GBP: Brexit... a fishy question
Intro
GBP depends on Brexit. EUR depends on Brexit. Everything depends on Brexit - and Brexit depends on fish. As funny as it seems, it is true. Even high officials such as the Chief EU Negotiator Michel Barnier underlined that if the EU and the UK don’t agree on fisheries, they will not agree on anything. So why is fish so important to these countries? Is it that they just like fish that much? Meaning, shrimp paella or cod salad are perfect, but to set nations apart? Well, there are a couple of seemingly small issues that results to be quite big. To the extent of being unsolvable – as the Brexit process confirms so far.
First, there are fishing communities. They may not take a big part of economies of the UK, Spain, France, or Netherlands, but they are big enough to be heard state-wide. So they need to be respected. Second, in the end – it’s money. Maybe not trillions, but still - for some countries, entire market sectors are comprised of fish imports or exports from other countries. That means jobs and incomes – on top of tasty dinners. And third – and maybe, most important – it’s politics. Macron set the foundation for the EU’s stance on Brexit, and he wants France to have the same access to fish as it has been having so far. That means, his personal prestige – and the image of France – depends on whether he backs down on it now or not. For Boris Johnson it’s basically the same: he constructed his political image and won votes on beating the EU in Brexit and demarcating the UK’s sovereignty. If he backs down now – his political career may see its end pretty soon. At the same time, if he doesn’t compromise – like he wants to do with Internal Market Bill – the UK’s international prestige may be damaged.
Brexit
Now, let’s get back to the fish. Just so that you have an idea. Currently, as long as you stay 12 nautical miles away from the coast, you can fish wherever you like around the UK and EU. So whether you are a Spanish, Dutch, or Irish fishing boat, you can set sails to anywhere from the Celtic Sea to the Skagerrak strait. “How wonderful that is!” you are saying? Not exactly. You can go anywhere, but you cannot catch whatever you like at whatever quantity you want. Every year, the EU defines the quantity of fish of every species that is allowed to catch and divides that quantity between the member countries through quotas. “What quotas?”. Exactly, that’s the UK’s pain. The quotas are based on how much each country used to fish in the past. For the UK, much of the data goes back to 1970 – that’s when the UK used to have bad years. So the UK’s logic is “that’s our waters and our fish - why do we need to hand it over to the EU?”. In the meantime, France wants to preserve its fishing rights with the logic “It’s only your waters – it’s common water, so we need to distribute the catch fairly”.
But there is more to that. Catching is one problem – selling is another. For the UK, up to 80% of fish market sectors are exported to the EU. If Brexit goes hard, and the tariffs kick in, these exports will not make it – and the UK fish exports will get sliced. That’s why the UK wants to separate these two questions: fishing and selling. While the EU doesn’t, with logic like “why do you want to keep access to our market if you are restricting our access to fish?”.
EUR/GBP
In between of all that there is the British pound. The euro as well of course but let’s be fair: as strong as it is, the UK economy alone cannot stand against the EU economy – just different scales. That’s why, most probably, the damage to the UK economy – and the GBP – will be much worse than to the EU in case the Brexit doesn’t work well. What will happen to EUR/GBP? The support of 0.9000 may become a long-term bottom. So far, it has been mostly serving as resistance, with just several periods when the pair broke it to touch 0.9260. But it is above 0.9000 again, very likely to test the roof. This month may be a turning point to make EUR/GBP bounce downwards to and below 0.9000, or launch it steadily upwards.
As you can see, this fishing question is a Gordian knot of Brexit. Hopefully, it doesn’t get resolved like Alexander the Great did it as per the legend – by cutting.