It is some time in these columns since Brexit was the single subject focus. But as the UK and the EU trade terms, threats and insults this week in an effort to bridge the gaping chasm that divides the two sides on the subject of the toxic Northern Ireland Protocol, now is a good time to analyse the immense complexities which need to be navigated, many of which will persist even if a sticking-plaster solution is found regarding the movement of goods between Great Britain and Northern Ireland.


The UK in a legal hole

Whatever the consequences of signing the Protocol as part of the UK’s Withdrawal Agreement (and the government’s particular motivation was not only to be seen to be adhering to the principles of the Good Friday Agreement determining no hard border between the North and the South but to avoid the legal gin-trap of the dreaded Backstop Agreement which, if invoked, would have ensnared the UK in a perpetual half-way house, bound by EU regulation but with no representation and with full sovereignty only available at the EU’s discretion) nevertheless the UK and the EU were co-signatories to what is without question a legally binding international treaty.


It was predictable that putting a customs border down the Irish Sea and leaving Northern Ireland in the Customs Union and placing the Province under the jurisdiction of the European Court of Justice in matters of commerce would have inevitable consequences. A territory is either sovereign or it is not: placing one under two legal masters with irreconcilable perspectives was always a recipe for dispute and rancour. Nevertheless, that Boris and Michael Gove believed cynically that such a treaty could be expeditiously signed “to get Brexit done” fully with the intention of renegotiating chunks of it later was an act of folly, taking the EU for fools.


Brussels’ wagons circling to protect the ECJ

If the EU is prepared to make concessions about the Protocol’s processes and mechanisms (the “paperwork”) governing the movement of foodstuffs, agricultural products and medicines, and their oversight, it is not prepared to concede the position of the European Court of Justice (ECJ) as the final arbitrator of such law as applies more widely across the EU. Apart from the over-arching principle of the ECJ’s supremacy being enshrined in a series of EU treaties to which the UK itself was once party (and therefore fully understands, if not agrees with), the sensitivity is that the ECJ already finds itself uncomfortably under the spotlight and in need of protection on a number of fronts.


In Germany in the context of European Central Bank (ECB) monetary policy, the national supreme court in Karlsruhe has ruled in favour of German plaintiffs that the ECB has for years acted not only immorally but illegally, exceeding its mandate in the application of quantitative easing and negative interest rates, and that the ECJ as a Brussels construct is sufficiently conflicted that it is incapable of arbitrating with impartiality. This is a direct challenge to the authority of the ECJ. In Poland, the government has explicitly declared the supremacy of its national supreme court in all aspects of Polish domestic law. Meanwhile, in France, Michel Barnier (the former EU chief negotiator of the Brexit divorce) seeking to lead the Republican Party in next April’s national elections, with political chutzpah and no sense of irony is campaigning on the platform of France needing to regain its national sovereignty, to remove it from the yoke of the ECJ.


Brussels is not going to overturn the fundamental principle of ECJ supremacy in the context of the Customs Union as it relates to Northern Ireland, thereby undermining its own position when dealing with other recalcitrant European players and populist politicians and potentially opening the floodgates to other Eurosceptics to join the anti-ECJ fray.

The overt hostility of President Macron

Although the diplomatic Protocol row is between the EU and the UK, dominating the EU perspective is the personal position of Emmanuel Macron, asserting a hard-line, no compromise approach towards the UK. He is personally affronted by Brexit, and has regularly invoked the language of “punishment” and “retribution” against the UK for daring to leave the Bloc; he is smarting at the loss of French fishing access to British waters, threatening to withhold strategic electricity supplies both to Jersey and the wider UK; he is unsurprisingly furious at having been simultaneously outmanoeuvred and humiliated by the UK and the US with the cancelled Australian submarine contract, and the new AUKUS tri-partite Indo-Pacific defence pact; Britain and France are at loggerheads over the failure to control cross-Channel economic migration; Macron personally led the trashing of AstraZeneca’s covid vaccine reputation. To say UK-Franco relations are at a low is something of an understatement!


Unpopular, facing a resurgent centre-right Republican Party and still under threat from Marine Le Pen’s Eurosceptic nationalists as France heads into an election now only six months away, beating down and marginalising the UK is nakedly paying to the French domestic electorate. In the Presidential race, his stance on the Protocol and entirely supportive of the ECJ’s supremacy puts clear water between him, Le Pen and Barnier, showing Barnier up as a hypocrite. But it is also a marker to the EU in the post-Merkel era that Macron is, pro-tem at least, the dominant EU political leader and prepared to assert his authority.

