Brexit: now it finally has to happen

Even after British Prime Minister Boris Johnson's dinner with EU President Ursula von der Leyen, a Brexit breakthrough is yet to come. Both parties claim that an agreement should really be reached on Sunday evening. Bet that deadline is just as buttery smooth as all the previous ones?

The European Commission has thought carefully about Wednesday evening's Brexit menu. In any case, the symbolism dripped off. As an appetizer, Johnson and Von der Leyen were served pumpkin soup with scallops. And the turbot as a main course was also a clear reference to the discussion about fishing rights.

If that was the only stumbling block, the negotiations would have looked bright. However, agreements also have to be made about preventing unfair competitive advantages and maintaining an agreement. The chance of a breakthrough before Sunday evening, which both parties are now betting on, is very small.

Why then?
It is difficult for an outsider to understand why it is not possible to reach an agreement. A chaotic Brexit without proper agreements has very unpleasant consequences. Hardly any preparations have been made for a scenario in which the borders suddenly close on December 31.

It is great that the European Commission is starting today with the preparation of an emergency plan. This prevents air traffic from suddenly ending up in an impossible split. But British supermarket chains, for example, are already anticipating the storm and are building up huge stocks. If both camps add a little water to the wine, a lot of misery can be prevented.

From world power to supporting role
However, if you leafed through the British morning papers on Thursday morning, you will soon see why that is easier said than done. It is written with great indignation about the measures by which the EU wants to enforce compliance with an agreement. Britain sees itself as a world power, perfectly capable of taking care of its own business.

That was absolutely the case before 1900: as a colonial power, the country was the largest country in the world. However, it has since been overtaken by the United States, China, Japan, Germany and even the former colony of India. Rather than recognizing that the country plays only a modest role on the world stage, the tabloids are pressuring Johnson not to give in to the EU.

There is a deadline
Johnson is determined to avoid going down in the history books as the prime minister who squandered British interests when the country turned its back on Europe. However, it is also not the intention to plunge the economy into an even deeper recession in the near future. The most likely scenario is that Johnson will continue to negotiate as long as possible, only to reach a deal at the last minute and pretend he has done everything he can.

That explains why the pound is not yet as low as it was in September or March of this year. The currency world takes into account that trade agreements will still be made in the end. But given Johnson's tactics, he will first let the deadline of next Sunday zoom past.

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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