Sterling has suffered after Boris Johnson’s no-deal Brexit rhetoric caused reaction among economists and cabinet ministers who continue to warn against it.
A free trade agreement after no-deal Brexit
Johnson’s government and figures in his cabinet, such as Dominic Raab, said that the UK would be in an advantageous position to negotiate a good deal after no-deal Brexit. European Union officials rejected Raab’s claim that agreeing on a free-trade deal after a no-deal Brexit would be “much easier.” A senior EU diplomat expressed the EU’s fears that a no-deal Brexit would trigger the destruction of political relationships and a rhetoric of blaming.
He said: “It would mean the complete breakdown of political relations and I don’t think there would be much trust on the EU side with the Tories, or with the prime minister. Eventually we would get around it because we are pragmatic, but this would be really, really bad, because of all the rhetoric around blaming.”
For another diplomat, after a no-deal Brexit, contact between the EU and the UK would break down: “Our phones will not be connected at that time … I don’t think they will be connected to someone who has reneged on their obligations.”
For the European officials, the most important element is to honour the three basic principles of the withdrawal agreement: citizens’ rights, the Irish border and the financial settlement.
Despite Johnson’s claims to the opposite, renegotiating a trade deal would be a lengthy and arduous process, something almost impossible. As Tanja Fajon, the Social Democrat member of the European parliament’s foreign affairs committee, said, renegotiating “a free trade agreement usually takes years and I believe the UK doesn’t have that time after a no-deal Brexit.”
In addition, Johnson’s character, his threatening attitude towards the EU, make him an unlikeable character according to the MEP, allied to the Labour party: “Who would want to do business with [Johnson] if he is serious with his threats not to pay €60bn (£54bn) debts to the EU? Who wants to deal with the country who doesn’t pay its bills?”
EU hoping for soft Brexit Tories to stop no-deal Brexit
Speaking on BBC Radio 4’s Today programme, Raab said that it would be easier to deal with the Irish border through a free-trade agreement after the UK is released from the EU’s “demands and unilateral dictates.”
Over the weekend, it was rumoured that Johnson was “turbo-charging” preparations for no deal, while his strategist for a no-deal Brexit, Michael Gove, said the government was preparing for leaving without a deal.
But the EU is reluctant to reopen the deal that was agreed with Theresa May, hoping that certain Tories would try and prevent the hardcore Brexiteers from crashing out of the EU without a deal. The EU would seek to defend its own interests, a spokesman of the European commission said, as Johnson’s ministers continue supporting their no-deal Brexit plans.
He said: “The UK preparedness is not for us to deal with. Our no-deal preparedness protects the EU and our interests in the case of a no-deal Brexit. A no-deal scenario is not our preferred outcome.”
Universal Partners FX and hedging strategies against volatility
Whether you are an importer or exporter, or you conduct your business abroad through regular transfers of funds, the recent no-deal Brexit rhetoric has definitely affected your finances as the pound has sunk against the US dollar and the euro.
While the government would ideally want to avoid a no-deal outcome, leaving without a deal is increasingly becoming a very likely prospect, something that is worrying both investors and ministers.
If you want to hedge your funds and avoid currency volatility, get in touch with UPFX and find out how they can hep you navigate around political and financial uncertainty.