A politically conflicted US

The United States is the official Guarantor of the Good Friday Agreement, the peace accord which officially ended decades of ‘Troubles’ on the island of Ireland and which guarantees the respective interests of the Protestant and Catholic communities; critically, it also guarantees that there will be no hard border imposed between Northern Ireland and the Irish Republic. However, whatever the legal position of the United States, the reality is that at any point in the US political cycle, its perspective is skewed by the prevailing attitude in the White House to the powerful East Coast Irish Catholic political lobby whose overwhelming sentiment is biased both towards Dublin and unification. President Biden is rightly proud of his Irish Catholic ancestry, indeed makes political capital of it. He is also on record as being anti-Brexit and it is clear that his sympathies lie both with the Republic and with the EU. He freely involves himself in the debate about the Protocol under the cloak of Guarantor, however It is hard to say that he is neutral on the subject.

The poisonous partisan pit of Irish politics

Mired in centuries of sectarian, ethnic and political division, the final and significant complication is the political position on the island of Ireland. In the North, demographics are moving in favour of the Catholic and nationalist community, even if the Protestant unionists are still just in the majority. However, the creaking, unstable Power Sharing Agreement is perpetually susceptible to falling apart and the Protocol controversy is inevitably a major dividing line, one which makes Stormont vulnerable to being weaponised in pursuit of both the Unionist and Nationalist parties’ agendas.


In the Republic, regardless that Dublin officially gave up its claim to Northern Ireland three decades ago, reunification as a subject has never been far from the surface and is now clearly in the open again. Sinn Féin, until the past couple of years a laggard behind the dominant Fianna Fail and Fine Gael parties, is now a considerable force. In the 2020 national election it won the second-largest share of the vote and only a tortured agreement between Fianna Fail and Fine Gael kept Sinn Féin away from power. Although there is no imminent election, it is noteworthy that Sinn Féin has extended a 5pt lead in opinion polls with a 30% share, forcing the issue at the national level and encouraging senior ministers, notably Simon Coveney the Foreign Minister, and Leo Varadkar (former Prime Minister and now Deputy) to up the nationalist anti-UK and pro- reunification rhetoric. A recent poll in the Republic indicated 67% of people in the South would be in favour of unification. For those living on the island of Ireland, whether in the Province or the Republic, whether unionist or nationalist, the argument about the Protocol is much more than one concerned with how many pieces of paper are needed to move a sausage from Stranraer to Belfast. For at stake here is potentially the reunification of Ireland, the flip side, the corollary, of which by definition is the disintegration of the United Kingdom. Rightly or wrongly there seems to be a growing body of opinion that Brussels is happy (Biden too) to fan the flames of Irish internecine strife, little understanding or caring that future outbreaks of sectarian violence are more-or-less guaranteed.

Where from here?

Predicting the outcome of negotiations with the EU is never straight forward. History suggests that a last-minute compromise will be found which will satisfy everyone and nobody. The risk is that a mutually satisfactory accommodation cannot be established and that either the EU or the UK invokes Article 16 of the Protocol which states: “if the application of this Protocol leads to serious economic, societal or environmental difficulties that are liable to persist, or to diversion of trade, the European Union or the United Kingdom may unilaterally take appropriate safeguard measures”. Article 16 would effectively undermine the entire Withdrawal Agreement potentially leaving the UK and the EU trading on WTO rules within the internationally agreed tariff framework. However, thanks to woolly wording and all of the above conditions being subjective, it is almost certain that a legal challenge would be mounted by former Remainers in the UK against such invocation. Cynically, one can argue the toss whether political mischief to embarrass the government would come in to play in any subsequent English Supreme Court ruling.


For deeper discussion another day, all of this is being watched closely in the context of the simultaneous simmering stand-off between Westminster and Holyrood over IndyRef2 and Scottish independence. What happens in Northern Ireland has political consequences in Scotland. Further, were Scotland to gain independence and in time become a member of the EU, then the Anglo-Scottish border would by definition be another terrestrial border between England and the EU, albeit there would be no complicating factor of an equivalent Good Friday Agreement, but the principles of whether a hard border should be imposed where none exists currently would be a hot topic.

From an investment perspective….

As was the case for the half decade that Brexit dominated the airwaves, we remain interested but not obsessed. The Jupiter Merlin funds are multi-manager, multi-asset investment solutions investing globally; Brexit and its aftermath are but one of many complex macro issues to which we pay attention. But we do have interests in the UK stock market (or would it potentially be the English stock market!), albeit mainly through companies with significant international earnings. However, it is inevitable that were the UK eventually to break fully into its constituent parts there would be significant ramifications for Sterling, for Gilts and government funding through international bond markets, for the cost of that financing in both risk and term premia, and sentiment towards UK equities. There is no immediate concern, however an open mind and an awareness of the topic is good preparation whatever course events might take.


The Jupiter Merlin Portfolios are long-term investments; they are certainly not immune from market volatility, but they are expected to be less volatile over time, commensurate with the risk tolerance of each. With liquidity uppermost in our mind, we seek to invest in funds run by experienced managers with a blend of styles but who share our core philosophy of trying to capture good performance in buoyant markets while minimising as far as possible the risk of losses in more challenging conditions.

The value of active minds – independent thinking:

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Fund specific risks:

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