We’re six months out from the day the UK officially leaves the UK. Nordea Markets chief editor Martin O’Rourke managed to pin down one very busy Morten Lund for his Brexit lowdown in the run up to the March 29 ‘B’-Day.
Showdown: If you’d be kind enough to step aside, Theresa… Source: Leon Neal/gettyimages
You’ve got to pity poor Theresa May, haven’t you? Surely? Well, perhaps. The most lukewarm of remainers, she was handed quite the chalice in 2016 by her predecessor David Cameron. Toxic to the point of noxious, she’s since struggled to keep her head above water and find a path out of the almighty mess the UK finds itself in.
Last week, she thought she was in with a roll-of-the-dice chance of nailing it. A deal that would, if parts of the UK press are to be believed, enable her to walk a line between the party faithful and the European Union looked on the cards. Her cherished Chequer’s Plan went before Europe’s finest in the Austrian city of Salzburg and hopes were high that she might at least get the kind of reassuring noises that would allow her to negotiate the upcoming Conservative Party Conference and steer the country towards a Brexit deal.
By Thursday evening (September 20), that dream was in tatters. In a disastrous negotiation, EU leaders took umbrage at her harsh line and the plan went out the window. There is little to salvage, says Nordea’s Brexit expert Morten Lund.
“The Chequer’s deal is dead, at least in the full sense that May had outlined,” says Lund. “While the EU recognises that there are some good elements to the deal, there are too many red lines so we won’t see anything close to what the UK wants. It is not in the EU’s interest to allow May to cherry pick.”
Lund points to an often forgotten part of the equation here, namely the fear in Brussels that Brexit could still lead to a domino effect despite the holding pattern that has emerged ever since the UK’s fateful decision in June 2016. “From an EU perspective, they are still afraid for sure. If the UK can cherry pick, then so can others. They are very nervous about other people or countries doing the same,” he says. “In central & Eastern Europe, immigration is a really live issue. In the periphery, the likes of Greece continue to face dire economic issues.”
It is, for Lund then, even more difficult to understand the prime minister’s posturing during Salzburg. “She took a really tough stance here, probably to try and appease interests back home ahead of the Conservative Party conference,” he says. “The EU had reached out to her with a softer stance over the past month, but her rhetoric didn’t work.”
Indeed it didn’t. French president Emmanuel Macron gave a withering assessment in the aftermath of the dinner at Salzburg when her plan unravelled. “Brexit is the choice of the British people,” he said. “It demonstrates that those who say it’s easy to do without Europe, that it will all go well, that it will help make big profits, they are liars.”
That left the PM scuttling home, tail between her legs, her credibility shorn with barely a scrap of paper to wave off the plane. May’s been scrabbling ever since. She’ll do well to survive, says Lund.
“She’s been trying to demonstrate that she is a strong leader, but it’s backfired. She could well face a challenge to her leadership and the conference is going to be critical,” says Lund. “I don’t think she’ll be overthrown, but the hard-core Brexiteers will be emboldened. There is a looming risk that she could resign.”
But Lund does not see that actually happening. “Don’t forget, she managed to strengthen her position in the summer when she effectively won that battle with Boris Johnson and the other Brexiteers. She may be weaker now, but she’ll probably get through the conference. What matters now is how talks between the EU and London progress over the next few weeks. There is an October 18 deadline, but it is actually looking like November will be the key month for any deal.”
But first the conference. May can most definitely not afford the kind of disaster that wrecked her speech a year ago. It’s easy to say that a parched throat can happen to the best of us, but for some reason, these kind of things seem to happen more often to her. It is only a few weeks or so after all that she danced her way into nobody’s heart in an ill-fated attempt to show she was ‘down with it’ on her Africa tour.
Lund concedes she’s lacking when it comes to public performing and, with thorny issues like the Irish border still in play, this could be pivotal at the conference. Any weakness will be seized upon.
“She’s got maybe 80 hard-core Brexiteers to deal with,” he says. “The majority of the party is with her, but if there is no deal by year-end, then she is extremely vulnerable.”
Morten Lund: “I have the strongest belief we will get a deal.” Source: Nordea Markets
Carney at the tiller
May and Johnson are not the only big players in the whole Brexit process of course, and Lund reserves special praise for Bank of England governor Mark Carney.
“Carney has done a really good job during what’s been a very difficult period,” says Lund. “Some central bank governors stick hard and fast to an ideology no matter what, but Carney will do whatever it takes to get through this. He’s a pragmatist. There’s a reason why the government wants him to stay.”
Carney’s held the tiller steady in the face of stern criticism from Brexiteers who accuse him of politicising his role, and, says Lund, has steered the economy with considerable success since the referendum. But sterling is another matter, he says. “Brexit is the main thing that matters as far as the currency is concerned right now. If our baseline scenario for a hard Brexit with a smooth transition pans out, we will eventually see a mild appreciation of sterling.”
“That’s interesting in itself,” adds Lund. “A year ago, a hard Brexit would have been GBP negative.”
Sterling has certainly been on the proverbial journey. It plunged in the aftermath of Salzburg and is still close to 15% down from its 1.50-plus peak on the night of the referendum when pollsters confidently predicted a ‘remain’ victory. It was 1.3072 against dollar Friday morning and 1.1244 against euro.
Could it all be sorted out with a second referendum? Lund accepts that a new vote on Brexit is a possibility, and momentum for such a move might be building, but it would require too many variables to fall into place. He gives it little more than a 5% chance.
“A lot would have to happen,” he says. “First of all, May would have to resign. I see no chance whatsoever if she stays in office that we will have a second referendum and if she did fall on her sword, then she’d almost certainly be replaced by an ardent Brexiteer.”
“A snap election is a possibility too but we still don’t really know what the Labour Party’s stance on a second referendum is. [Jeremy] Corbyn definitely wants a softer Brexit but a second referendum is problematic itself,” he says. “To hold one, you need to know you’re going to get the result you want or you risk losing public confidence. There may be a slight majority in favour of staying in the EU now, but it’s by no means certain.”
That leaves the million, or perhaps trillion, dollar question given the stakes. Is British business prepared for the various scenarios that could unfold after March 29?
“They are so integrated with the EU on so many fronts and if it were a no deal, it would be more or less a disaster,” Lund says, anticipating a potential scarcity in food items, medicines and perhaps even impacting international flights in the event of a worst-case shakeout. “They are not built for this and time is running out. It’s a logistical nightmare.”
“It’s because they are so unprepared, that I have the strongest belief we will get a deal, but the statement will be very vague with a transition period to 2020.”
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