Brexit: Germany and UK keep it vague

The German and British governments are abandoning the desire to reach an agreement on the future trade relationship. This creates space to tackle the real problem points in the short term.

Financial markets hate ambiguity. The coverage of the Brexit of Wednesday 5 September forms a clear exception to this rule. The news that both the British and German governments are deliberately choosing to keep the future relationship vague has been met with cheers. The pound jumped 1% against the euro within minutes.

This means that the loss of the past few days was eliminated in one fell swoop. The agreement not to make clear agreements in a provisional agreement about the future relationship between Europe and Britain represents a breakthrough in the negotiations.

vague is good
In recent months, a lot of time has been spent discussing what the trade relationship could look like. Will Britain get full access to the European market or would high hurdles be raised as a statement that it is not a good idea to turn your back on the European Union (EU)?

Thanks to the agreement to remain vague about the future relationship, both parties will have plenty of time to squabble about this in the future. This frees up time in the short term to discuss how to tackle more urgent matters. The latter is badly needed, because on March 29 Great Britain is leaving the European Union.

Brexit day
If there is no provisional agreement before the day of Brexit, a very unpleasant situation threatens to arise. The current trade agreements will then no longer be valid, which means that people and goods are not allowed to cross the border just like that.

The chances of a hard Brexit actually becoming a reality have become much smaller these days. Both parties now have every opportunity to reach good agreements about this. The news also indicates that European and British negotiators are ready to move closer to each other as Brexit approaches.

Relief
An agreement is also less close than the relief suggests. The main stumbling block is the position of Northern Ireland. It is not possible to fully guard the border with Ireland. On the other hand, the Northern Ireland DUP party is reluctant to establish a border between the mainland and Northern Ireland. Without the support of the DUP, the Conservative Party will lose a majority in parliament.

A British political crisis could throw quite a spanner in the works in the run-up to Brexit. The party summit that will start at the end of September now seems to be the next bump on the road to a provisional agreement (and a new intermediate sprint from the pound).

Lawrence Martins

Laurens Maartens is a currency expert at the Dutch Payment and Exchange Company (NBWM). Maartens analyzes current currency developments and also provides lectures and training in the field of currency management.

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