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Home / Analytics / Forex analysis & forecasts / Forex Fundamental analysis / When will London “file for divorce”? Fundamental analysis for 04.07.2016
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When will London “file for divorce”? Fundamental analysis for 04.07.2016

Right after the referendum relating to the country’s exiting the European Union, David Cameron, the current Prime Minister of the United Kingdom, said that it would be his successor who would have to deal with launching the Article 50 of the Treaty of Lisbon, and the successor’s name might become public knowledge closer to September. However, one can hardly hope that the notification to Brussels will be sent at the same exact moment when the new Prime Minister starts working in the Downing Street. This is because of forthcoming presidential election in France next year.

The second voting is set to take place on May 7th 2016. London is very unlikely to “file for divorce” before this date, because it might boost the campaign of Marion Le Pen, the leader of Front National. Right after the results of the British referendum were published, she called on her fellow citizens to hold a similar referendum in France. Consequently, if the notification about activating the Article 50 is sent before or during the election race in Paris, it will make relations between London and Europe even more complicated, because a possibility of nationalists’ coming to power in France may be even more terrifying for Brussels than the Brexit.

If everything goes to this schedule, then the United Kingdom may leave the European Union in the middle of 2019 (the Article 50 implies tow-year negotiations). However, for the British politicians the risk is that the parliamentary elections will take place in 2020. If negotiations with the European Commission are stuck, and right now it seems that everything is heading in that direction, the Outers might end in a fiasco. The point is that if London and Brussels don’t come to understanding in respect of keeping the single market access to the United Kingdom, they will have to negotiate about a full-fledged trade agreement, and it might take several years.

The City is a hostage of circumstance. Being cut off from the single market, the City will lose significant financial flows. Nowadays, although the UK uses the Pound, lots of money transactions in EUR are being made via London. This is why the forthcoming intraparty elections of the Conservative Party is very important, because everything depends on how moderate the Outer, who might win the elections and take the Prime Minister position, is going to be. Boris Johnson, one of the most avid British euro skeptics, has already refuse to stand in the elections.  

While this article was being written, another surprising news came from London. Nigel Farage, the leader of the UK Independence Party and perhaps the chief ideologue of the Brexit, announced his resignation. He said that we managed to win it for euro skeptics and now he could resumed a normal existence. As a result, 10 days after the referendum, two leaders of euro skeptics campaign moved away from current political events, which may reduce the pressure on the new Prime Minister, thus postponing sending “file for divorce” notification to Brussels. If, of course, it will ever be sent at all.
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