March 2019

March 11, 2019: Special Commentary on Brexit

Easy to Get Confused on Brexit 

  • Almost every day there is at least one article on Brexit, sometimes many of them. Even for those who follow the events closely, it can be confusing. There are many constituencies, and often comments made by various people are self-serving, at best.
  • The March 29 exit date is fast approaching, still with no end in sight to the uncertainty gripping the United Kingdom and Europe. How does one get a grip on what will happen? Don’t read too much into specific actions. Much of what is being discussed or happening now likely will not impact the ultimate outcome.
  • Magni has been very consistent in its assessment of the situation. A Brexit with ‘no deal’ remains likely though few seem to want this. There is no majority in Parliament for any specific path. Further, any compromises that might generate a majority in Parliament are unacceptable to the EU. Increasing desperation among Tories may change the dynamics, though that is unlikely and the deadline for exiting the EU is approaching rapidly. The no-deal scenario will be disruptive for both Britain and the EU, especially given the lack of planning for such a scenario by all parties. After Britain’s period of disruption, departure from the EU is likely to be fine as the inherent strengths of British governance provide a solid foundation. For the EU, Brexit has been more of a distraction, and the serious challenges facing the EU still need to be addressed, including the impact on the EU budget from the loss of British revenue.
  • Uncertainty is a form of risk, particularly a risk that makes investors even more cautious than known risks. As uncertainty eventually goes away based on actual events, European equity markets may provide attractive buying opportunities. For continental Europe, the EU will need to address many other issues before uncertainties subside.