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Weekly Financial Market Review - Comment for the 27th - 31st March 2017
Information supplied by AIB
The official Brexit process finally gets underway this week, with the triggering of Article 50 by the UK on Wednesday. While the UK’s relationship with the EU will not change until it actually leaves the EU, probably in March 2019, this week’s formal declaration will still likely attract considerable attention. In this regard, we note a speech last Wednesday by Michel Barnier, the EU’s Chief Negotiator on Brexit that got surprisingly little publicity given its content and importance. He went a long way in outlining how the exit talks with the UK are likely to proceed. A number of points came shining through. The EU is very much up for reaching a broad free trade agreement with the UK, but this must be based on “a level playing field” in areas such as the environment, taxation, labour law and consumer rights that avoids “regulatory dumping”. He recognised that this could take time to agree, so there may be a need for transitional arrangements post-Brexit. These cannot amount to a cherry-picking of the Single Market and must be subject to European law. He warned of dire consequences if no deal is done and stated that “the no deal scenario is not our scenario. We want a deal”.
However, before the EU can move to discuss trade and its future relationship with the UK, there must be agreement first on the “principles for an orderly withdrawal”, including guaranteeing the rights of EU and UK citizens post-Brexit, settling the financial accounts and dealing with the new borders of the EU, in particular Northern Ireland. The sooner agreement is reached in these areas, the sooner the EU can move on to discussions on the future relationship with the UK. Barnier emphasised that there is no punishment for leaving the EU and the aim is to “succeed with the British, not against them”. His strong signals on the benefits of a deal echo sentiments expressed by other senior European politicians, such as the influential German Finance Minister, Wolfgang Schäuble. Obviously, the exit talks will be difficult, but the EU is leaving the door open to a deal that could avoid some of the major downsides of a ‘hard’ Brexit.
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Current Rates Reuters, Forecasts AIB's ERU