Right after a marathon of negotiation to pass the European COVID recovery plan, Michael Barnier was in London recently to deal with his other bugbear; continued Brexit negotiations. The Europeans were at the table in Brussels for five days hashing out a deal of €750bn of which €390bn comes in the form of grants, some of which were particularly contentious.
The ‘frugal four’ made up by Austria, Sweden, Denmark and The Netherlands resisted the issue of grants to less fiscally secure Southern European nations on the principle that their taxpayers’ money would disappear into an Italian or Spanish funding gap at a time when the European economy is forecast to shrink by over 8%.
Having made concessions to the sceptical northern nations the huge recovery deal has been passed but the Dutch remain unimpressed with the result. Watching the deal unfold from London Rishi Sunak cannot fail to have been relieved to be exempt from the negotiations which, without Brexit, would have seen the UK included in contributing to the massive recovery fund.
Instead, the Chancellor has been free to prepare for the next round of Brexit negotiations which begin on the 17th of August. The consensus seems to be that, after some more posturing, both sides will knuckle down and hash out a deal in September.
The UK is in a much stronger position than it was during last years round of negotiation. The majority government means there is no resistance in Parliament while the UK’s response to COVID has not been dependent on the consideration of the other 27 European nations. In the meantime, progress has been made to build trade deals with Japan, the USA and Australia. Contrastingly, the Europeans have been put under immense strain by the effects of COVID and distracted by their own internal struggles rather than being able to present a united front against Brexit.
Sterling’s recent soft performance (dithering around 1.10 for most of July) against the Euro will continue until the market gains concrete insight on Brexit. However, once clarity has been achieved Sterling strength is likely to develop towards the end of the year.
Contributed by Ralf Martyrossian – Ralf is a Business Development Manager at Privalgo, specialising in partnerships and property transactions. Along with a passion for financial markets and economics, Ralf is also an English Literature graduate from the University of Bristol. Besides from analysing currency charts, in his spare time, Ralf enjoys boxing, cycling and cartography.
Speak to Ralf or another member of Team P today – Let us tailor our approach, to maximise your next currency transfer.