Article 50: What Happens Next?

The British government confirmed that they would officially trigger Article 50 during this week, and commence negotiations for Britain’s exit from the EU, on March 29^th.  The process will begin when the UK government tenders its notice to leave the EU, which will then be passed to the diplomats from the other 27 countries who will work on responding with guidelines.

GBP Shrugs Off Article 50 News

A summit will also be held one month on from that date to discuss and adopt Brexit guidelines. Markets had long been warned that the deadline for triggering Article 50 was the end of this month and so confirmation came as no surprise and saw only a minor pullback in GBP.

The key for markets now will be determining whether Britain is likely to achieve a compromise between a hard and soft Brexit, which would appease investors and assuage uncertainty or whether negotiations will skew in favour of a harsher exit, which would exacerbate investors uncertainty and weigh on markets.

Ahead of the date for this summit, we have the French elections which have been a key focal point for markets this year, and clearly, EU leaders have opted to wait until after the first round of the elections to get the ball rolling with proper negotiations.

Euro Elections in Focus

At this stage, the upcoming French, and later German elections add a further air of uncertainty to proceedings as the French and German leaders who will be involved in exit negotiations are not yet known. Negotiations are expected to take around two years, and EU negotiator Michel Barnier has stated that Brexit negotiations need to be complete by October 2018 to give the agreement time to be ratified before the UK leaves the EU on March 29, in line with the two-year forecast.

Over the weekend, the head of the European Commission, Jean Claude Juncker, provoked controversy by claiming that the deal with the UK will be so bad that they will “realise it’s not worth leaving” saying also that it will act as an example to the remaining member countries who “will all see from the UK’s example that leaving the EU is a bad idea”.

Theresa May Vows to Negotiate Hard

Any further rhetoric like this is likely to increase investors uncertainty as negotiations commence. Despite these comments, May has said that she expected negotiations to be “smooth and orderly, giving certainty to individuals and business and allowing us to make a preparation that will see an independent UK prospering outside the EU”. The UK PM has, however, claimed that she would “negotiate hard” to “get the best possible deal for the United Kingdom”.

However, negotiations appear to already be off to a rocky start as, according to a Dutch newspaper, the EU has drafted a plan which states that if the UK refuses to pay the £50 bn “divorce bill” which EU leaders have estimated as the UK’s liabilities for its 43-year membership of the bloc.  Spain’s deputy minister for European Affairs said: “Before starting to negotiate the future framework of the relationship between the EU and the U.K., we have to agree at least the basic principles of the financial implications of the exit agreement”. Essentially, Jorge Toledo is saying that Britain needs to agree to the Brexit “divorce bill” before entering into talks on future relationships.

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