Brexit effects on the pound
The EU’s chief negotiator Michel Barnier highlighted that “time is very short,” for the details of any Brexit deal to be completed. He stated that he was expecting “workable and realistic” proposals from the UK in the white paper due to be published later in July. However, with indications that immigration policy – one of the key sticking points of the negotiations - will not be set out until as late as September, his expectations may not be reached.
What was agreed during the EU Summit?
The EU issued a four-paragraph statement summarising the discussions held regarding Brexit. Whilst some progress was noted, there are still major gaps in the UK’s plan including the territorial application of the Withdrawal Agreement regarding Gibraltar and the considerable challenge of resolving the question of the Irish border. The European Council called for an acceleration of the work to prepare a framework for the future relationship and reconfirmed the principles set out in its guidelines and the position defined in March 2018. The statement concluded with renewed calls for Member States, Union institutions and all stakeholders to step up their work on preparedness at all levels and for all outcomes.
Was anything new agreed?
Members of the EU discussed migration policy and a statement following the discussions suggested that the leaders had taken a big step towards a better immigration policy. French leader Emmanuel Macron highlighted that the agreement combined security for Europe’s borders with European solidarity. However, it’s not clear whether the UK will fall in line with anything agreed. The UK’s Migration Advisory Committee report isn’t due until later in the year. It appears that nothing may become clear until after the October summit. Theresa May’s contribution to the talks, which continued long into the night, together with her public statements emphasising the importance of co-operation on security suggests she will be putting pressure on the EU to allow some room for manoeuvre on the issue, but it may prove to be an empty threat if the EU close ranks against her. For now, the group have not come to an agreement on rewriting the Dublin regulation on asylum policies, but they are certainly moving closer.
New faces change the game
There were some new faces at the EU Summit. The new Spanish Prime Minister Pedro Sánchez, the Socialist successor to Mariano Rajoy, was keen to demonstrate his pro-EU credentials. He worked closely with France’s Macron on the migration compromise, suggesting new allegiances are being forged within the EU with the changing of the guard. On the other hand, populist Italian leader Guiseppe Conte proved to be a significant disrupter. He blocked every EU Council initiative as a means of insisting on placing the focus on migration. It’s clear that there will be clashes ahead with some big personalities facing major changes.
The post-Brexit pound - what lies ahead for the EU’s finances after the UK’s departure?
The clashes over migration meant that there wasn’t enough time to get an agreement on the EU budget. Early in May, a budget for 2021 – 2027 was proposed by the commission. This includes everything from farm subsidies to money for border control and integration of migrants. However, key questions went unaddressed, including not only the total amount in the budget but also what the contributions required by each country will be following the UK’s departure. There was a promise to address the subject as soon as possible, but the budget is unlikely to travel a smooth path to approval after the clashes the occurred at this Summit. In addition, this budget will, unusually, coincide with the elections for European parliament in May 2019. This brings a greater likelihood of MEPs becoming involved in the process and keen to ensure that the budget provides fair representation and contribution for their constituents. It’s impossible to please all of the people all of the time, which means each line of the budget may be hotly contested and discussed at length.
What lies ahead for the Euro?
Leading proponents of the Eurozone Angela Merkel and Emmanuel Macron may have been frustrated that further progress wasn’t made on the issue. The pair had proposed a list of modest reforms to strengthen the monetary union against future crises. At this summit, the only agreement was a long-overdue decision, giving the fund that finances the wind-down of failed banks the backing of the European Stability Mechanism. It may be that Macron will look further afield for more allies to endorse his plans while Merkel contends with domestic issues and problems within her coalition government. The changes of personnel, allegiances and circumstances mean that nothing is certain for the euro. Even after the UK exits the European Union, it’s clear that changes in political priorities and leadership styles across the continent may have both short and longer-term influence on the common currency.
What happens next?
For the moment, the war of words will continue and nothing concrete came out of the recent summit. Theresa May remains focussed on finding a way of ensuring the UK’s departure which satisfies the hard-line Brexiters within her party whilst reassuring businesses that the changes won’t limit their opportunities or damage the economy. Her task is a difficult one; Michel Barnier has stated that the EU will reject any UK proposal to stay in the single market for goods, which is something the Cabinet has long been negotiating. Whilst the government has a challenge to get everyone to agree this approach, it may be that it simply isn’t an option. Barnier has also highlighted that a “huge and serious” gap remains between the UK and EU demands on Brexit, particularly on the issue of Ireland. Dalia Grybauskaitė, the president of Lithuania, didn’t offer any hope, telling reporters that it was clear that a “hard landing” for the UK was “on the table”. With such a negative outlook, much hangs on the reception – both at home and abroad - of the government’s White Paper later in the year.
How has this impacted the pound?
Brexit isn’t the only issue weighing on sterling, with the US trade situation also remaining volatile. In addition, the tense nature of recent votes in the House of Commons and clashes with the House of Lords suggest that there is a rocky road ahead for the government. The result for the pound is uncertainty compounded by further uncertainty. The situation in Europe, with new faces, fresh allegiances and additional challenges, may provide a chance for the pound to mount a recovery, but if the EU leaders close ranks, it may be vulnerable. Whatever else happens, the next few months is likely to see the pound sensitive to rumours and likely to react to any announcements, agreements or defeats as the negotiations rumble on.
Managing international payments in uncertain times
The political landscape has a major impact on the value of currency, and Brexit is proving to be a seismic event, but it’s not the only factor. As well as domestic and international events and political upheavals – of which there have been no shortage in recent months – economic statistics also play a role. These often have an impact on the Bank of England policy decisions around interest rates. A rise in interest rates may help the pound, although these situations never offer guarantees. A specialist can help you not only understand the current situation, but also make plans to make the most of your money overseas.