Brexit: Three key things to watch as article 50 is triggered

Theresa May will pull the trigger on March 29th but real action won’t start until late May

British prime minister Theresa May:  will make statement to House of Commons on March 29th, the same day article 50 will be triggered. Photograph: Dimitris Legakis/EPA

British prime minister Theresa May: will make statement to House of Commons on March 29th, the same day article 50 will be triggered. Photograph: Dimitris Legakis/EPA

 

It is not quite accurate to say nothing much is going to happen after article 50 is triggered next week, but the huge excitement built up around “the date” is likely to prove misplaced. All that is happening is that Britain is following the terms set down in the Lisbon Treaty to trigger formal exit talks. The EU will then take some time to finalise its negotiating position.

Expect the real action to start in late May or early June, when the two sides sit down to start the talks. The first potentially contentious issue on the agenda will be the price Britain must pay to “buy itself out” of existing EU commitments. Suggestions from the EU side that this bill could reach €60 billion will be strongly resisted by Britain.

This will be a “long game”. Britain will not actually leave the EU until early 2019, ideally having tied up a mutually acceptable exit deal. It is then likely to be some years thereafter before it has finalised a trade deal with the EU, if indeed it is able to do so.

Up to early 2019, Britain will remain a full EU member and nothing will change beyond the exclusion of its representatives from some EU meetings where the approach of the remaining 27 to Brexit is discussed.

So what do we look out for as article 50 is triggered and in the immediate aftermath?

1. What hints does it give on the British negotiating position?

The contents of the letter which will be sent to formally trigger article 50 on March 29th are unclear. However, beyond the likelihood that it will express the desire to reach a deal with the EU, it is unlikely to give too many hints on Britain’s negotiating stance.

British prime minister Theresa May is due to make a statement to the House of Commons the same day. Among the issues of interest here will be any reference to the negotiations on how much Britain will have to pay to exit the EU.

Another crucial point will be how Britain approaches the idea of a transitional deal to cover the period after it leaves the EU, but before a new trade deal is negotiated. Britain had said it hoped the trade deal could be agreed, at least in outline, during the two-year period when the exit talks were being finalised.

However, most observers feel a trade deal will take much longer. If Britain leaves without a transitional deal, it could lead to the immediate imposition of tariffs and other trade barriers. So this is an important one for Ireland.

2. What indications are there of the EU negotiating stance?

President of the European Council Donald Tusk has said he will issue draft Brexit negotiating guidelines to the other member states within 48 hours of the UK triggering article 50; in other words, before the end of next week.

EU leaders will then meet to discuss these, probably in April, and a final negotiating mandate will be agreed, probably by the end of May or early June.

There are vital issues here for Ireland: the future of the Border and the Common Travel Area and the ability of Irish people to work freely in the UK and vice versa. The Government will want due recognition of Ireland’s priorities in the initial negotiating position.

The mood music will also be important. Ireland’s interests are best served by a smooth negotiating process, a transitional deal for trade after 2019 – before a final agreement is reached – and a final deal which allows trade to continue as freely as possible in the long term.

Demands for a large exit fee for Britain and a view in some member states that it must be “punished” for leaving to discourage others thus carry dangers from an Irish viewpoint.

3. How will markets react?

Britain may have given advance notice of triggering article 50 in part to avoid any sudden upset to market sentiment. In reality, it is an event which everyone knows is coming, and the market is well aware of the difficult negotiations to come.

However, the negotiating game will now begin, and attention will be paid to whether there is any reaction on foreign exchange markets in particular, with sterling tending to weaken on any indications of a difficult Brexit. Weaker sterling makes life harder for Irish exporters and is a key risk for Ireland.

While the UK economy and financial markets have survived the period since the Brexit vote better than expected, the actual start of negotiations and the highlighting in the months ahead of the many difficult issues to be sorted out are likely to challenge economic and market sentiment.

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