MARKET PULSE: Brexit FAQ

What does Brexit mean?

“Brexit” is an abbreviation, created by merging the words “Britain” (meaning the United Kingdom) and “exit”, as the United Kingdom is leaving the European Union.

 

Why is the United Kingdom leaving the European Union?

In 2013, the British Prime Minister David Cameron promised a referendum on whether the United Kingdom should remain in the European Union if the Conservatives win the election. The referendum was held on Thursday, June 23, 2016. Leave won by 52% to 48%. The referendum’s voter turnout was 72%, with more than 30 million people voting. To make matters more complicated, England and Wales voted for Brexit, whereas Scotland and Northern Ireland both supported staying in the EU.

 

When is the United Kingdom due to leave the European Union?

As of today, the United Kingdom is due to leave the European Union on  March 29, 2019, regardless of whether there is a deal with the European Union or not. PM Theresa May triggered this process based on Article 50 of the Lisbon Treaty on March 29, 2017, meaning the United Kingdom is scheduled to leave at 11pm UK time on Friday, March 29, 2019. However, a European court has since ruled that the United Kingdom can decide to halt the process and stay in the European Union at any time up to the deadline. Alternatively, the process can be extended if all 28 EU member states agree.

 

Could Brexit be delayed?

Possibly. The European Union might agree to extend the period of time set forth in Article 50 if its leaders thought it would help smooth the process or if there was a chance that the United Kingdom could end up staying in, possibly through another referendum, but it would only be by a few months. The United Kingdom’s main opposition party, Labour Party, wants to force a general election and, after winning it, go back to Brussels to negotiate its version of Brexit.

 

Could there be another referendum?

It would have to be put into law by the government. As of today, it doesn’t appear that enough Members of Parliament (MPs) would vote for it. Some Labour MPs want another referendum, as do a smaller number of Conservative MP. But without the official support of Labour Party’s leader, Jeremy Corbyn, those campaigning for a further public vote do not seem to have the necessary support of MPs to get it through. Mr Corbyn has not ruled out getting behind another referendum but he wants to explore other options, such as toppling the government and forcing a general election, first.

 

Why is a Brexit deal generally preferred?

The main point of having a deal between the United Kingdom and the European Union is to ensure as smooth an exit from the European Union as possible, both for businesses and individuals – and to allow time for the two sides to negotiate a permanent trade deal.

 

What is the main stumbling block?

One of the key unresolved issues is the border between the Republic of Ireland – an EU member state – and Northern Ireland, which is part of the United Kingdom. This border is currently invisible since it disappeared after the Good Friday peace agreement of 1998. Today, the prospect of returning to a “hard border” is a concern for many, particularly regarding the still fragile peace situation which is still somewhat connected to the (in)visibility of the border. The negotiations between the United Kingdom and the European Union have deadlocked over one topic: the backstop.

 

What does backstop mean?

The backstop plan is essentially an “insurance policy” to ensure that there is no hard/visible border between Northern Ireland and the Republic of Ireland. Pro-Brexit supporters are concerned that the proposed backstop would leave the United Kingdom tied forever to many European Union laws. This is the main reason PM Theresa May‘s deal hasn‘t found a majority in the parliament yet.

 

What could the possible impacts of the Brexit be?

There will be many, but nobody can say for sure. However, the uncertainty around Brexit alone will most likely slow economic activity. Just under half of the United Kingdom’s exports go to the European Union. Just over half of its imports come from the European Union. All of that is now up for a renegotiation. The United Kingdom is the fifth biggest national economy in the world. The Brexit will therefore have an effect on the world’s markets. Even if they don’t collapse, the uncertainty is bad enough.

 

Please check the Market Pulse article “Brexit scenarios and their potential market implications” to get an overview about four possible ways the Brexit debate could end and their potential implications for the market.

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