Geoff Cook

Geoff Cook


Brexit  - Trick or Treat?

April 2019

Prime Minister May wanted June, EU Council President Tusk, December, and a hawkish President Macron questioned why any extension should be granted. Chancellor Merkel, in her usual pragmatic style, brokered the compromise leading to a classic Brussels fudge, with 31st October set as the new Brexit date.

The irony of a Halloween Brexit hasn’t escaped the press corps, but it has stoked the ire of the Brexiteer camp who are fuming at further delay. More time is the silver lining in the Brexit cloud for Remainers, who will redouble efforts to promote a second referendum - it’s not all over till it’s over.

Everything has changed, yet nothing has changed, with battle lines hardened and the bizarre prospect of European elections including British candidates. You would wonder who might want to serve as an MEP with a maximum prospective term of July until October, but worry not, step forward the Brexit party aka Nigel Farage.

As political theatre goes recent events have been spectacular, but they risk tarnishing  Britain’s international reputation for political stability.

So where do we go from here?

Parliament, like the nation, remains divided on the subject, and despite the talks between the Conservatives and Labour, a cross party deal remains as elusive as ever.

Set aside all the hyperbole and only three options remain; No Deal, the PMs deal, or revoke Article 50. The latter implies remaining or at the very least a second referendum.

The EU has been firm on refusing to reopen the withdrawal agreement, but there may be some flexibility on the political statement. This leaves little room for manoeuvre in terms of the shape of any new cross party deal, should it emerge. The clock is counting down.

Whether it be a ConLab breakthrough or a Parliamentary initiative, it’s likely that proposals will be for a softer Brexit, including a customs union. This would solve the Irish border issue at the price of further inflaming the ‘leave means leave’ camp. A customs union will require rule-taking with no say in the rule setting, and forfeiting the right to independently negotiate free trade agreements elsewhere.

The softer Brexit implied in any cross party deal will require a much greater degree of compromise by Parliament. It will require a process of voting rounds, with a diminishing number of options at each stage. As the options fall away, it should leave the ‘least-worst’ outcome as the last man standing. This would have the advantage of denying MPs the luxury of saying no to everything. The risk is that Parliamentarians may find this too difficult to swallow and party discipline may fall apart again.

The odds are stacked against an agreement

Mrs May has become deeply unpopular across broad swathes of Eurosceptic MPs, and it’s difficult to see how she can forge a consensus. The problem with a six month extension is there isn’t long enough for a Conservative leadership election. Under current rules Theresa May can’t be compelled to stand down until December 2019, nor is there really enough time for a general election or for a second referendum.

The pressure of a short extension may have produced compromise in Parliament, but a six month window makes an even longer extension more likely, as the cliff edge of no deal approaches for the third time.

Why is it all proving so difficult?

The genesis of current difficulties goes back over many decades. There is a long history of Euroscepticism in both the Conservative and Labour parties. It was a self-interested fear of missing out on trade that took Britain into the EU, but serious bouts of post purchase remorse have been a constant feature of the political landscape ever since, finally coming  to a head in the 2016 referendum vote.

The closeness of the result framed the initial negotiating approach taken by the EU who had, until the vote, always hoped for a change of heart.  They saw the narrow referendum margin as providing a weak negotiating mandate for Mrs May’s minority administration, and they were right. From the outset the EU were determined to maintain the integrity of the current treaty, and saw the four freedoms; movement of goods, services, capital and people, as synonymous with membership. These sacrosanct articles of faith are not up for review. They are the very essence of the EU.

Add to this the super concentrated nature of EU funding, with Germany, France, the UK and Italy providing 70% of the budget, and the EU was always going to need to extract a significant cash settlement from Britain.

Invoking Article 50 without first agreeing the process of exiting was a strategic mistake on Britain’s part, as it put the EU in charge of the negotiating timetable.

The British position on Europe has always been framed by an historic view of the EU as the ‘Common Market’, a mechanism for trade, and a rejection of the EU’s social and political dimensions, a positioning which has never been shared or accepted by continental Europe.

