May leaves: 3 new scenarios

British Prime Minister Theresa May's party received less than 26% of the vote in the European Parliament elections on Sunday 10 May. This cuts the party's seats in half. It is the last defeat of May, who will step down on Friday 7 June.

It had been expected for months that May threw in the towel, and yet the news of her departure came as a surprise. In the past period, it seemed that May was going to present her agreement with the European Union to the House of Commons for the fourth time. However, the exchange rate gain of the pound did not last after the news.

The good news is that the Brexit process is finally moving again. At the same time, the risk of a chaotic, no-deal has increased again. Anyone wishing to run for the presidency of the Conservative Party must do so before Monday, June 10. The winner will then be announced before the start of the summer recess (July 31). What will the Brexit route look like after that?

1. May's Deal
It is almost inevitable that Prime Minister May's successor will emerge from the 'pro-Brexit' camp. Boris Johnson, the former Secretary of State, has the best papers for this. It could just be that he pilots a modified variant of the current agreement through the House of Commons before the deadline of October 31.

In doing so, he fulfills his promise to quickly maneuver the country out of the European Union, while Johnson meets his fellow Brexiters by building in an option for making new agreements about the Northern Ireland border. According to European negotiators, it will take at most a few days to adjust the agreement.

2. Postpone again
Johnson or another candidate (such as former minister Dominic Raab) undoubtedly wants to make completely new agreements with the European Union. The chances of it actually happening are slim. The European Union does not miss an opportunity to emphasize that there is already an agreement and that there is no reason to renegotiate; except about making adjustments to the current deal.

If the new prime minister bets on this, there is a very good chance that Brexit will be postponed again. The European Union is prepared to give the new prime minister time to prepare discussions, make agreements and then submit them to the House of Commons.

3. No Deal
The specter for the new prime minister is to end up (like May) in the quicksand between the House of Commons and the European Union. It cannot be ruled out that we will be heading for a chaotic Brexit in October, without clear agreements. The British Central Bank warned last year that the British pound could fall by 25% in this scenario. For the time being, this danger does not seem very great.

Anyone who bets on a no deal will find little support in the battle for the leadership of the Conservative Party. Moreover, the House of Commons can also put a stop to a possible chaotic departure from the European Union. Despite the upcoming change of prime minister, a real Brexit solution is still a long way off.

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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