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Alternative Market Briefing

Other voices: DBRS: No-deal Brexit increases risk of breakup of the UK

Thursday, September 05, 2019

By: Sovereigns

DBRS considers that diverging views on Brexit among citizens in the UK could inadvertently lead to the breakup of the Union. DBRS reviews the implications of no-deal scenarios and their potential impact on the unity of the United Kingdom.

At one extreme is a "severe" hard Brexit whereby the UK crashes out of the EU permanently with no airbags or restraints on its impact. DBRS concludes that such a Brexit could quickly change the support for Scottish independence and even over time the support for the unification of Ireland, increasing the breakup risk of the UK. These considerations are exacerbated by a weakening economic environment that intensifies divisions within the UK.

No-deal scenarios range from a technical no-deal Brexit that delivers on the referendum decision to leave the EU, followed by an almost immediate agreement on key transition terms (i.e., a "temporary" hard Brexit). This outcome could deliver Brexit and re-orient the political debate to the future relationship with swift agreement on both sides somewhat limiting the chaos. On the other hand, a deep and prolonged period of disruption and serious fallout with the EU (i.e., a "severe" hard Brexit) would likely have much more negative consequences, including a potential dismantling of the Union.

DBRS expects that a "severe" no-deal Brexit would be politically and economically painful and would threaten the integrity of the Union. DBRS views a breakup of the UK as credit neg......................

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