annual deficit of €100bn whilst we have a surplus of €40bn in our trade in services. To enter into an agreement on goods with no agreement on services would be a very one-sided arrangement and I don’t think that could be attractive for us.”
In simple terms, the UK exports more services and imports more goods, so complying with a deal of sort allowing for the EU to dictate the terms of trade, would essentially render Brexit futile.
Sir Keir Starmer, Shadow Brexit secretary accused Prime Minister Theresa May of focusing more on the divisions within the UK government as opposed to Brexit. Okay, what he said was a little harsher: “Over the past few weeks, it has become abundantly clear that Theresa May is unwilling and unable to put the country’s interests first during the Brexit negotiations. She has wasted 12 weeks of the Brexit negotiations delaying a Commons vote on the UK negotiating a customs union with the EU for fear of a defeat.” Now, to some extent, this is true, as PM May’s efforts to block EU regulations from customs, was voted down for the third time in less than a week. So yes, there are divisions but is May’s interest in veiling those divisions or leading Britain safely out of the EU?
The GBP was one of the best performing major currencies of 2018 until worries about Brexit started resurfacing when internal divisions started becoming apparent. Worries had subsided as Brexit was a closed case for most British people but it seems we’re finding ourselves in a situation where everything is up for grabs again.
What happens next is unknown, even to officials themselves. All we know is that the UK has until 2019 to negotiate their departure and come to an understanding with the bloc. Will this happen? Only time will tell so stay tuned and be the first to know.
This article is for educational and informative purposes only and should not be considered as investment or trading advice.