This half in, half out attitude has hung over successive British governments, with the 1975 Brexit referendum vote on leaving taking place only two years after joining the EU.

For Europe, it has always been about the core tenets; the customs union binds the nations together in trade, and of course there is the single market, but both are rooted in the four freedoms. As Oxford Economist Professor David O’Rourke has observed, it has always been a political project, it’s about peace and about being European, it’s never been about the money.

The Global perspective

Brexit, surprisingly, has not impacted too much on the economic performance of the UK which is still growing, as is the EU27, although neither are producing stellar growth numbers in comparison to the USA or Asia. Neither has it at this stage made a significant difference to the global economy. However, at the recent IMF World Bank spring meetings in Washington, Managing Director Christine Lagarde had this to say:

“The six-month delay of Britain's exit from the European Union avoids the "terrible outcome" of a ‘no-deal’ Brexit that would further pressure a slowing global economy but does nothing to lift uncertainty over the final outcome”

As Ms Lagarde points out, the problem with kicking the can down the road again is the further elongation of an already protracted period of uncertainty.

Despite these warnings the British economy has shrugged off the Brexit effect, with a 44 year low in unemployment at 3.9% recorded in February. Recent GDP growth forecasts by Capital Economics predict the UK will perform at double the growth rate of the  Eurozone in the near term, tax receipts are at record levels, and although investment growth has moderated, it is still in positive territory.  

In the short term, barring a new deal emerging from the cross party talks that the EU can agree, the next big event is the May EU elections.

The populists are likely to make ground, but it's difficult to see this shifting the Brexit landscape fundamentally, as both liberal and populist views are well represented across the EU27. Thus far the EU have united in defending their common interests, namely the integrity of the Irish border (the EU perimeter), the single market and the four freedoms.  This is unlikely to change.

With ‘No Deal’ still the default exit route, Britain and the EU need to achieve clarity on how the best their long term relationship can be sustained.

What is the position of the British IFCs in all of this?

The USA and Asian leaning Overseas Territories are little affected.  The Channel Islands have seen their status as stable third countries under EU equivalence rewarded, with new all- time high's in assets under administration and record employment numbers.

The Channel islands continue to be valued members of the British family and cooperative good neighbours to the EU. They facilitate billions of euros of inward investment into European economies, supporting jobs, growth and prosperity.

It's clear that international corporates and individuals are seeing long term value in British assets supported by sterling competiveness. 

Returning to Brexit, perhaps we can all learn from one of the great statesmen of modern times, whose patriotic credentials are beyond question:

‘Hard as it is to say now... I look forward to a United States of Europe, in which the barriers between the nations will be greatly minimised and unrestricted travel will be possible.’                                                                                                                          

Winston Churchill, 1942

Britain may be leaving the EU, but it cannot escape its geography. It will still be a European country, and both parties will be stronger together if they can be co-operative good neighbours.

A little more clarity, civility and compromise on all sides will go a long way toward promoting and sustaining a better future for all European citizens, whether Britain be inside the tent or out.

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Previous posts

March 2019 / Brexit: Deal or No Deal

The streets of London were packed this weekend with hundreds of thousands of Remain marchers, determined to make their voices heard.

Mrs May has returned from Brussels without the 30th June extension she had hoped for, and instead must make do with 22nd May if her deal is passed in the House of Commons, and 12th April if not.

Fearing another defeat, the PM's Deputy David Lidington was reported to be engaged in a last ditch attempt over the weekend to build a cross party consensus between a no deal and the withdrawal agreement concluded with the EU.

Press reports have speculated on whether or not Mrs May can carry on, having lost the confidence of key Ministers and the European Council. Her searing midweek intervention, laying blame squarely at the feet of British MPs, appears to have misfired. MPs are after all the only people who could vote her deal through.

Can the House of Commons come up with a solution?

