For former Finance Minister Yanis Varoufakis, the lesson for May is “beware of what I call the euro zone run around.” He predicts British officials will receive conflicting messages from Berlin to Brussels, and that a lot of time will be spent discussing how to structure the negotiations rather than issues such as a free trade deal.

Varoufakis proposes the U.K. should file Article 50 and then immediately ask to join the European Economic Area, which allows access to the single market in return for free movement of people and some budget contributions. That would give Britain stability and time to assess how to properly engage with the EU, which is “really not interested in a mutually advantageous deal,” he said.

George Papaconstantinou, who ran Greece’s finance ministry from 2009 to 2011, is more optimistic.
While he anticipates the EU will adopt a “very hard bargaining” position and seek to safeguard the bloc by refusing to grant too many concessions, he sees Merkel as a political realist.

“She does look at the end of the day for decisions which are win-win,” he says. “There is an element of realism which the U.K. can hope for.”

Eoin Treacy's view

The EU has become quite adept at controlling the narrative of negotiations by insisting on a very specific set of conditions that have to be met for negotiation. If the UK submits to the framework for negotiation and legalistic lexicon of discussion insisted upon by the EU then it will be going into the process starting at a disadvantage. 

That is why an immediate exit with application to the EEA makes such sense. As Varoufakis says that would take the negotiations out of the European electoral cycle which would afford the UK’s likely negotiating partners some leeway to reach a more amenable solution. After all French and German politicians are only likely to think about negotiations held now through the lens of how they will play with their domestic electorates.  

The Pound has been trending lower in a staircase step sequence for more than two years against the Dollar and the range over the last few months has unwound much of the oversold condition relative to the trend mean. Within the range the Pound has been falling more slowly than it rallies suggesting at least psychological support in the region of the $1.20. Nevertheless there is considerable uncertainty surrounding the upcoming events later this month with the activation of Article 50 and the rate will need to sustain a move above the MA to confirm a return to demand dominance.