Article 50: what comes next?

On Tuesday March 28, UK prime minister Theresa May signed a letter notifying the European Union (EU) of her country’s intention to leave the European Union (EU). With the handing over of the letter, two years of negotiations will commence on the terms of the withdrawal allowed under Article 50 of the Lisbon treaty.

Markus Kuger, senior economist at business consultancy Dun & Bradstreet, comments as follows:

“Theresa May’s plans to start Britain’s withdrawal process from the EU will set off a series of tough negotiations. The complexity of Brexit poses unique challenges, with overall sentiment and fiscal numbers continuing to paint a mixed picture: although forward-looking indicators are still reasonably strong, they have deteriorated since the start of the year and, simultaneously, inflation has registered its highest reading since Q3 2013.

“In this vein, it’s far too early to realistically assess the potential political and economic impact of Brexit – a real bone of contention will be the controversial departure bill, which may well see the UK pay in excess of £60bn (US$75bn) to officially leave the EU. With negotiations about future EU-UK trade relations expected to take longer than the two years available, it is likely that an interim agreement will have to be struck, and we do not expect full independence to be secured until the 2020s at the earliest.

“The public’s interest will focus on what kind of deal Theresa May can strike with the EU, especially as the president of the European Commission (EC), Jean Claude Juncker, has reinforced his position that the UK will not be able to ‘have their cake and eat it’. The EU still seems to have the upper hand in the upcoming negotiations, but a disorderly Brexit would also hurt the remaining 27 members of the bloc (although not as badly as the UK).

“From an economic perspective, the UK is actually performing just as well as it has done since before the country voted to leave the EU, but it’s unlikely that this strong growth will continue throughout 2017. Politically, events in Europe over the next few months could have an impact on negotiations; elections in France and Germany, should they unexpectedly go the way of anti-EU parties, will likely destabilise the two powerhouses’ control over the European bloc.

For now, the priority is to start developing official plans for the UK’s departure from the EU. Businesses must monitor the uncertain and fluctuating economic situation that is to be expected over the next few years, and mitigate risks as best they can.”

Mark Peters, managing director and Brexit lead at consulting firm Protiviti notes:

“Given the uncertainty around Brexit to date, many organisations have not had confidence in either the proposed timeline for the UK’s departure or its relationship with Europe thereafter. Despite today’s notification, much remains uncertain. The basis under which the UK will leave is still not clear. Although Mrs May’s exit plan includes the principle of no single market, no customs union and the UK’s ability to control its own borders, an agreement may be delayed or not reached at all.

“As such, organisations that plan for a variety of potential outcomes will be better placed to face the future with confidence than those who adopt a wait-and-see approach. They must undertake risk based scenario planning to consider the range of the potential outcomes and impacts on their business strategy, financial management and business operating model, as well as on their people.

“Organisations must therefore assess and track the various risks, and determine when decisions need to be taken or reached in order for the necessary action to have effect ahead of the proposed date of exit.

“We, therefore, recommend the use of a structured risk assessment process that will need to be repeatable so that stakeholders have relevant and timely information, and the appropriate assurance that all that could be done is being done.”

Ivor Edwards, European head of law firm Clyde & Co’s corporate insurance group:

“Insurers haven’t been sat waiting for Article 50 to be triggered since the referendum. Planning for Britain’s exit from the EU is well underway as insurance carriers believe they need to take concrete steps for all eventualities by setting up carrier companies in EU27 countries.

Carrier companies are by far the most popular and realistic solution to allow insurers to carry on writing business in the EU post-Brexit. But they require time, money and commitment to set up. Fronting arrangements can work but are complicated and not a solution for carriers who want to write significant amounts of business.

“It’s not only UK based companies that are affected and who are making plans.  There are over 500 general insurance companies headquartered in continental Europe who passport into the UK that are taking steps too.

“The insurance industry will be hoping that the government achieves the freest possible trade in financial services between the UK and EU member states as part of a new strategic partnership agreement. It remains in everyone’s interests that financial services can be carried out efficiently across the continent by a system that provides for mutual market access.

“However, at this point, no-one knows when an agreement might be reached, if at all, nor what provisions in might contain. The industry is watching on with interest, but it’s not waiting with baited breath. It’s acting already.”

Comments are closed.