The decision concerning when the United Kingdom should trigger Article 50 — the mechanism by which it will formally begin its exit from the European Union — will be nigh on impossible, due to a series of major political events occurring in Europe over the coming years.
In a note from UBS’ Chief Investment Office, titled “Brexit means …?” — economist Dean Turner, strategist Caroline Simmons, and analyst Christof Koumoudos, argue that a packed political calendar, particularly during 2017, will muddy the waters for the Conservative government in deciding when it wants to leave the EU.
Over the course of the next year or so, there is a general election in France, one in Germany, and a major vote in Italy, which could end up triggering an election there as well, should prime minister Matteo Renzi and his government lose the referendum on constitutional reform.
Regardless of the European Union’s commitment to so-called “ever closer union” nation states are more likely to be self-interested and put their own health before that of others. Therefore, if Britain triggers Article 50 during this period, it isn’t certain that negotiations will get the full attention of the eurozone’s three largest economies, as they will focus on their domestic issues. That is likely something Prime Minister Theresa May will want to avoid.
As Turner, Simmons, and Koumoudos argue (emphasis ours):
“There is much speculation that the PM will come under pressure from the Brexiteers in her own party to trigger Article 50 early next year. While this may satisfy some in her party, many are aware that delaying the negotiations may be a preferable option.
“It could be argued that it makes sense to postpone triggering Article 50 until these elections have passed [France and Germany’s general elections], because the UK would then have a better idea of whom it will be negotiating with. Furthermore, negotiating with the UK may become a secondary concern for EU incumbents to winning an election, so valuable negotiating time in the window could be lost.”
To avoid these problems, May and her government could consider delaying the triggering of Article 50 until after the German election in September or October. However, that would cause problems towards the end of the UK’s two-year negotiation period to leave the EU. Here’s UBS once again (emphasis ours):
“A delay until after the German election takes place could pose its own problems. For example, the next elections to the European Parliament are due to be held in May 2019. If Article 50 is triggered after next June, in theory, the UK would still be an EU member during these elections and could be required to elect MEPs. On the face of it, this situation seems less than optimal for the UK and the EU if the UK is on course to leave the bloc shortly thereafter.”
UBS notes that a further spanner in the works could come from negotiations within the EU over its next budget:
“A further consideration is the EU budget negotiations. The current settlement finishes in 2020, so it would be simpler for the EU if the UK were gone before the new budget comes into play. And then there is the next UK general election, scheduled for May 2020. It is unlikely that the PM would want to contest this while still exiting the EU.”
Basically, all of this adds up to make the Prime Minister’s decision about when Article 50 should be triggered fiendishly difficult. Brexit secretary David Davis has said that the deal Britain does to leave could be the most “complicated negotiation of all time,” and it is already looking that way before the process has even begun. UBS argues that it thinks the UK should trigger the exit process “no later than next spring.”
Any delay to triggering Article 50 is likely to be welcomed by major banks, which are thought to have asked May to wait as long as possible before starting the formal process of leaving the EU
The Financial Times reported on Wednesday that at a meeting in New York earlier this week banks asked for a “long lead time” of up to two years to prepare for Brexit and a period of transition for them to adjust to the new world.
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