Just a few hours before Christmas Eve, the United Kingdom and the European Union announced that they had reached a Brexit trade deal.
The deal seals the divorce between the two parties, a historical breakout with ripple effects on both sides of the channel, and marking the end of more than four years of intense negotiations and drama.
In the meantime, the GBP suffered from extreme volatility, as well as from investors taking a step back with a wait-and-see approach due to uncertainty.
What does the Brexit deal mean for the two sides and for the two currencies – the British Pound (GBP) and the Euro (EUR)?
Brexit Deal Highlights
The most important thing is that the two sides will not be forced to start trading under WTO terms in January. By reaching a trade deal, the disruption is reduced significantly.
Despite appearances, the trade deal was reached fairly quickly. Normally, such negotiations take much more time, but in this case, the deadline for the transition period pressured the two parties. As it became obvious months ago, the two sides needed a deal to be presented in favourable terms both in London and in Brussels. It appears this has now been achieved, considering the reactions on both sides.
This deal is full of curiosities and unprecedented details. We will not cover what was reached with it, because the document is extremely long. However, it is worth mentioning that a Free Trade Area (FTA) usually seeks to eliminate trade frictions and customs. Instead, this one does exactly the opposite.
Despite a deal being reached, farmers, manufacturers, and travellers will still suffer frictions at borders. More importantly, service companies will lose access to European Union markets. While the UK gave ground on fisheries, the deal enables UK goods to be sold in the European Union’s single market without quotas or tariffs. Also, UK students will not participate in the Erasmus program anymore.
Obviously, these are just a few points out of the entire deal reached. Regardless of how it looks, good or bad, it represents a historic agreement – one that weakens both parties. On the one hand, the United Kingdom sees it’s very own union threatened, as Scotland opposed Brexit vehemently. On the other hand, the European Union lost one of its strongest members – an economic powerhouse and a historical ally and friend.
Time will tell what the future brings. Those thinking that the UK will rejoin the EU may be right, but that is unlikely to happen for at least a generation.