Theresa May’s Brexit breakthrough is hanging by a thread as the Northern Irish party that props up her government threatens to bring her down if she makes anything like the concessions that the European Union is demanding.
Talks are ongoing before the deadline of Dec. 4, set by the EU as the last opportunity for May to present a proposal on the main sticking points if she wants negotiations to move to trade by the end of the year. Those issues include the divorce bill, where an outline agreement has been reached, and the Irish border, which is proving altogether more intractable.
May is having lunch with European Commission President Jean-Claude Juncker on Dec. 4 and earlier this week U.K. officials were touting it a key moment where an agreement could be secured ahead of a formal declaration at a summit on Dec. 14. Late yesterday a person familiar with the situation said that if talks go badly this week, there’s a possibility the meeting won’t go ahead.
Businesses are clamoring for a December deal and the pound has rallied on hopes there will be one. The EU says if May doesn’t come up with the goods on Monday there’s no time to get the agreement through the Brussels bureaucracy in time to orchestrate a formal agreement at a summit of leaders on Dec. 14. But it emerged on Thursday that Dublin doesn’t consider Monday a deadline at all.
May has relied on the Democratic Unionists of Northern Ireland to govern since a botched election in June. Their whole raison d’etre is to keep Northern Ireland as part of the United Kingdom, so their room for compromise is limited. Ireland is also digging in and has the full backing of the European Commission. Ireland is still in the club, after all.
The unmanned border that was part of the peace process was only possible because Ireland and the U.K. were both members of the EU’s single market and customs union. The U.K. plan to leave those means that some kind of policed barrier will have to go up as the line between the two becomes the U.K.’s land frontier with the EU. Ireland’s proposal for no control points means Northern Ireland sticking to the EU rulebook – a red line for the DUP as that would put up a barrier between the enclave and mainland Britain.
Parliament’s Brexit committee summed it up: “The Committee does not see how it will be possible to reconcile there being no border between Northern Ireland and the Republic of Ireland with the government’s policy of leaving the single market and customs union.’”
Maybe EU Council President Donald Tusk will have an idea: he is in Dublin on Friday afternoon.
Migrants Leave | Net migration to the U.K. dropped by a record 106,000 in the year following the referendum. EU nationals shunning Britain accounted for much of the change, with net migration from the bloc dropping by 43 percent to 107,000. The 82,000 decline was larger than in any quarter since at least 2010. EU immigration fell by 54,000 to 230,000 and emigration rose by 28,000 to 123,000, the highest since 2008.
Impossible Contracts | Banks are fretting about rewriting contracts as a result of Brexit and money is on the move as a result. Andrew Bailey, head of the U.K. Financial Conduct Authority, said “contract continuity” was among the biggest potential disruptions from a no-deal, no-transition Brexit, while Barclays Plc Chairman John McFarlane says his top Brexit concern is redrafting “hundreds of thousands” of contracts. European Banking Authority data shows European banks have slashed their U.K. assets by $425 billion, driven by a 35 percent drop in derivatives exposure. And Bank of England Governor Mark Carney reckons £20 billion of insurance liabilities could be affected without swift action.
What Do You Want? | A breakthrough in December would allow talks to move on to the future relationship – and require the U.K. to finally define, at least in public, what exactly it wants from the trade negotiations. Hilary Benn, the Labour lawmaker who chairs Parliament’s Brexit Committee, urged the government on Friday to set out its position:
“The Government should also set out its vision for the UK’s future trade relationship with the EU. If phase two of the talks do start next month, then ministers need to move beyond words like ‘bespoke’ and ‘special’ and actually explain what it is they are seeking.”
Carbon Compromise | The EU and the U.K. reached their first major Brexit compromise in a contingency plan for the world’s biggest carbon emissions trading market. EU nations endorsed a measure to prevent the worst-case Brexit scenario for the Emissions Trading System, where the market would be flooded by British carbon permits no longer needed by U.K. companies in the event of a messy divorce.
Worse Than Brexit | Labour Leader Jeremy Corbyn may not like Brexit but he doesn’t like banks either. He lashed out in a video message after Morgan Stanley said his winning power would be worse for investors than the split from the EU.
“When they say we’re a threat, they’re right. We’re a threat to a damaging and failing system that’s rigged for the few. These are the same speculators and gamblers who crashed our economy in 2008 and then we had to bail them out. Their greed plunged the world into crisis and we’re still paying the price.”
On the Markets | The pound has been the best-performing currency among the Group-of-10 exchange rates over the past month due to Brexit optimism. It strengthened 0.9 percent on Thursday to above $1.35 and kept climbing on Friday morning.
Nicky Morgan likens herself to a freedom fighter battling the government over Brexit and says she’s proud of her role as a rebel. She has stuck the now infamous Daily Telegraph front page that branded 15 Conservative lawmakers “The Brexit Mutineers” to the wall of her parliamentary office, she tells The House magazine.
“With Brexit, the extraordinary strain it’s put on our constitution and our representative democracy, I do sometimes feel like I’m in the middle of the 17th century when you are standing up for the rights of parliament,” she was quoted as saying. “One person’s rebel is another person’s freedom fighter, isn’t it? Inevitably, the role of being a backbench Member of Parliament is completely different from being a minister bound by collective responsibility.”
©2017 Bloomberg L.P.