The Brexit negotiations inched forward, with the European Union’s chief negotiator, Michel Barnier, recommending that detailed talks can begin in earnest. The pound and U.K. banking stocks surged.
After meeting with his British counterpart Stephen Barclay on Friday, Barnier told ambassadors from the 27 member states that there has been enough progress for discussions to intensify. But the EU stopped short of taking the talks into the so-called “tunnel” -- the formal Brussels process by which the actual legal text of an agreement is thrashed out in secret. Instead, the diplomats will reconvene early next week for a progress update.
The move follows Thursday’s meeting between U.K. Prime Minister Boris Johnson and his Irish counterpart Leo Varadkar aimed at breaking the deadlock. The two leaders said they could see a pathway to a deal. It isn’t clear what concessions were made.
Johnson had proposed to take Northern Ireland out of the EU’s customs union and give Stormont, its power-sharing assembly, a veto over the deal. He may now water down the veto and suggest a so-called customs partnership instead.
The two sides need to reach an agreement before next week’s EU summit for Johnson to meet his self-imposed deadline of Oct. 31 for Britain to leave. Any pact would also have to be backed by Parliament in London -- where Johnson is reliant on the Democratic Unionist Party to pass legislation.
But the DUP may oppose any changes to Johnson’s initial plan. Removing the so-called Stormont lock would leave Northern Ireland’s unionists “marooned,” DUP lawmaker Jim Wells warned in an RTE radio interview on Friday. The prime minister has briefed DUP Leader Arlene Foster about his proposals, according to a U.K. official.
In the market, many are taking these developments to be a game-changer: the pound jumped by the most over two days since 2009, while U.K. bank stocks and domestically focused equities soared. Sterling’s jump may catch out hedge funds and asset managers that have amassed a near-record short position on the British currency, according to U.S. Commodity Futures Trading Commission data.
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