Financial markets nearly always hate uncertainty. Reports about the Brexit negotiations of last week Wednesday are an exception to this. The news that both the British and the German government are choosing to keep their relationship vague in future was happily received. Within a few minutes, the pound sterling rose by 1% against the euro. The complete loss of the previous few days was thus eliminated at once. It might sound strange, but the agreement not to establish clear agreements in a provisional accord on the future relationship between Europe and the UK resulted in a breakthrough in the negotiations.
Vague is good
In recent months, a lot of time was spent talking about how trade relations could look. Does the UK get complete access to the European market, or would hurdles be erected as a statement that it’s not a good idea to leave the EU? Thanks to the agreement to remain vague about their future relationship, both parties will get plenty of time to argue about this in future. This frees up a lot of time to talk about more urgent matters in the short term. This is necessary, because the UK is set to leave the EU on 29 March 2019.
Brexit Day
The situation could become very bad if no provisional accord is agreed upon before Brexit Day. The current trade negotiations won’t be valid anymore, so people and goods can’t just cross the border anymore. The chance of a so-called hard Brexit has now become much smaller. Both parties will be given plenty of chances to reach good agreements on this. Moreover, the news indicates European and British negotiators are willing to come towards each other more now that the day of Brexit is getting closer.
Relief
For that matter, an accord isn’t as close as one might suspect from the current relief. The most important hurdle in negotiations is the position of Northern Ireland right now. It isn’t possible to completely guard the border with Ireland. On the other hand, the Northern Irish DUP party doesn’t like the idea of having a kind of border between Great Britain and Northern Ireland. Without support from the DUP, the Conservatives lose their majority in parliament. A British political crisis could throw quite a spanner in the works in the run-up to Brexit. The party summit starting late September now appears to be the next hurdle before a provisional accord can be reached – and another tough spot for the pound.
