Morning Brief – New chapter or (emperor’s) new clothes?

New chapter or (emperor’s) new clothes?

The UK and EU yesterday announced a new trading arrangement with respect to Northern Ireland that they believe marks a new phase in political economic relations between the two parties. However, there remains doubt over whether the breakthrough is substantive enough to materially change the UK and EU’s trading relationship substantively and do anything more than merely change the rhetoric surrounding EU relations. As yet there has been a limited market reaction to the ‘breakthrough’ with a moderately stronger Sterling over the past few days being as attributable to economic data publications as it might be to the expectations of a development in trading relations with the UK’s largest trading partner. 

The Northern Ireland protocol created from the Brexit withdrawal agreement struck by Johnson’s government in 2019 was the only solution that both parties could agree on when the UK left the EU. The protocol allowed for a hard border, comprising of physical land checks on the passage of persons and goods between the UK and Northern Ireland, to be avoided. In doing so the protocol, now to be replaced as was confirmed yesterday, created a de facto trade barrier between Great Britain and Northern Ireland. Technology was the proposed and failed solution to this obstacle with Northern Ireland remaining very much a part of EU trade but supposedly UK sovereignty. 

Yesterday, the so-called Windsor agreement paved the way towards a new solution. The proposal agreed in principle, whilst containing a host of other caveats and selling points, revolves around a green lane for goods entering Northern Ireland and due to stay in the UK territory, and a red lane for goods entering Northern Ireland destined for the Republic of Ireland. Yes, you too might wonder whether Rishi and his team have been paying a little more attention than the rest of us to Nexflix’s Squid game… The limited reaction in GBP so far likely marks the fact that the agreement is far from a done deal. The agreement does on paper provide the prospect for material economic gains for the UK and limit the prospect for rapidly deteriorating relations with the EU. However, it is still far from clear whether Rishi has or will be able to sell the idea to his MPs and, in particular, what Northern Ireland’s Democratic Unionist Party MPs will make of the proposal. 

Discussion and Analysis by Charles Porter

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