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Brexit – A Long Way To Go

  • Posted by Shyam Gokani in Uncategorised
  • January 20, 2017
  • No Comments

Markets responded well to PM May’s speech on Wednesday with the pound surging against all its counterparts. Why wouldn’t they? May outlined a dream scenario. The ability to leave the EU, cherry pick trade agreements and elements of the EU constitution at will. If anyone was going to put together a manifesto to take to EU leaders to garner support from the nation, this is exactly what it would look like.

The UK does have a lot to take to the table. It is the world’s 5th largest economy, it houses the world’s largest financial centre and arguably greatest city, one of the best talent pools in the world if not the best, home to many internationally known companies, the list goes on. Theresa May is right, it is in the EU’s interest to play ball with the UK.

However, on balance the UK probably needs the EU more. The EU is the world largest economy when combined, it is by far the UK’s largest trading partner, with freedom of movement it is one of the greatest sources of talent to enrich the work force to draw large international companies, these companies go on to sell to the whole of the EU through the UK’s access to the single market, London has been able to become the EU financial powerhouse and euro clearing centre because of passporting rights into the EU. With this lost, the UK’s position becomes much weaker before you even look at the UK’s structural issues.

The EU are the masters of red tape, if PM May seriously believes that the UK can just leave and then pick and choose what it likes, she is in for a shock. On Wednesday, Donald Tusk, President of the European Council, said ‘there will be no place for pick and choose tactics in our future negotiations.’

Each element of the new agreement will need to be voted on and agreed by ALL 27 member states, which in itself is virtually impossible. Even if the UK can get all 27 member states to agree to everything it wants, it will take much longer than 2 years because there are so many different elements. The EU-Canada trade agreement took 7 years to agree for example and was almost thrown out at the last minute because of a small region in Belgium.

There is a long way to go and everything Theresa May said on Tuesday is likely to be rebuffed by EU leaders.

The dollar slightly weakened this morning before U.S. President-elect Donald Trump’s inauguration, as further comments from Federal Reserve chief Janet Yellen were perceived as less hawkish than what she said the previous day.

 

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