Brexit: is the solution really that simple?

Brexit took a surprising turn on Wednesday, March 27, as British Prime Minister Theresa May promised that she would resign if the House of Commons approves the agreement she has concluded with the European Union (EU). Is averting a chaotic hard Brexit really that simple?

After months of negotiations with the EU and weeks of battle in the British House of Commons, an orderly Brexit was Wednesday evening within reach. May said she would resign as prime minister if a majority in the House of Commons backed her deal. In doing so, she meets the criticism of her party members, who believe that she has made too many concessions. With her departure, the way is clear for a prime minister who is more pro-Brexit and takes a hard line in formalizing the agreements.

Exit from May
Dozens of members of the House of Commons then expressed support for May's deal; even Boris Johnson, one of the prime minister's most vocal opponents, is now backing the proposal. The British pound shot up to its highest rate in almost 2 years (against the euro). However, before a hard Brexit is averted, there are still 2 major hurdles to be overcome; for example, John Bercow announced last week that he would not allow MPs to vote on the same motion a third time.

It remains to be seen whether May will be able to force a new round of voting. If a majority of the House of Commons wants to approve the new legislation, there is often a way to do so. However, it is by no means certain whether that majority is there. Although more and more party members support her proposal, the Northern Ireland DUP party does not. Part of the agreement is that there will be no hard border with Ireland, but there will be a backstop in the Irish Sea. This cuts Northern Ireland apart from the rest of Great Britain in a way. The DUP party disagrees.

Pound takes a step back
When it became clear that May does not have much of a chance in the new voting round, the pound took another big step back. The EU has Britain until April 12 given the opportunity to approve the agreement. If not, there will be a hard Brexit. Considering how divided the House of Commons is, this is not a certainty; for example, eight alternative proposals for Brexit were voted down on Wednesday.

So what does the British House of Commons agree on? They all think that leaving the EU without good agreements is the worst possible option. That is the main reason why a long delay is still the most likely scenario. And it also explains why the pound hasn't fallen much further.

Joost Derks

Joost Derks is a currency specialist at iBanFirst. He has over twenty years of experience in the currency world. This column reflects his personal opinion and is not intended as professional (investment) advice.

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