Brexit: Are Markets Underestimating the Chances of the UK Not Leaving?
With nine months to go until the date on which the United Kingdom officially is due to leave the European Union (EU), much remains unclear both about the process and the outcome. The recent resignations of two prominent Brexiteers from the UK government has added further uncertainty to the outlook. In this article, Templeton Global Equity Group Chairman Sandy Nairn attempts to cut through the noise and present some of the likely scenarios facing the United Kingdom and the EU as negotiations enter the end game. In doing so suggests there may be a higher probability of the United Kingdom remaining in the EU than many observers have thought.
Although markets generally still seem to assume that the United Kingdom and the European Union (EU) will agree to some form of “soft Brexit,” neither the definition nor the time horizon is clear.
For most observers, soft Brexit carries with it the connotation that trading arrangements in both goods and services will be largely unchanged. But does that mean such an agreement within the prescribed timescale is something the EU member states will accept, or is it a holding pattern while the terms are negotiated post-exit?
Two Versions of Soft Brexit: Decide Now…
The first version of soft Brexit involves the United Kingdom accepting continued European jurisdiction over a range of areas to preserve the principal elements of free trade in goods and services.
This seems to be the object of the compromise proposal—known as the Chequers Agreement—eked out by Theresa May and her Cabinet in early July. Their proposal, which is similar to the so-called Norway model, would include a free trade area for goods, while limiting access for services, capital and people.
But it has already provoked fresh uncertainty: two prominent Brexiteers Foreign Secretary Boris Johnson and Brexit Secretary David Davis felt unable to support the plan and resigned, prompting questions as to whether Mrs. May will be able to retain the support of the Conservative Party.
Meanwhile, EU negotiators have already criticized previous trial balloons that outlined these positions as “magical thinking.”