The “Continental Partnership” (CP) – an independent framework proposal for the UK-EU post-Brexit negotiations – would avoid the UK and the EU “being dragged into unprincipled bargaining” but would also consist of a jurisprudence for all EU members. Although the proposal could reduce some long-term concerns about the economic consequences of the Brexit, the creation of an alternative to the “one-size-fits-all EU” could lead to more members deflecting. Such an outcome could lead to further market volatility and raise the demand for defensive assets.

On Monday, a group of highly influential thinkers – which includes Jean Pisani-Ferry, who currently serves as the French government’s Commissioner-General for Policy Planning – published a framework for the post-Brexit negotiations, so called “Continental Partnership”. While this is a pure theoretical proposal – unlikely to be adopted in its present form – it could however draw the guidelines of the UK-EU negotiations. This scheme would allow the UK to get full access to the single market with its rights and rules while permitting the country to apply quotas on EU workers, at the expense of its political vote and influence over EU decisions and would involve a mandatory contribution to the EU budget. Under the proposal, while EU countries will be able to reciprocate quotas on UK workers, they would have to refrain from applying the punitive economic measures that many member states wanted as a deterrent for others leaving the EU.

If implemented, the CP is likely to alleviate some long-term concerns about the economic consequences of the Brexit but would also create a jurisprudence enabling existing members to distance themselves from the EU. This CP may lead to a profound rethink of the EU membership. It would create an opportunity for the EU to restructure around an “inner circle” formed by members seeking a deeper integration and an “outer circle” of close partners giving access to the single market while limited political influence. The creation of an alternative institutional framework could detract current EU members which would likely increase uncertainty about which countries will remain or leave the EU. That could cause further bouts of market volatility, raising demand for defensive assets.

Morgane Delledonne, Fixed Income Strategist at ETF Securities

Morgane Delledonne joined ETF Securities as Fixed Income Strategist in 2016. Morgane has an extensive experience in Monetary policy, Fixed Income Markets and Macroeconomics gained at the French Treasury’s Office in Washington DC and most recently in her role as Macroeconomist and Strategist at Pictet&Cie in Geneva. Morgane holds a Bachelor of Applied Mathematics from the University of Nice Sophia Antipolis (France), a Master of Economics and Finance Engineering and a Master of Economic Diagnosis from the University of Paris Dauphine (France).