Pound & Markets Firm Despite Brexit chaos

Sterling, UK and European stock markets have been remarkably steady during a political crisis that is engulfing Britain.

Veteran former cabinet minister Oliver Letwin, Conservative, has successfully brought an amendment that has won a victory over Prime Minister Theresa May.  Several ministers have resigned to back their motion. On the face of it, Parliament has taken control and on Wednesday had a series of votes for various types of Brexit. These “indicative votes” are aimed at giving Parliament and the government an indication on what sort of Brexit, cross-party MPs are prepared to accept. The snag, however, is that all the options are non- binding and could only come into effect if there is a bill i.e. a statute. (Note Letwin was one of the policy advisors who favoured the hated poll tax which led to Margaret Thatcher’s downfall.)

The main option is ‘Common Market 2.0’.

This option is close to the deal of Norway, Iceland Liechtenstein and Switzerland, although the Swiss deal is somewhat different. These nations are members of the European Economic Area (EEA) which is part of the single market that has free movement of capital, goods, services and people. As members of the European Free Trade Association (EFTA) the nations are free to negotiate with the EU and other nations. The UK, however, would still have to be a member of the customs union to keep the border of Ireland and Northern Ireland open. The advantage of such a deal is that the UK would be in the EU’s Common Market but not subject to the EU’s political unification ambitions. The disadvantages are that the UK would not be able to negotiate independent trade deals with the US, Asia and other non-EU nations; also the UK would have to accept EU migrants against the majority wish of the 2016 referendum and be a rule taker i.e, have no say in future EU regulations. Bottom line, remaining in the EU is preferable to Common Market 2.0 — the soft Brexit option.

The pound appears to have bottomed against the US dollar and a similar trend is apparent with the euro. The pound tends to rally when the market believes that a Brexit will be soft i.e. close to the EU’s single market and customs union. Sterling generally remains weak, however, as the economy is slowing down. Also, much depends on the dollar’s performance against all currencies.

Another option is Labour’s desire to be part of the customs union and single market and have the opportunity to vote on EU rules. The EU has already rejected any outside nation vote on its trade or other deals. Thus this option is fantasy and is likely to be rejected in Parliament’s vote. Other options include a referendum to allow the people to vote on Mrs May’s deal or remain in the EU. That option is likely to be rejected as the question would be heavily weighted against voters who prefer Brexit. The only referendum question that would likely be accepted would be “in” or “out” of the EU. But then there would be no guarantee that Remainers would win, even though polls are currently in their favour.

All the “indicative votes” that have been discussed would hopefully give Parliament and the government an indication on what sort of Brexit, cross party MPs are prepared to accept. Mrs May can reject the options, but that could bring in its wake a no-confidence motion. If that motion goes against the government, an election would be triggered.

Mrs May’s Withdrawal Bill is legally binding.

Mrs May’s hope is that Brexitier MPs will choose her deal to ensure that Brexit takes place. They are aware that if the EU agrees to a long delay, Brexit could be kicked into the long grass. Conservative Brexitiers such as Jacob Ress Mogg said that they would vote for Mrs May’s deal if Northern Ireland’s Democratic Unionist (DUP) MPs back it and the PM accepts a firm date for her resignation. Conservatives do not want Mrs May to lead trade and other negotiations as they believe that she has been a poor negotiator. (See Rees Mogg’s Daily Mail article)

The EU perceives a no deal Brexit as a serious threat

The EU has issued a lengthy release explaining what the people and businesses of EU nations need to do if no deal comes into being by default after the new Brexit exit date on April 12. Indeed, several Tory Brexitiers are still not supporting Mrs May’s deal as they believe that a no deal Brexit would back the 2016 referendum’s majority vote. The EU, which has taken control of the Brexit timetable, has extended the Brexit date to April 12. Brexit MPs and others who believe Mrs May’s deal is the least bad option are now indicating support for her deal. If she achieves victory, the EU will grant an extension until the end of May 2019 before European elections take place.

April 12 is thus a key date. If the EU increases the Brexit extension to a lengthy date, UK parties would then have time to forward candidates for the European elections. That would infuriate people who voted for Brexit in 2016 and could be a death blow to the Tories in any coming election. The EU is not prepared to re-open Mrs May’s withdrawal bill, but all 27 nations would need to accept any of the options that Parliament chooses.

If there is still no agreement an election would likely take place

“A general election now would be a Brexit election,” said former clerk of the House of Commons Lord Lisvane. “It would be a great shame if issues such as crime, health and education take a back seat”.

The risk is that a hard-left Labour government under Jeremy Corbyn would win. Hence the surprise that markets have been so sanguine.

© Copyright Neil Behrmann. This article was first published in The Business Times, Singapore
Neil Behrmannis London correspondent of The Business Times. Jack of Diamonds his thriller on global diamond mining and smuggling, has recently been published. It is the sequel to the thriller, Trader Jack, The Story of Jack Miner. See reviews of both books on: https://www.amazon.co.uk/Neil-Behrmann/e/B005HA9E3M

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