Britain left the EU at the end of January. Both parties gave themselves until the end of this year to reach a trade agreement, but the negotiations are at a deadlock. Prime Minister Boris Johnson will meet European heads of government next week. Can the dreaded no-deal Brexit be avoided?
Stock market prices are bouncing up and down nervously, while many countries are struggling to contain the COVID-19 pandemic. News items follow one another so rapidly that you would almost forget that the clock is ticking on bringing the British exit from the EU to a successful conclusion. However, the video conference that Boris Johnson will participate in alongside European Commission President Ursula von der Leyen next week will put Brexit back in the spotlight.
On 23 June, it will have been four years since a narrow majority of the British voting age population voted to leave the EU. This has already been done on paper, but until the end of December this year the country will still have to abide by European rules and contribute to the joint budget. Relations between the two parties before the beginning of next year will depend entirely on whether both parties succeed in reaching a trade agreement. And the prospects aren’t looking good.
Negotiations between Britain and Europe are very slow. An important factor that has thrown a spanner in the works is the coronavirus. Due to the outbreak of COVID-19 in March, talks began later than planned. The fact that meetings have been taking place via video conference has not done anything to improve the speed of negotiations either.
In addition, the way in which governments are dealing with the consequences of the pandemic has also become an important point of discussion. The British government is doing everything in its power to mitigate the economic fallout. However, the EU wants to make suitable arrangements on state aid to prevent British companies from gaining a competitive edge over European companies.
The European demand for a level playing field has taken on much greater importance due to the pandemic. Moreover, there is still a long way to go before an agreement can be reached on other important issues, such as access to British waters by European fishermen. Negotiator David Frost stresses that a fisheries agreement is not something that can be exchanged for other things, such as access to financial markets.
And so, there are many other points on which the negotiations are at a deadlock. The good news is that there is a simple solution. Premier Boris Johnson has the unilateral option of postponing the deadline of 31 December 2020 by two years. The bad news is that he is refusing to make use of this.
Johnson won the election at the end of last year with the promise of bringing Brexit to a successful conclusion in 2020. He will suffer a massive loss of face if he were to back down on this. In addition, the European heads of government currently have their hands full in their endeavour to contain the coronavirus pandemic. As a result, Brexit negotiations are not at the top of their list of priorities.
We cannot expect too much from Johnson’s conversation with von der Leyen. The most likely outcome is that a lot of attention will be paid to the disastrous consequences of a possible no-deal Brexit at the end of this year. The pound, which has dropped slightly since the turn of the year due to the coronavirus outbreak, will then have to prepare for a hot summer.
Joost Derks is a currency specialist at iBanFirst. He has over twenty years of experience in the forex world. This column reflects his personal opinion and is not intended as professional investment advice.