The cooperation among the
countries in Europe has been there for more than 50 years. The euro has been
the common currency for the members for close to 20 years. This cooperation has
helped create a block large enough to compete with the United States and Asian
countries. Along the way, the EU has attracted praise and criticism as well. Eurosceptics
believe that the dream of a united Europe is not a good thing for the
sovereignty of the region. Pro-EU on the other hand believe in the strength of
the union.
In June 2016, the United Kingdom,
under David Cameron, went to a referendum to decide the future of the relationship
between the UK and the EU. Before the vote, many expected that the country to
vote for the European Union. This is because voting otherwise would have
presented the UK with a difficult choice. For example, many firms that do
business with the EU would leave.
After the vote, David Cameron
resigned and left the country under Theresa May. After becoming the prime
minister, she started negotiating for a deal with the European Union. This deal
was unveiled late last year. Her proposal called for a close relationship
between the UK and the EU. The EU had a unanimous vote for the deal.
However, the deal was rebuffed in
the House of Commons. The members of the opposition Labour party and the
government disagreed on the details of the deal. The most contentious issue was
about the backstop between Ireland and North Ireland. The worry was that the
backstop clause made it impossible for the UK to make trade decisions without
the permission of the EU. The chart below shows the performance of the sterling
and the FTSE 100 in the past one year.
After failing to get a deal in
parliament, Theresa May returned to Brussels this week to ask for another
extension. This is after her previous extension failed to deliver results. In
her request, she requested for an extension until June 30. However, the
European leaders led by Angela Merkel gave her an extension of until October.
This new extension presents more
potential risks to the United Kingdom. First, it is difficult to imagine a deal
that will pass parliament by October. In the past few weeks, the members have held
almost 20 votes, with none of them bringing any results. Therefore, I believe
that unless there is another general election or referendum, there may be no
way forward before the deadline. Second, and more importantly, the extension may
hamper investments in the country. This is because companies may not increase
their investments if they don’t have a good understanding about what will
happen in October. Already, data has shown that capital investments have
reduced in the country. Therefore, in the medium-term, it is difficult to recommend
buying UK stocks or the sterling.
The post More Brexit Uncertainties as EU Gives UK More Time appeared first on Forex.Info.