Parliament continues to be divided over the terms of the Brexit deal with the backdrop of a majority of MPs originally voting Remain. Rejecting no deal was relatively straightforward. Saying yes to something, and agreeing the detail is another matter entirely.

Deposing Mrs May will be no easy task with the 1922 committee unable to facilitate a leadership challenge until December 2019, and the fixed term Parliament Act providing a strong shield against Corbyn led calls for an election.

Despite losing out to Oliver Letwin’s indicative vote initiative Mrs May will only step down during the Brexit process if she chooses to. Meantime binary votes on different orders of preference will be a complex and difficult process.

Irrespective of who is PM or whether or not Parliament takes the driving seat, any revisions to the withdrawal agreement need to be acceptable to EU Leaders, who have indicated limited appetite for change.

What happens next?

29th March is no longer in play and the period to the 12th April could see a no deal confirmed simply by default through the passage of time. Alternatively, a new House of Commons consensus may emerge, but with no certainty that the EU will agree it.

What is in the withdrawal agreement?

When faced with the extraordinary quantum of information generated over the 1,000 plus days since article 50 was triggered, it's easy to lose sight of the terms of the withdrawal agreement. Ploughing through its 599 pages, not to mention the additional 26 pages in the political declaration, is a daunting task.

Withdrawal Agreement – what are the key points of interest?

When considering the agreement it's important to remember these are withdrawal terms and not the future trade deal. You can find a detailed but accessible summary here.


There are Brexit implications for the devolved administrations, and the Crown Dependencies and Overseas Territories (CDOTs). As the Withdrawal Agreement 'key points' graphic above indicates, they haven’t been forgotten.

Citizens' rights to stay are clearly important as is a stable transition, and it's been confirmed that the common travel area within Britain will continue. In the case of the Crown Dependencies, industries such as fisheries and farming need new solutions.

However, it is UK manufacturing and supply chains that have the most to fear from a no deal crash-out. With the CDOTs largely focused on financial services and not being major manufacturing centres, this should not be a significant concern for them.

The CDOTs governments have been proactively engaged throughout the Brexit process and comprehensive information is available on their Brexit strategies on their official websites.

Examples can be see in the following links published by the Governments of Jersey and Guernsey.

Third country services are unaffected by Brexit

Economies in the CDOTs are heavily skewed to financial services with access to the EU through individual bilateral agreements negotiated sector by sector on an equivalence basis. They are classified as third countries for market access purposes. This means that their legislation, regulation, and investor protection rules must all be assessed as substantially equivalent by the EU before market access is granted.

Equivalence status means that approved third country regimes receive protections through the EU single market rules:-

“In a second step, the Maastricht Treaty, which entered into force in 1994, introduced the free movement of capital as a Treaty freedom. Today, Article 63 TFEU prohibits all restrictions on the movement of capital and payments between Member States, as well as between Member States and third countries.”

Source: EU Parliament

Alternative Funds

Alternative funds are one of the primary CDOTs' financial services activities in EU markets.

And the CDOTs have the infrastructure in place to enable investment flows to continue seamlessly through tried-and-tested private placement routes into the EU. Whilst there may be a second order impact from any economic slowdown, the CDOTs financial and related professional services market access to Europe is unaffected by Brexit. They continue to provide an attractive safe harbour for promoters through uncertain times.

Economic impact

Estimates of the economic impact of deal or no deal scenarios vary greatly. Whilst many options will be proposed in the indicative votes, there are realistically only four main scenarios: deal, no deal, no Brexit or a longer delay.

In our view, each of these would have a different economic outcome in a range of plus 1.50% to minus 0.5% of GDP in 2019, depending on how hard or soft the Brexit experience. The worst case scenario of no deal would, we believe, trigger a short sharp recession. However, with the British economy currently the strongest in the G7, media predictions of an economic catastrophe are unlikely to materialise.

CDOT positioning

The CDOTs are part of the British family and a good neighbour to Europe; they are important investment partners to both sides of the Brexit equation. They continue to support and engage constructively as Britain and the EU search for a fair and equitable outcome.

