After yesterday's events in the British Parliament, the headlines of the newspaper were filled with phrases that Theresa May "was able to win both the opposition and the conservatives." And indeed, thanks to the adopted amendments, the prime minister has significantly strengthened his position, eliminating the most undesirable scenarios for the government from the agenda. But at the same time, May's chosen strategy is risky in nature, where the "hard Brexit" is still a bargaining chip.
However, first things first. The first thing to say about the amendments is that it did not find support for MPs, despite conflicting rumors. First, the House of Commons abandoned the idea of transferring Brexit to a later date. Three initiatives were registered in the hall, the essence of which was to ensure that the date of the country's withdrawal from the EU was moved from March 29 to a different date. Different terms of prolongation were proposed - from several weeks to 12 months. But Parliament rejected all three amendments: in the end, Brexit will take place in 2 months, on which the prime minister insisted and insists. Also, Theresa May was able to keep the negotiation process with Brussels in her hands: the deputies did not vote for the amendment, which would allow Parliament to take over control of the negotiations.
After such amendments were rejected, the pound plummeted by more than 100 points. The initiative of Yvette Cooper postponed the date of the country's withdrawal from the EU, if the Parliament did not approve the proposed deal until February 26. This fact, according to the market, in many ways reduced the likelihood of a chaotic Brexit, since the parties could find a compromise in the additional few months. But no: Brexit should be held at the end of March - as they say, "in any political weather."
Despite the emotional reaction of the pound, the downward dynamics of GBP/USD did not receive its continuation. The fact is that, in contrast to the rejected amendments, the Parliament agreed with a number of others who helped "crystallize" the position of the British deputies regarding what they expect from the deal.
First of all, this is the so-called "Brady amendment", the adoption of which was insisted by Theresa May a few days before the vote. According to this initiative, the mechanism of the "back-stop" should be excluded from the text of the agreement - it is assumed that an "alternative agreement" will be reached on this issue, which legally protects against the appearance of a hard border on the Irish border. The British Parliament unexpectedly supported this initiative, although previously many deputies rejected the idea of a backstop "under any sauce." It is not yet clear what mechanism the May government will work out so that the "alternative arrangement" is not a copy of the back-stop — but in any case, this is a big step forward, despite all the existing risks.
And the risks really are, given the fact that the ball is now on the side of Brussels. The EU representatives for several months after the approval of the initial version of the transaction reiterated that they would not revise the key points of the agreement reached. And they repeat the same thing now: in particular, the head of the European Council Donald Tusk, Irish Prime Minister Leo Varadkar and Austrian Chancellor Sebastian Kurz have already criticized the adopted Brady amendment, recalling that Brussels does not intend to look for alternatives to the backstop mechanism. Given this fact, Theresa May faces a difficult negotiation path, and it must be overcome in the coming weeks.
Thus, yesterday's events in the British Parliament have their advantages and disadvantages. The undoubted advantage is that the deputies of the House of Commons formulated a clear message - under what conditions they will support the deal. The last word remains with Brussels, and this fact strengthens May's position in the negotiation process. After all, if the EU does not show flexibility, then it will be the fault of the Alliance that the disastrous consequences will come about, which are mentioned in the context of a "hard" Brexit. The fact that the Parliament did not transfer the date of Britain's exit from the EU can also be considered an advantage, at least for the British currency. Let me remind you that the head of the Bank of England recently stated that in this case, the regulator will have to take a wait-and-see position, since the uncertainty and risk of implementing the chaotic scenario have nowhere to go.
If we talk about the disadvantages, first of all we should mention the increased risks. May raised the stakes, but she increased the likelihood of a negative outcome. By and large, now everything depends on the European Union – and if the Europeans do not show flexibility in the negotiations, the British Parliament will approve the proposed deal. Now we can talk about it with almost 100% probability. It is noteworthy that yesterday parliamentarians voted in favor of the amendment of Caroline Spelman, which excludes the possibility of Brexit without a deal. And although May is unlikely to go against the decision of the Parliament (despite the fact that this amendment has no binding force), the conditions for its implementation are quite vague, especially if Brussels says "no" to London.
Summarizing the above, we can conclude that May won "in her field", but now it is waiting for a "rematch" at a party. Will she be able to convince their European counterparts is an open question, so the level of uncertainty and nervousness about the prospects for Brexit increased again. The pound, in turn, will track the ongoing negotiation process, sharply reacting to the comments of the politicians – especially the first persons of the countries of the European Union.
The material has been provided by InstaForex Company - www.instaforex.com