Brexit: a deal, or not?

The United Kingdom (UK) and the European Union (EU) have reached a provisional agreement on Brexit. This puts an end to the easy part of the divorce for the time being: now the real battle is on.

After months of negotiations, the EU and British Prime Minister Theresa May have finally reached an agreement on Brexit. The details of the divorce are not yet known, which May first presents to members of her government. British ministers will then be given the opportunity to express their support, or else resign.

There is a chance that (almost) the entire cabinet will rally behind May. The British pound appreciated by almost 13% against the euro on Tuesday 1 November, after the agreement was leaked. After that, however, some of the profit evaporated very quickly.

on the wrong foot
The foreign exchange market cannot be misled: the agreement with the EU is a nice boost, but the real battle has yet to break out. It will soon be introduced in the British Parliament. It remains to be seen whether May will manage to get the 320 votes she needs to get the deal through the House of Commons.

She will undoubtedly not get her party members, who are betting on a hard Brexit. They will oppose the concessions it has had to make to the EU in order to reach an agreement well before Brexit day (29 March 2019).

big question mark
The biggest question mark, however, is the settlement May has made over the border between Ireland and Northern Ireland. Under no circumstances does the EU agree to the arrival of border posts and controls. On the other hand, the Northern Ireland governing party will never sign an agreement that puts those controls between Northern Ireland and the main island.

The big question is whether May has found a magical interim solution, or whether she will agree to an interim solution whereby the country will remain within the European customs union until 2020. In that case, this will lead to a storm of criticism from pro-Brexit cabinet members.

risky gamble
If May manages to gain the support of the cabinet, then the pound's small rebound is a harbinger of a bigger move. It is far from that yet. When the plan is fired by the House of Commons, the chaos is really complete. In that case, May will have to re-enter negotiations with the EU.

There is a good chance that she will then resign and there will be new elections. Meanwhile, time is ticking. May hopes British politicians would rather avoid that chaos. However, developments in recent years indicate that this is a very risky gamble.

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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