|

Boris vs Brexit or the testing of the EU

The title could also be Boris vs the City or Boris vs the EU Commission. Each is a center of opposition to the Brexit project and an opponent that must be overcome or circumvented by the new Prime Minister to keep his October 31st promise.

In June 2016 the United Kingdom voted 51.9% to 48.1% to leave the European Union.  Of the four components of the UK, England and Wales voted to leave while Scotland and Northern Ireland chose to remain.  Within England it was London and its suburbs that provided the staunchest backing for EU membership. 

(BBC)

At an overall electorate turnout of 72.2% after a lively, challenging and well-covered campaign the surprise result cannot be represented as anything but the considered decision of the electorate.

Prime Minister David Cameron who called the vote to quiet the EU skeptics in his own Tory Party, may have been as shocked as the media by the bumptious voters, but there is no reason and no logic to declare the vote illegitimate as both the Conservative and Labour Parties acknowledged by promising to implement the departure.

Whatever the reasons for the nationwide vote, opposition in London’s financial and business centers and Parliament has meant that Theresa May was unable to find a formula to satisfy those members of both parties who wished to remain and Conservative Party leavers.  

The Labor Party tried to keep a neutral stand on the various Brexit deals and many Labour members who voted against Ms May’s agreements represented constituencies that voted heavily to depart.  

After all the Parliamentary maneuvers the twice extended exit date on October 31st remains the default position between the UK and the EU. 

The Commons may have voted not to leave the EU without a negotiated agreement but without an extension from the EU or a change of heart in Parliament or the government, that Parliament approved date is intact. Accordingly the UK will no longer be a member of the EU on November 1st.

Theresa May’s negotiations with the EU Commission were crippled by the inability to use a no-deal exit as leverage. No doubt Ms May and many of her backers in the Tory Party were sincere in saying that the potential economic turmoil was not worth the risk, many were also hoping to thwart Brexit entire but that didn’t change the fact that the UK gave away its strongest weapon before even starting.

Michel Barnier and the EU Commission were to astute to mention the obvious but the terms of the deal and the repeated humiliations of Ms May speak for themselves.

Boris Johnson has resurrected the attenuated ghost of a no-deal departure  by refusing to rule out that outcome but has been vague on how he will force the EU to re-open talks.

The EU has said that the fundamental elements of the agreement, particularly the Irish border terms are not negotiable. The Commission says it does not want a no-deal exit but thinks that the economic damage would be far worse in the UK that the EU. Since the balance of trade between the two is heavily in favor of the EU that stance is a negotiating tactic not an economic fact.

It is likely that when faced with a no-deal reality, or the bureaucratic facsimile of one, the Commission will become more flexible.

Which brings us to the chief question for Boris Johnson. How to exert enough pressure on the EU and the Brexit opposition in the UK to make the Brexit deal palatable and acceptable enough to pass Parliament?

The answer is two-fold.

First make no-deal as real as possible. Not only plan for it in a public and persuasive manner but make it plain that the October 31st departure is still the law that Parliament passed.  

Second, it might not be amiss to remind the EU and the world, perhaps not by the PM himself, that treaties between nation-states are voluntary. Ultimately they are policed by force or not at all. If the UK abrogates the Lisbon Treaty certainly the initial EU reaction would be to block all cooperation. But the economic logic of that would be as detrimental to the EU as to the UK.

As October 31st approaches the UK government could announce that it will selectively withdraw from specific aspects of the EU treaties and keep others in place.  Westminster could essentially let the EU know what it will do and let the EU decide how to respond.  

Will the EU then block all trade with the UK until a comprehensive agreement is negotiated? Will it revoke the work permission of the UK subjects on the continent?  The details are in some sense, less important than the notice such a policy would send to Brussels that the decision to leave is irrevocable.

The Brexit negotiations have never tested the EU resolve or its unity.  That trial may be coming. Boris has more options than most people realize.

Author

Joseph Trevisani

Joseph Trevisani began his thirty-year career in the financial markets at Credit Suisse in New York and Singapore where he worked for 12 years as an interbank currency trader and trading desk manager.

More from Joseph Trevisani
Share:

Editor's Picks

EUR/USD looks offered below 1.1900

EUR/USD keeps its bearish tone unchanged ahead of the opening bell in Asia, returning to the sub-1.1900 region following a firmer tone in the US Dollar. Indeed, the pair reverses two consecutive daily gains amid steady caution ahead of Wednesday’s key US Nonfarm Payrolls release.
 

GBP/USD slips back to daily lows near 1.3640

GBP/USD drops to daily lows near 1.3640 as sellers push harder and the Greenback extends its rebound in the latter part of Tuesday’s session. Looking ahead, the combination of key US releases, including NFP and CPI, alongside important UK data, should keep the pound firmly in focus over the coming days.

Gold the battle of wills continues with bulls not ready to give up

Gold remains on the defensive and approaches the key $5,000 region per troy ounce on Tuesday, giving back part of its recent two day. The precious metal’s pullback unfolds against a firmer tone in the US Dollar, declining US Treasury yields and steady caution ahead of upcoming key US data releases.

Bitcoin's downtrend caused by ETF redemptions and AI rotation: Wintermute

Bitcoin's (BTC) fall from grace since the October 10 leverage flush has been spearheaded by sustained ETF outflows and a rotation into the AI narrative, according to Wintermute.

Dollar drops and stocks rally: The week of reckoning for US economic data

Following a sizeable move lower in US technology Stocks last week, we have witnessed a meaningful recovery unfold. The USD Index is in a concerning position; the monthly price continues to hold the south channel support.

XRP holds $1.40 amid ETF inflows and stable derivatives market

Ripple trades under pressure, with immediate support at $1.40 holding at the time of writing on Tuesday. A recovery attempt from last week’s sell-off to $1.12 stalled at $1.54 on Friday, leading to limited price action between the current support and the resistance.