Article 50 and Your Finances

Brexit Article 50

After nine months the UK has delivered. These words are what European Council President Donald Tusk posted on Twitter when he received Britain’s article 50 letter on Wednesday. We will not join the media in speculations whether the letter was “aggressive” or “positive”, or what particular UK and EU representatives’ reactions reveal about the upcoming negotiations. Instead we will focus on what we know and what it all means for your finances, now and going forward.

Article 50 Process

What exactly does “article 50” mean? It refers to article 50 of the Treaty on European Union (full text here), which regulates the process of voluntary withdrawal of a member state from the EU. It has been in force only since 2009 and is now being used for the first time in history.

The entire procedure specified (very vaguely) in article 50 is as follows:

  • A member state which has decided to leave the EU (as the UK did last year) must formally notify the European Council of its intention (as the UK did on Wednesday).
  • Following the notification, a withdrawal agreement will be negotiated. It will specify the conditions and exact date of withdrawal, as well as the leaving state’s future relationship with the EU.
  • The withdrawal agreement must be approved by the European Parliament and the European Council. The latter will act by qualified majority.

The Deadline: 29 March 2019

Importantly, article 50 specifies a deadline for the negotiations. If no agreement is reached within two years from the formal notification (i.e. 29 March 2019), the UK will cease to be a member of the EU without any trade and other deals in place. This would be the hardest Brexit possible, with disastrous effects which everyone wants to avoid. It is therefore extremely unlikely.

Article 50 contains a provision to extend the negotiations, subject to unanimous (possibly a very important detail) approval by the European Council.

Things to Watch

It is impossible to predict the outcome of the negotiations and effects on the economy. While the media have been speculating about the main topics and most likely sticking points for long time, new issues will almost certainly arise as the negotiations go forward.

Overall, future trade arrangements and access to the single market (as well as the cost the UK will have to pay for it) are the key questions with the greatest potential effect on the markets. Financial industry regulations and the ability to maintain London’s position as the financial capital of Europe will be another important topic.

Role of Individual Countries

One thing to keep in mind is that the UK won’t really be negotiating with one counterparty. Political situation in individual EU countries will certainly affect the tone and outcome of the negotiations. Therefore, some of the key things to watch are this year’s elections in France (first round 23 April, second round 7 May) and Germany (24 September).

That said, while big countries like Germany and France will definitely act as main drivers, it would be a mistake to underestimate the potential importance of smaller countries and their own particular interests. For instance, most East and South European countries will be concerned about the rights of their citizens living in the UK. Agriculture and fishing, heavily regulated by the EU, will be important topics for some countries; defence or EU budget contributions for others. There is also the very unique role of Ireland with its historical ties to the UK.

Not least, we should not forget those within our borders, particularly Scotland and Northern Ireland.

What It Means for Your Finances

If there is one word to sum up the entire Brexit story, it is uncertainty. There is very little we know. Even the people directly involved in the negotiations are unable to predict the result. Moreover, even if we knew the exact agreement coming out of the negotiations, the effects on the economy and the financial markets are impossible to forecast with any degree of accuracy. Brexit won’t be the only issue affecting the markets in the next months and years. Among other factors, developments in the US, China and other regions will be as important, if not more.

In light of the above, our recommendation is the same as it was immediately after the Brexit referendum: Stick with your strategy and don’t try to bet your savings on things you can’t predict. History has shown that consistent investing beats market timing in the long run.

We will of course continue to monitor the situation and provide updates when necessary.

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