The U.K. has revealed for the first time what kind of trade deal it wants businesses to have with the European Union after Brexit -- and in British eyes, nothing will change.
Brexit Secretary David Davis said Britain will stay close to the EU’s regulatory regime after it leaves the bloc and only wants “the freedom” to go its own way if it chooses in future.
It’s quite possible that the U.K. will decide to replicate European regulations on financial services and other areas indefinitely, he suggested.
Davis’s comments represent the clearest statement so far on what U.K. Prime Minister Theresa May’s government is planning to do after Brexit. EU negotiators in Brussels have been calling for such clarity from the U.K. for months. However, there are signs already that Britain’s willingness to accept EU rules will infuriate the euroskeptic hardliners in her Conservative Party.
“The aim in this whole exercise will be to maintain the maximum possible access to the European market whilst at the same time exercising our own freedom over what we are going to do in the future,” Davis said. “I see my task as creating that freedom -- how far apart we diverge will be a matter for the government thereafter.”
It has been my view for some time that we have to not only think about what we view as the correct course of action, but to also examine the people who are in fact charged with making decisions, if we are to have any hope of predicting in what direction negotiations are to evolve. Personally, I would have voted for Brexit. If the election was held again today I would still vote for Brexit. I share the revolutionary zeal of many UK citizens to recapture autonomy from an increasingly authoritarian bureaucracy. However, regardless of my personal feelings the reality is that the people making the decisions are doing so for the whole economy and the vast majority of law makers voted to stay inside the EU.
There is a real possibility that the outcome of the negotiations will result in the UK pulling out of the EU but still abiding by its laws and paying into its coffers in return for access to the market. At the same time, the UK will no longer have a say in the evolution of the bloc’s financial regulation despite being the largest financial centre on the continent, and perhaps the world.
There are a number of potential outcomes. The first is that the transition agreement lasts well beyond the two years envisaged, which is a de facto delay if not cancellation of the exit strategy. Alternatively, once the deal is brought to parliament it could fail to be ratified on the basis it is not good enough for the UK. At that point either there will be a referendum to accept the deal or the government will fall and the ensuing election will be fought on whether to stay or go. The third potential outcome is a Tory revolt soon which could remove Theresa May from office in favour of a hard schism advocate. The May government’s reliance on support from the DUP complicates its ability to negotiate since no one in Ireland wants a hard border.
All of these points are contributing to the relative strength of the Pound since the majority of investors, as opposed to voters, are ambivalent to the uncertainty a schism represents. The Pound broke successfully above €1.14 today against the Euro and will need to hold the advance if recovery potential is to be given the benefit of the doubt.