Brexit – Mixed Signals and Anger on the British Side of the Channel

The Latest

Over the last few days, the news wires have delivered plenty of updates on the Brexit front. Brexit messages have been mixed, however, delivering yet more uncertainty despite the Brexit clock running down.

Today, EU President Ursula von der Leyen delivered a less than rosy view of Brexit negotiations. The EU President was clear that a deal should not compromise the EU single market.

Ursula von der Leyen added that there will be a clear difference between being a member of the EU and being just a valued partner.

A deal not only needs to be reached and signed but also needs to be ratified before the end of the transition period. That means that lawmakers will need to be aligned on both sides of the Chanel to ensure Britain doesn’t leave the EU without a trade agreement.

The lack of optimism was certainly in contrast to chatter from earlier in the week that led the Pound to a current week high of $1.3398.

The British Pound

At the time of writing, the Pound was down by 0.30% to $1.33169 against the Dollar. Yesterday, we noted that both the EU President and the British Prime Minister would need to affirm progress to support the upward trend in the Pound.

Today’s comments delivered the contrasting message that has led to a reversal of yesterday’s gains.

With EU Chief Negotiator Barnier due to come out of self-isolation tomorrow, it’s Brexit crunch time once more.

This time around, however, the two sides are no longer facing self-imposed deadlines but the end of the transition period.

Assuming that common ground can’t be reached on fisheries and rules to ensure a post-Brexit level playing field, two options remain.

The first is for Britain to leave the EU without a trade agreement. This would put Britain and the EU on WTO terms. An alternative could be yet another Brexit extension.

For the Pound, much will depend upon Boris Johnson’s stance on seeking an extension if negotiators fail to make progress.

Looking Ahead

Until now, the British PM has been clear of his unwillingness to seek an extension. A lack of progress and an unwillingness to extend will likely weigh heavily on a hopeful Pound.

So, progress would require the EU to soften its stance on access to UK fisheries at a minimum. It would be highly unlikely for British negotiators to yield on UK fisheries. To make matters more complicated, the EU has also demanded that any Brexit deal be reviewed in 10-years. Britain countered with a 3-5 year post-Brexit review, which EU negotiators declined.

Yet another example of the EU’s unwillingness to compromise. It could be a tough time ahead for Britain and the Pound. Brussels may also face some uncertainty of its own, however. It is not just Britain that has faced the rigidity of Brussels. EU member states have also had similar experiences.

For the EU project to survive Britain’s departure and possibly the departure of one or two others, Brussels may need to rethink what steps need to be taken to protect the EU single market…