Tuesday, July 30, 2019

Deal Or No-Deal Brexit?

Deal or No-Deal, Brexit Dooms the Euro

Deal or No-Deal, when it comes to Brexit, the euro is toast. Markets, however, believe the fantasy of its survival. As we approach the end of July the euro clings to support at $1.11, mere pips away from a technical breakdown.
That breakdown will trigger a wave of asset liquidation and another round of negative headlines emanating from troubled German banks.
With 10 Downing St. now saying No-Deal is acceptable, the hard line negotiating tactics of the European Union have hit a rocky shore.
Because it looks like Boris Johnson is ready to give as good as he gets.
I’ve been saying this for a long time. The EU is not a tough nut to crack. They have no leverage in these Brexit negotiations. 
What they had was a stacked deck of British officials negotiating with Brussels on Brussels’ terms.
It’s not a negotiation if both sides agree on terms. It’s a surrender. 
The only negotiation that went on during May’s administration was with the British people on accepting the horrific treaty written by German Chancellor Angela Merkel’s staff and rubber-stamped by May.
Today Britain looks different, at least on the surface. The market is punishing them for entertaining No-Deal. 
The pound is falling out of bed today below $1.24 because Johnson looks serious about re-opening negotiations or opting for No-Deal.
But here’s the thing. The eurozone is facing a recession. I‘ve talked about Germany’s freefalling economy before. It’s not getting any better. And it won’t if a no-deal Brexit occurs.
So the forex markets are offside today. Way offside. 
Johnson came out and bypassed the Withdrawal Treaty completely saying let’s just move to Stage 2 of Brexit, the free-trade agreement. 
You never would have heard that under Theresa May.
That’s why the pound is getting crushed today. At some point, however, that move will get overdone. The EUR/GBP pair is way overbought and was looking toppy before Monday’s massacre in the pound.
What’s clear, however, is that in the short term, the pound will be allowed to collapse to assist the ‘Remain’ case. As the media focuses on the pound falling it neglects the pound is now more attractive to U.S. investors.

It’s making Trump’s offer of a free-trade deal more attractive to wobbly Tory MP’s.
The pound has been over-valued for years thanks to being slaved to the euro-zone. President Trump knows this and this is why he backs Brexit as well as both Johnson and Nigel Farage.

Nigel Farage wants to help Boris Johnson deliver Brexit. Boris should accept the offer gratefully.

The European elections were a sobering experience for the Tories. Their support fell to only 10 per cent of the vote and I already know of several large-scale Tory donors who switched to the Brexit Party overnight. Arguably, the Conservatives’ future is already in doubt. Suddenly, it is ‘do-or-die’ not just for Brexit, but for the Conservative Party as well.
Mr Johnson should realize that he is going to have to risk his longed-for position as PM to ensure Brexit is enacted properly. There is no prospect of a meaningful Brexit thanks to the views of most sitting MPs. And any attempt to prorogue Parliament will lead to the PM being brought down by his own side. The inescapable truth, therefore, is that he must hold an Autumn general election. That is his only way out. Doing so will take enormous courage. Inevitably, it will trigger a split in the Conservative Party. But the country is crying out for leadership and a resolution to the Brexit crisis.
Even on Brexit, he was very late to the cause. He will have a lot of convincing to do to persuade us that an early election will lead to a clean-break Brexit on 31 October.
If he is able to convince us, then together we would electorally smash the Labour Party, he would assume a big working majority, and he would go down as one of the great leaders in British history. All this is possible, but is Boris Johnson brave enough?

In his maiden speech as prime minister on Wednesday, Boris Johnson repeated that the U.K. will “come out of the European Union on October 31st, no ifs or buts.”

Some may view this position as irresponsible -- either for prematurely tying the country’s hands in what are likely to be tricky negotiations with the EU or for forcing Johnson to break a very public and oft-repeated promise less than 100 days after assuming office. Yet, in the game theory framework I set out last December to explain why the approach of his predecessor Theresa May risked getting stuck in the muddle-middle, Johnson’s approach may offer both the EU and the U.K. a way out of an impasse that is harming both sides.

Unable to unite her Conservative Party, let alone secure a majority in Parliament, May ended up not having the political clout to shift negotiations with the EU out of a “no-war, no-peace” battle of attrition. As such, it was virtually inevitable that that the U.K. would end up forced to negotiate a series of deadline extensions with its European partners. The EU, for its part, was unable to impose an orderly Brexit on the U.K., let alone a return to the status quo ante (“remain”). Neither was it willing to force a hard Brexit.

By having run on a less ambiguous Brexit platform, and by having been elected leader of his party by an overwhelming majority, Johnson has put down a clear come-what-may marker for the EU. If he can also convey a sense of parliamentary unity behind his position, he should be able to force the EU into compromise -- that is, the EU agreeing to a multi-stage process that combines a formal Brexit on Oct. 31 with various transitional agreements to minimize the risks of a disorderly exit process.

While he is better placed than his predecessor, Johnson’s all-or-nothing approach is far from obstacle-free. Indeed, we need only look back at how last spring’s European Parliament elections -- which neither side wished to contest while negotiations remained paralyzed -- failed to force resolution. Also, the British Parliament remains divided, as does the nation.


Kathy in Pa said...

I've noticed that you often post articles about Brexit. Do you think the whole issue ties in to end times prophecy in ways other than the financial repercussions? If so, maybe I should try to learn more about the whole thing.I must confess that European politics is a mystery to me! Good collection of articles today, thanks.

Scott said...

Good question...We know that the roman empire would be revived (aka EU and Med Union) but "would not remain united" as an Iron and clay mixture (unlike the first roman empire which was simply "iron" (Daniel 2).

So the Brexit is part of this process of the "not remaining united" aspect - and biblically the next stage is the 10 Kings, which would be a huge development because once formed we know they won't last long (Rev 13 or 17 I forget)....So many people believe Brexit exodus will trigger others such as Poland, Italy....Therefore we could be on the verge of seeing the transition into the 10 Kings...And the AC has to emerge from the 10 Kings..Its unclear if the Church will be here or not for the 10 Kings

KemBlank said...

Thanks for the explanation on the 10 kings Scott. I've been kind of ignoring Brexit but will pay more attention now.

Kathy in Pa said...

Your answer turned on the lights. I had put Daniel 2 on the back burner because of the number of EU members, but after going back and seeing that Daniel's interpretation of Nebuchadnezzar's dream referred to the feet AND toes, seems like the feet are the EU and the toes are the 10 kings. Boy, do I have some catching up to do!Thank you, thank you! It's so good to have someone to talk to that loves this stuff as much as I do. Hebrews 10:25

Scott said...

My pleasure :)