Johnson Vs Merkel
Hopes of a deal between the UK and EU came crashing down on Tuesday.
This sent GBP cascading down to fresh one-month lows. The news came following a telephone conversation between the UK PM and German Chancellor, Angela Merkel.
A spokesperson for the Prime Minister said that Merkel warned Johnson that the EU was “highly unlikely” to accept the terms of the new deal he presented last week. Johnson himself said that a deal was “essentially impossible”.
We are yet to gain access to the details of the conversation. However, UK reporters received source comments indicating that Merkel explained that a deal could only happen if it meant Northern Ireland would remain within the customs union.
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In response, Johnson has ruled this out. According to the No 10 source, the PM stated that if this is the case, a deal cannot be made.
Johnson Comes Under Fire
The comments from a government official have sparked a widespread backlash from across the political divide. They’ve even provoked the ire of EU leaders.
Donald Tusk, president of the EC, wrote to Johnson on Twitter saying:
Nicola Sturgeon, leader of the Scottish National Party was also quick to attack Johnson, saying:
Meanwhile, the Labour party accused the government of a ‘cynical attempt to sabotage the negotiations’ and demanded Parliament unite and step in to stop us crashing out in three weeks’
Gove Calls For No-Deal Brexit
Michael Gove, the Minister in charge of Brexit planning has called for the UK to leave the EU on October 31st without a deal if needs be.
In a statement released today, Gove said the UK economy could stand the shock of a no-deal Brexit. He stated:
“Of course risks remain and challenges for some businesses cannot be entirely mitigated, even with every possible preparation in place. But the UK economy is in a much better position to meet those risks and challenges thanks to the efforts of these sectors and companies and the chancellor.”
What Happens Next?
If the EU does reject Johnson’s terms, then it will come down to whether Johnson plans to comply with the Benn Bill or not.
The emergency legislation passed by MPs ahead of Johnson proroguing parliament last month states that if the PM cannot agree on a Brexit deal with parliament (or on parliamentary backing for a no-deal Brexit,) then he must require an extension to Article 50.
However, Johnson has so far signaled that he would overrule the legislation and press ahead with a no-deal Brexit.
Current Brexit Timeline
- 17th/18th October – EU Summit, where the EU will give the decision on Johnson’s deal
- 19th October – If there is still no deal, Johnson will request an Article 50 extension until January 31st,2020.
If Johnson attempts to overrule the Benn Bill for a no-deal Brexit, he could face a vote of no confidence. This could see him ousted as PM and we might see a new caretaker government.
However, division regarding who would lead a government means that it could be difficult. Alternatively, a legal challenge might be mounted against Johnson once again. And the Supreme Court likely to block johnson from pursuing a no-deal Brexit.
In this instance, the most likely option is that an extension to Article 50 is requested and that the country undertakes general elections.
In this scenario, the battle lines would be clearly drawn between the Conservative Party, who would take the UK out of the EU without a deal, and Labour, who would campaign in favor of a second referendum.
GBPUSD continues to trade within the middle of the bearish channel from year to date highs. Prices have recovered most of yesterday’s losses. This is thanks to news that the EU is considering creating a definite exit term to the Irish backstop. However, nothing official on this yet.
For now, price is holding the 1.2207 support. If we fall back below here, the 1.2026 level comes back into focus. To the topside, any move higher will likely find resistance to the 1.2484 level with the bear channel top coming just above.