Brexit Back On As Boris Gives In On Northern Ireland Backstop

Irish and British leaders steer Brexit back on course

Talks reignite prospect of an agreed Brexit

Brexit, which has been a byword for a despondent, divisive fracturing of politics might just be entering the home stretch. If so, this has major economic and financial implications for Britain, Ireland and Europe.

This, I should say, is not the first time I and others have written that the end of Brexit is in sight. As a political process it has been extraordinary for the damage it has wrought, the bitterness it has engendered and for the economic damage it has brought. My view is that Brexit is simply the manifestation of a country that has felt the ill effect of austerity, that has been in decline and that has lost its moorings in the world. America, which is equally divided, should pay attention.

London’s incompetence

The potential turn in Brexit is a surprise. So far the Boris Johnson government has been characterized by betrayal, incompetence and failure (he has lost a series of political battles and votes in Parliament).

One of the key sticking points in Brexit is the legal and political ‘place’ of Northern Ireland – a subject dear to American hearts, with recent visits to Ireland from the likes of Vice President Pence, underlying this. To date, the place of Northern Ireland in a post Brexit world has been safeguarded by the concept of the backstop, which former Prime Minister Theresa May had agreed to.

The backstop would effectively keep Northern Ireland under the European Union (EU) regulatory umbrella, the trouble being that it also anchored Britain there too. Most Brexiteers found this objectionable, and worried that the backstop could last indefinitely.   

New development around Northern Ireland

The new development, which to the public is yet unclear, is that Boris Johnson appears to have committed to the Taoiseach (Ireland’s Prime Minister) that Northern Ireland can remain under the ambit of the EU regulatory umbrella until either its Stormont Assembly or a majority in a Northern Irish referendum say otherwise. This of course opens up many uncomfortable issues for Northern Ireland’s Unionist politicians, and their reaction will be just one of the obstacles ahead.

For the time being, the EU believes the undertaking is material enough for them to move onto detailed technical discussions with Britain on what the final form of Brexit will look like. If talks produce a Brexit ‘deal’ this will likely be of the ‘soft’ or less economically disruptive type that had been proposed last January. Much can and likely will go wrong between now and the end of October, but if we assume that Brexit is coming to an end, then a number of economic trends come into focus.

Tories to gain power?

Achieving Brexit will be a political victory for Boris Johnson and he will likely soon call a general election, which judging by polls, the Tory Party should perform well in. This will be a much more economy friendly result than a hung Parliament or a Labour led government. More importantly, the economic cloud that Brexit has hung over the UK should lift and in coming months investment should pick up. There is also the additional boon that Ireland, Europe’s fastest growing economy, and the greater euro-zone economy, do not suffer the macro shock that a ‘hard, crash out’ Brexit could have brought.

Asset prices already begin to reflect this, sterling has rallied hard and UK economy sensitive sectors like banks are rising. They have ore scope to rise if this ‘agreed’ Brexit stays on track. UK REITS and real estate should also gain in the longrun if there is a Brexit agreement.

The above is a reasonably positive and optimistic roadmap for where we go. I will caveat it by saying that Brexit is the most unpredictable phenomenon I have encountered. Fingers crossed.

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I am the author of a book called The Levelling which points to what's next after globalization and puts forward constructive ideas as to how an increasingly fractured wo...