As the FT noted yesterday:
The pound is the worst-performing major currency this month, as renewed concerns about a no-deal Brexit combine with talk of negative interest rates to push the currency to its weakest since March's dramatic sell-off.
They add a little detail:
Sterling has lost nearly 4 per cent of its value against the dollar in May – putting it at the bottom of the G10 performance table – and has slipped nearly 3 per cent against the euro. The pound hit an overnight low at $1.2073 before regaining some ground to trade at $1.2139 by Monday lunchtime in London. It is the third-weakest major currency this year, with only the New Zealand dollar and Norwegian krone faring worse.
And the reason? It is this:
The pound came under renewed selling pressure at the end of last week after the third round of talks between the EU and UK on their future relationship stalled. Investors have become increasingly concerned about the lack of progress. The UK, which is in a standstill transition period until the end of the year, has previously ruled out an extension and said it would walk away from negotiations if there were no clear outline for an agreement by June.
And although I am not always inclined to agree with bankers this is spot on:
“The last thing the UK and eurozone economies need right now is another negative shock from a no-deal Brexit,” said Lee Hardman, a currency analyst at MUFG Bank in London.
It is true that the very last thing that we need right now, as our economy heads to a likelihood of at least 25% unemployment is another economic shock, but that is exactly what this government is planning to give it.
Brexit was always going to be an economic disaster: it is, after all, designed to be so. The upside was always intended to be the racism it embeds in UK law. The cost was always accepted.
And now that cost will come on top of the chaos we already face.
Only a government led by charlatans and fools would now permit progress on Brexit.
But that, I fear, is what we have.
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Smoke and mirrors in the latest tariff announcements, published this week, including the fact that Christmas trees are reduced from 2.5 % to zero. The happy smiling family may not be able to afford presents, but at least they will possibly have a cheap tree (not of course if sterling goes to parity with dollar and euro).
The claim is as usual that this will “free” the UK from the shackles of the EU. It misses the point that EU tariffs help many industries, chlorinated chicken, any one?. It also misses the point that this is being proposed without consideration of the EU tariff effects (and of course regulatory barriers). E-mails from Brussels this morning indicate to me that the Commission is not impressed. Coronavirus combined with Brexit is the mother and father of all risk multipliers.
It is an astonishing state of affairs. There can only be a couple of reasons why the Tories continue to insist that transition ends on the 1st next year.
One, It is a game of brinkmanship. They are probably hoping that they can get the type of deal they want by playing the Covid-19 card. Against the backdrop of death and economic downturn they are hoping that the EU will blink given the time constraint and give the Tories the have cake and eat it, cherry picking deal that they have been pursuing from the start. This is a morally bankrupt approach but not beyond the Tories. They are essentially bluffing and will ultimately have to back down given we are in no way prepared for no deal and the EU are unlikely to fall for it.
Two, ideologically they have wanted no deal all along. Once the election was out of the way they could backtrack on all the promises and guarantees previously made. It is clear that the UK is ignoring what was actually agreed in the withdrawal treaty – references to level playing field, etc. There are those in the Tory Government who would like to renege on what has been agreed, particularly the financial settlement. They’ve consistently lied about NI and the need for checks. They consistently ask the EU for the benefits that member states get without any of the obligations or legal constraints (jurisdiction of the European court) that come with it. There is no way the EU can agree to any of this as it would undermine its very existence, which is of course what the Brexit ideologists actually want.
Both are doomed to failure as the UK is in no shape to deal with a no deal Brexit on top of the Covid-19 fall out. For a start the infrastructure and bureaucracy does not exist to deal with it. No deal would probably destroy the UK’s road haulage industry coming on top of the pandemic. Both would put the UK into a world of the unknown, the only certainty being a disaster of the combined effects of the pandemic and no deal Brexit.
I suppose the Tories already have the script written on who to blame, but I’m still tempted to think that Johnson will look to extend the transition perhaps on the basis that a deal is close. He clearly has a history on backtracking and then usually denying that he has. Whatever happens, I feel that relations with the EU27 may be somewhat cold for many years to come, or at least for as long as there is a Tory Government.
Given how the media are turning against him (and, presumably, for Gove) it seems unlikely it’s Boris who will be PM come the 1st of January. Laws can be unmade too… this does seem like preparation for disaster capitalism though, and according to Naomi Klein, who, er, wrote the book on Shock Doctrine, there’s a pandemic shock doctrine already in force. Klein’s referring to this as coronavirus capitalism https://www.democracynow.org/2020/3/19/naomi_klein_coronavirus_capitalism
We have some interesting times ahead!