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Britain’s Divorce From The EU: Will It Get Nasty?

After months of debate and legal wrangling, the U.K. has officially signed its separation papers from the European Union. The real question now is whether this will be an amicable divorce or not.

Now that UK Prime Minister Theresa May has invoked Article 50, the official separation clause in the EU treaty, the Brits and the Europeans have two years to work out the terms of the divorce, which ready or not will become final by April 2019.

The biggest issue is whether the UK wants to remain a part of the EU’s single market, which provides favored trade status and allows EU citizens, including Brits, to live and work without a visa in any EU country. The problem is, the EU has said those considerations must be reciprocal and immigration was the most cited reason for voters opting out of the EU. If the UK loses its favored trading status with the continent, how would that impact British exporters or London’s standing as the Financial Center of Europe?

That question could be especially messy if May and the EU can’t come to some sort of agreement over the next two years. The divorce will become final whether the two parties agree or not, at which point it falls to the lawyers and courts to work out the details. The UK could then face new tariffs on as much as 90% of its exports to the continent by value and a plethora of new regulatory hurdles. But the UK also is the EU’s largest single export market, at about 16% of total exports, so that wouldn’t be good for either side.

Those worries have kept stocks around the world relatively subdued. U.S. stocks had a slow start on Wednesday despite the news that pending home sales may a big 5.5% jump in February.

Our view is that Brexit won’t a fraught breakup. Everyone has known this day was coming and the markets, despite a weak start, have been sanguine about the news. The British pound has moved slightly lower, but even it has been steadier then some expected.

Given the muted investor reaction, don’t be concerned if you own or are interested in British dividend payers. The large multinationals such as Unilever (NYSE: UL) and Diageo (NYSE: DEO) have barely dipped and, given their global reach, aren’t likely to run into too much trouble unless the pound runs up. Others have relatively little exposure to continental affairs and, like National Grid (NYSE: NGG), are reasonably priced buys at moment.

Don’t get too clutched up about Brexit. Both sides are motivated to keep the breakup amicable, even if it’s not exactly mutual.


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