A Hard Brexit

by Marilou Moursund on January 18, 2017

in Brexit,currencies,Geopolitical

In a speech yesterday, British Prime Minister Theresa May outlined her goals for negotiating the process of the United Kingdom leaving the EU.  The key to her plan is for the UK to leave the single market, and you will begin to see this referred to as “a hard Brexit”.  From the linked Stratfor article:

In her speech, May highlighted two themes: sovereignty and national unity. She characterized the Brexit as a means by which the United Kingdom can recover its sovereignty, especially over immigration (one of the hottest topics of the referendum campaign) but also over trade and legislation. She said the Brexit will enable the country to reduce immigration, restore the full sovereignty of Parliament, and re-establish the supremacy of British courts and judges. But, she said, to achieve those ends, the United Kingdom must leave the single market, an area in which people, goods, services and capital move freely, and sign a “comprehensive, bold and ambitious free trade agreement” with the European Union.

By leaving the single market, the United Kingdom would gain the ability to negotiate as many free trade agreements as it wants while including as many economic sectors in those deals as it desires. May indicated that, in addition to pursuing a deal with the European Union, her government would also seek to strike trade agreements with the United States, China, India, Brazil and Australia, among others. But there are downsides to that strategy: Free trade agreements usually take years to negotiate and are becoming increasingly difficult to ratify.

A free trade agreement between the United Kingdom and the European Union in particular could prove hard to achieve. The complex EU ratification process means that national — and in some cases regional — parliaments in each of the bloc’s 27 member states will have the ability to veto any agreement. A recently ratified deal between the European Union and Canada is an example of the inherent difficulties of finalizing free trade agreements with the bloc. That deal, which took almost a decade to negotiate, was held up over last-minute objections by a regional parliament in Belgium. In a similar manner, free trade negotiations with the United Kingdom will give EU member states the opportunity to threaten a veto in order to exact concessions that are not necessarily connected to the Brexit process.

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