Brexit: A New Hope

The pound marked gains as a deal between the UK and the EU was finally striked on Brexit.

Technical Analysis
08. 12. 2017
Brexit: A New Hope

This week finally brought a piece of good news for the United Kingdom. After months of stagnation in the talks with the European Union on the specific conditions under which the UK will be leaving the bloc, Britain finally managed to take a step forward by meeting some of the EU’s demands.

The United Kingdom initially prioritized its interest in establishing trade agreements with the European Union, while refusing to abide with the conditions that the EU insisted be met before any talk of trade. The issues that the European Union had on the top of its list were guaranteeing the rights of both EU citizens living in the United Kingdom and UK citizens within the EU, as well as the divorce bill that the United Kingdom needs to pay to the EU for leaving. In addition, a big point was also the treatment of the border between Northern Ireland and the Republic of Ireland, since the former will be leaving the EU as part of the UK, while the latter still remains a member, but the free movement of people between the two countries is crucial to many Irish citizens.

Jean-Claude Juncker, the President of the European Commission, and British PM Theresa May met this week in Brussels. It was announced earlier today that they finally made a deal concerning the three points outlined above, which paves the way for smoother negotiations from this point on.

The British pound sterling previously suffered losses as it seemed that negotiations were going nowhere. There was much pressure on PM Theresa May to reach a deal and likely failure to do so would have resulted in disbanding her cabinet. Ireland was also adding firewood to the fire by demanding that the border issue be resolved. Hence, the success of the meeting – which was considerably unexpected – provided major support for the pound.

So, what did the EU and the UK agree on?

For starters, they agreed that the border between Northern Ireland and the Republic of Ireland will not be hard, allowing the two Irish states to retain their close relationship. This point was also important for the integrity of the United Kingdom itself, as separatist attitudes from Ireland could have been exacerbated if a hard border was established.

It was also agreed that European citizens currently residing and working in the UK will be able to remain there, and would retain their social benefits such as access to healthcare, and the same goes for British citizens in the EU who may still keep their British benefits.

Another key point is that the United Kingdom agreed to participate in the European budget until 2020. This means that for the next three years the UK will still make substantial payments into the EU budget, as do the other members. With the third strongest economy in Europe, the United Kingdom is one of the most important contributors to the EU budget, so the fact that the UK will continue with its payments for a few more years will give the European Union time to plan and adjust its finances without too much pressure.

This has had a massive positive effect on the Brexit issue. Negotiations will now move forward to the next stage where the trade relations between the EU and the United Kingdom will be the main talking point. That is especially important for businesses who might have to reconsider their current practices in light of the new conditions which will be agreed upon.

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