Of cliffs and contraltos:

Over four months have now passed since the shock outcome of the UK’s “Brexit” vote. The immediate panic has subsided, and a situation resembling a phoney war has ensued, in which each of the “direct combatants” (the UK Government and the sundry components of the EU’s governance structure) as well as the “rest” (the other 27 EU countries) makes occasional threatening noises, the odd feint, and generally tries to lay down a smokescreen about its likely strategy (assuming it has one!)

And to compound the confusion, 3 of the most senior judges in England and Wales recently lobbed a grenade into the UK government’s not-sufficiently-carefully-thought-out approach for triggering the so-called Article 50 mechanism, with a judgement that many commentators believe is “appeal-proof”. We shall see.

The problem is that no-one really knows how the process will look if, as and when it starts; what the likely outcome will be; and over which timeframe. Will it be “hard”, or “soft”? Will there be a new “sterling crisis” as Cable sinks (not so) slowly in the west?

Most would also assume that there are no real precedents (Greenland aside in 1982-1985) However, this (a little tongue in cheek) is quite clearly not the case, as the fascinating graph shown below (posted by the Financial Times’ David Keohane and sourced from Nomura and the excellent Maddison Project) amply demonstrates:

English Reformation

The continuing stagnation and “dip” (prompted by a little local difficulty called the English Civil War) after the Acts of Supremacy in the 1530s should be noted, which gives a whole new meaning to: “Not in my lifetime”!

We suspect that the Brexit Believers would probably prefer to have us assume that: “Things can only get better”…

A little more seriously, there has to be a real concern that, although neither side would rationally wish for an outcome which, while “punishing” the UK for having the temerity to seek to “leave” the EU, would also harm many of the remaining members in one form or another (through loss of exports, or constraints on free movement of labour), this may well be the outcome. Recent political rhetoric from “the Continent” certainly gives warning of hardening attitudes.

Consider that, if Article 50 is not triggered, one enters a twilight world of perpetual uncertainty about intentions; whereas, if it is triggered (as is now supposed to happen by March 2017- unless delayed by the need to deal with the consequences of the above mentioned judicial decision), and the supposed 2-year “clock” starts to run, everyone knows that that timeframe is not remotely sufficient to negotiate a new arrangement given the astonishing complexity of the links, treaties, regulations, rules, guidance, working practices, dispensations and exemptions that have to be addressed. Severing the relationship in Gordian Knot fashion is likely to lead to some very unsought and unpleasant consequences.

And bear in mind that in the case of Greenland, a dependency of the Danish Crown, with a minute population and an uncomplicated economy, even that process took 3 years; while the CETA agreement between Canada and the EU, while “signed”, is still not fully in place after 9 years (after being Wallooned by a Belgian sub-sovereign)- and that is supposed to be a “friendly” negotiation! In addition, the UK will almost certainly have to re-negotiate hundreds of other existing agreements with non-EU states and multilateral organizations in concert with its formal Brexit ones. There will, undoubtedly, be a “run” on the services of experienced international trade lawyers and consultants- with HMG already scrambling to find remotely adequate resources for itself.

Britain famously ends and faces the Continent (a very telling term) at the White Cliffs of Dover. One hopes that the outcome of Brexit does not resemble falling off one of them.

Of course, at Awbury, we continue to monitor and assess Brexit as it unfolds, for the opportunities as well as the risks that result from all the dislocation and uncertainty.

The Awbury Team

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