The pound rallied early Friday morning following numerous press statements that the Brexit divorce bill between the EU and the UK had finally been agreed. The latest Brexit developments seeing the Sterling to Euro exchange rate reach a two-month high as investors got behind the pound in an assured move that hadn’t been seen for months.
The UK and EU’s divorce settlement
One point of contention, Irish border aside had been the compensation that was due to the European Union following the UK’s departure from the Union. Its understood that the net cost to the UK will be approximatively €40 -45 Billion. It is understood that the EU did not challenge the UK’s estimations which had been previously estimated at around €60BN by senior EU officials.
It is understood that the estimations are net of certain liabilities such as loans to Ireland and Ukraine, all of which are understood to be considered at low risk of default and were therefore not included in the math.
The UK also included in the Brexit text certain guarantees which could see the Brexit bill increase in future decades, so therefore the final bill for the UK’s liberty could grow significantly.
Conservatives and DUP compromise to find Irish border solution
Compromises on the Irish border allowed the Brexit deal to be approved by both parties in the nick of time. This came after the first attempt by May to close the deal with Jean-Claude Juncker was interrupted by a most displeased Arlene Foster who claimed the DUP had been misled by the conservatives over the exact context of the Irish border agreements. The meeting was brought to an abrupt end and a press conference set up to confirm that no agreement had been reached, correct though both parties agreed that deal was close.
In the days that that followed the Tories and the Democratic Unionist party worked around the clock to thrash a deal that both felt comfortable with. Reports say that the official text has not been amended dramatically since the last breakdown in negotiations. What was however lacking from the DUP perspective was clarity on the border text. The issue circled around the UK’s ‘full alignment’ to the EU in relation to Ireland if a No deal outcome is reached essentially allowing North and south Ireland to implement business as usual.
The next stage of Brexit
Talks between the EU and the UK will continue again in spring. With the first part of the talks likely to cover points such as details about the UK’s transition away from the European Union. EU objective guidelines which will include the respecting of EU laws, the UK’s commitment of EU budget plus the UK will asked to provide a vision for its future interaction with the union.
These will be followed by the legal foundation which will need to be written into law, this document is likely to include EU and UK citizens’ rights; all of which will have to be negotiated before conversation moves on to trade deals. The chief negotiator for the EU Michel Barnier has made it clear time and time again that the UK cannot move swiftly into trade talk and expect the best of both worlds without all bases being covered. Now that the first part of Brexit arrangements i.e. the withdrawal has been agreed the foundations of a separation strategy can begin. Then will come the UK’s much needed trade talks.
Still chance of a second referendum?
From the moment the UK exercised its democratic right and voted to leave the European union a divide was created. Many of the leave campaigns peddled lies and tenderly massaged figures that promised the saviour of the NHS and the protection of our hard-working citizens. Theoretically its claims should have been easily disproved by then conservative leader David Cameron, who must surely now sincerely regret calling the referendum in the first place.
Book makers currently hold the likely hood of a second referendum before 2019 at odds 12-1, other interesting punts include the UK asking to re-join the EU by 2027 which currently has odds of 4-1 and two or more prime ministers to be involved in the UK’s Brexit negotiation before 1st April 2019. All of which over the last month or two would have been worth a wager.
Since the outcome of Brexit people wishing to remain in the EU have signed a handful of petitions, one of which will be debated in Westminster halls. The petition relates to UK citizens to be able to have the final say on the Brexit deal before its conclusion. Although the chance of a second referendum remains highly unlikely due to the scale of participation of the EU referendum vote it may potentially pave the way for a softer Brexit, especially if the second part of negotiations prove troublesome and the UK is forced to soften its stance.
A snapshot of this week’s Sterling to Euro volatility
The Sterling to Euro rate has represented a merry go round this past week with the pair being traded as high as 1.1501 and as low as 1.1291 as the UK failed in their first attempt to secure the withdrawal agreement with the DUP and the EU. As the news broke early on Friday the GBP/EUR rallied to a two-month high. Sterling was unable to retain gains as a mixture of reality and profit taking combined seeing the pair conclude the week’s trading at 1.1388.
I use the word realism as essentially, we have only concluded one part of the negotiations to separate from the EU, the DUP is propping up Theresa Mays government and every positive motion is debated by staunch brexiteers within her government.
This week could see slightly more sustainable Sterling to Euro exchange rates providing the EU summit goes well. Naturally a topic which will undoubtedly be covered will be the recent Brexit Break through and could provide a level of support for Sterling. The twenty-seven nations will also confirm that stage two talks can proceed, which should be viewed as sterling positive.