As facilitators of hundreds of billions of internationally mobile capital, the CDOTs will continue to work together with their British and EU partners to build a better future, by providing the essential long term investment needed to develop jobs, growth and prosperity.

As this week unfolds, the shifting sands of the Brexit deal or no deal situation will intensify. Please look out for a further update on our blog during next week.

February 2019 / A middle ground for globalisation

Rewind a year to Davos 2018, and the antagonistic dynamic between protectionism on the one hand and globalisation on the other was a clear theme. 

Back then, German Chancellor Angela Merkel pronounced that ‘protectionism is not the answer’ to a prosperous future for global markets, whilst Indian Prime Minister Narendra Modi concurred, suggesting that resisting globalisation is one of the three biggest threats to global economic success. 

A year doesn’t seem to have made much of a difference – in fact, fast forward to Davos this year, and if anything the temperature has been notched up yet again. Although the theme of Davos this year was “Globalisation 4.0: Shaping a Global Architecture in the Age of the Fourth Industrial Revolution”, in reality, globalisation was still in the dock. 

Rather than fronting an unequivocal endorsement of globalisation as a force shaping a desirable future, Davos this year succeeded in sparking debates around the impact globalisation may or may not have on inequality, climate change, migration and tax. Those attending were cast as elite private jet-setters, detached from the ‘man on the street’, and as the champions of big businesses. President Trump, Prime Minister May and President Macron weren’t even there, leaving Japan and Germany to fight globalisation’s corner.

Challenging the assumptions around globalisation is understandable, because it impacts us all – what we buy, how we buy it, how we interact with each other, where we work, and there’s no doubt that having proper discussions around globalisation is an absolutely vital part of modern economics, politics and society. It involves complex questions that do not just revolve around trade, but impact on culture and society too.

Overall, the impact of globalisation is fairly poorly understood. Globalisation is often accused of benefitting the wealthy at the expense of the poor and yes, its impact on the wealthy is greater than on the poorest in society. 

However, it is still the case that globalisation has helped pull millions of people out of poverty; it has provided jobs and employment; and it has provided opportunity for those who might not otherwise have had any. A World Bank study, for instance, has suggested that the number of people in developing countries living in extreme poverty has fallen from more than 50% in 1981 to 21% in 2010, despite a 60% increase in the population in the developing world. 

It’s also vital that we have proper discussions about what the alternative means for each and every one of us. Protectionism and global fragmentation is a very real trend too – Capital Economics and the World Trade Organisation note that global trade-restrictive measures have more than tripled since 2010, whist HSBC’s latest global Trade Navigator survey found that 63% of firms think governments are becoming more protective of their home economies. But what does this all mean for our future livelihoods, career prospects and the cost of goods and services? 

Again, these are complex questions – but it is all relevant to international finance centres. In fact, I would contend that IFCs have a key role to play in all this. 

The world today is very much one of dichotomies – remain and leave; populism and globalisation; rich and poor; small business and multinationals – with proponents of each constantly shouting at each other through Twitter and other fora. 

For the forward-thinking IFC, it strikes me that there’s a really crucial role here that goes beyond being passive conduits of international capital. As neutral centres, there’s also an opportunity - an obligation even - for IFCs to play more of a proactive, mediatory role, that can champion a new form of globalisation, promote inclusivity, and provide some balance, impartiality, rationality amongst the noise.

I’d even go as far as to say that, if IFCs don’t realise this opportunity, be bold, assert their value, and start asking themselves questions about what this new role means and how they can provide some middle ground that can encourage global collaboration, debate, and cooperation, they may well find themselves steamrollered by the big hitters in both corners. 

And with IFCs providing trillions of dollars of inward investment to support the lives of millions of people around the world, helping to finance the construction of schools, roads and hospitals in countries in all corners of the globe, and doing so in a way that ensures public and private sector capital is put to work in the most efficient way possible, I think for IFCs to not be part of this future would be to the detriment of everyone.

Geoff Cook, Consultant