Via Fortune Article
“Good morning. David Meyer here in Berlin, filling in for Alan.
Brexit uncertainty is dead; long live Brexit uncertainty.
Last week’s U.K. election result thoroughly killed off any hope Remainers might have had about Brexit being cancelled. Conservative Prime Minister and arch-Brexiteer Boris Johnson won a huge parliamentary majority and can therefore do pretty much whatever he likes. There will be no second referendum. Brexit is happening at the end of January.
However, this does not mean businesses now know what will happen next.
After the U.K. formally leaves the EU, the two sides will use an 11-month transition period to negotiate their subsequent trading relationship, which is due to take effect at the start of 2021. As the European Parliament and the parliaments of all 27 remaining EU countries would need to ratify any trade deal, the timescale becomes even more compressed.
Comprehensive trade deals generally take at least several years to write and ratify. But, according to multiple reports this morning, Johnson will outlaw any potential extension of the transition period beyond the end of 2020. He promised during the campaign that there would be no extension, but putting that into law removes any option for future flexibility.
Given the extremely short timetable for negotiations, the U.K. and EU will at best achieve only a bare-bones trading agreement, meaning disruption for businesses whose activities aren’t fully covered by the terms. In the worst-case scenario, there won’t be any trade deal at all, creating the same catastrophic result as we would have seen if the U.K. crashed out of the EU without a Brexit withdrawal deal.
These are the two options—without an extension to the transition period, there is no time in which to agree a robust, comprehensive trading relationship. No surprise then that the pound greeted the no-extension news by losing most of the gains it made on the Conservatives’ crushing victory.
Johnson is probably using the continued threat of “no deal” as a tool of brinksmanship—a tactic that helped him secure a fresh Brexit withdrawal agreement when most observers, me included, thought that was impossible. However, the EU’s negotiators will not enter these negotiations in a compromising mood. There is no longer any possibility of the U.K. staying in the club, so the gloves will come off.
Whatever happens, industry faces a lot of disruption. And it doesn’t even have the luxury of knowing how much, or what kind. The only certainty is that the cliff edge is a year away.”