In the aftermath of the June 2016 vote for Brexit, several issues became points of contention regarding the United Kingdom's departure from the European Union. Monetary settlements, immigration policies and the future of trade relations spearheaded negotiations during an extended transition period. In addition to these concerns was the Irish border, what it was to become and how it was going to impact the U.K.-EU relationship moving forward.
Throughout the Brexit transition period, the Irish border was a major point of contention. The unprecedented nature of the U.K.-EU divorce brought a variety of scenarios into play, including the enactment of a hard border separating Ireland from Northern Ireland. In an attempt to avoid a potentially volatile situation, EU-U.K. leadership developed and promoted the concept of an Irish Backstop in December 2017.
The Irish border has a rich and storied history with modern implications rooted in the 19th and 20th centuries. Spanning 500 kilometers, the border wanders through farms, wetlands and towns. It serves as a transition point between political and economic systems, as well as being an area that has seen periods of intense conflict during its existence.
Following the signing of the Anglo-Irish Treaty in 1921, the Irish Free State effectively gained independence from the U.K. And in 1923, the Irish Free State introduced customs policies that governed border interaction between Ireland and the U.K. These controls stood until 1993 and the adoption of the EU's Single Market economic framework.
Through integration of the EU Single Market system in 1993, all customs posts on the border were abolished. Upon the signing of the Good Friday Agreement on 10 April 1998, an official U.K.-Ireland peace promoted further cooperation and demilitarisation. By 2006, most physical remnants of the border were removed as to eliminate visible evidence of its past existence.
Since that time, the free-flow of goods, services and people between the two nations has been permitted. However, 2016's Brexit vote and subsequent transition brought the future of the Irish border into question.
Why Was the Irish Backstop Created?
The Irish Backstop was an integral part of a December 2017 agreement-in-principle authored by EU and U.K. leadership. A product of phase one of Article 50 negotiations, it was designed to prevent the re-creation of a hard border between Ireland and Northern Ireland.
The terms of the Irish Backstop were outlined in a U.K.-EU Joint Report issued in December 2017:
- The "Good Friday Agreement," ratified on 10 April 1998, was to remain the governing doctrine of the border.
- Both parties agreed to recognise Northern Ireland as a part of the U.K.
- The U.K. was to respect Ireland's membership to the EU, specifically to the Internal Market and Customs Union (Single Market).
The U.K. pledged commitment to protecting North-South cooperation and the avoidance of a hard border. This was to be done through an overarching EU-U.K. relationship, specific U.K. solutions to unique circumstances, or in direct adherence to the rules of the EU's Internal Market and Customs Union.
From the beginning, the Irish Backstop was a controversial topic among U.K. leadership. Opponents cited concerns over Northern Ireland being subject to EU Single Market regulations and the plan becoming permanent. Both issues raised questions regarding the extent of U.K. bondage to the EU Single Market framework.
Achieving a political consensus in the U.K. toward the Irish Backstop proved to be a monumental task. It was a pivotal issue in British Parliament and served as a primary reason for Prime Minister Theresa May's proposed Brexit deal being denied on three separate occasions.
As the Brexit transition process unfolded, the issue of the Ireland-Northern Ireland border divided Parliament. Following the delay of the 29 March 2019 exit date defined in Article 50, the U.K. entered a period of political chaos. Several Parliamentary "indicative votes" were held and various closed door meetings took place fostering voracious debates over the Irish Backstop.
Without a transition agreement in place, the U.K. is to leave the EU in an abrupt scenario. A "no deal" Brexit coming to pass could mean the reinstitution of a hard border between Northern Ireland and Ireland. As of this writing (April 2019), the situation remains fluid pending a final resolution.
Senior Market Specialist
Russell Shor (MSTA, CFTe, MFTA) is a Senior Market Specialist at FXCM. He joined the firm in October 2017 and has an Honours Degree in Economics from the University of South Africa and holds the coveted Certified Financial Technician and Master of Financial Technical Analysis qualifications from the International Federation…