Brexit Bulletin: It’s Angela Merkel Versus Theresa May

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The battle over Brexit is heating up.

German Chancellor Angela Merkel on Thursday delivered her toughest message yet to U.K. Prime Minister Theresa May, warning her government not to harbor “illusions” that the European Union will do Britain any favors.

“A third-party state – and that’s what Britain will be – can’t and won’t be able to have the same rights, let alone a better position than a member of the European Union,” Merkel said.

The resolve was underscored by other European leaders as they prepare to meet in Brussels on Saturday to sign-off on draft negotiating guidelines. As Bloomberg’s Ian Wishart reports, the remaining EU 27 members have formed a rare united front on Brexit as they try to preserve regional stability and ensure others don’t try to follow Britain out of the bloc.

The key question is whether the U.K. can undermine the unity by rallying individual countries to its point of view on topics such as finance and trade. “There’s bound to be a crisis along the way – this won’t all happen smoothly,” said Luxembourg Foreign Minister Jean Asselborn. “We have to be careful and stay united and make sure we are not torn apart.”

Hours after Merkel spoke out, and six weeks from election day in Britain, May sought to seize Merkel’s intervention for her domestic political purposes. She told voters the comments showed that the EU will “line up to oppose us” and that she needs “the strongest possible hand” in upcoming divorce talks.

Meantime, the Financial Times reported that this weekend’s summit may recognize the potential for a “united Ireland” within the EU, which would mean Northern Ireland could easily rejoin the bloc in the event of a reunification with the Republic.

• Read more: Here’s where the U.K. and EU stand on key issues.

Drug Money

A fresh financial spat is brewing over the likely relocation of the European Medicines Agency.

The British have already suggested that the drug regulator remain in London after Brexit – a stance quickly scoffed at by EU stakeholders. But the departing EMA would face a rental liability of almost €350 million ($382 million), because the agency does not have a termination clause in its office lease, which runs until 2039. Now the European Parliament is suggesting the U.K. may have to pick up that cost.

The suggestion is sure to irritate May’s government, which is already questioning whether it should pay a financial settlement for departing the bloc. 

Austrian Chancellor Christian Kern on Thursday predicted an “intense competition” for the agency and estimated the winner could enjoy a €1 billion boost to its economy. More than 20 EU countries have expressed an interest in playing host.

Brexit Bullets

• Nomura says it will make a decision as soon as May on the site for its post-Brexit EU office
• Lloyds Banking Group boosts its target for lending margins this year, even after record-low U.K. interest rates were introduced following the Brexit vote
• The European Automobile Manufacturers’ Association says Brexit risks hurting its closely-integrated ecosystem, which employs 12.2 million people
• British brands including Lloyds and Aviva lost an average 6 percent of their wealth following the referendum, chiefly because of the falling pound, according to consultant Brand Finance
• Moody’s says the U.K. economy is holding up well despite signs of slowdowns in consumption and housing
• Italy proposes creating “supranational” places in European Parliament to replace British members after Brexit, Daily Telegraph reports
• European Central Bank President Mario Draghi says that people “shouldn’t think” the risks of Brexit have passed
• Brexit and the Trump administration could lead to a shake up of global bank rules, Bloomberg Businessweek reports
• Barclays CEO Jes Staley says the bank plans to hire 2,000 more staff in Britain over the next three years
• Research foundation the Wellcome Trust says Brexit risks hurting £800 million in science investment, according to The Times.

On the Markets

Fund managers are turning their backs on the pound after buying on May’s decision to call a snap election. 

Allianz Global Investors and J.P. Morgan Asset Management are among those predicting sterling will head lower because of the risks of Brexit and a likely economic slowdown.

“We actually took the opportunity to short sterling after the recent rise,” said Kacper Brzezniak, a portfolio manager at Allianz GI.

And Finally…

They may be headed for the exit, but Britain’s judges are still in demand at the EU’s top court, according to its president, Koen Lenaerts.

Asked whether the EU Court of Justice has started to shun the U.K. justices who work there because of Brexit, Lenaerts said that the “answer is absolutely clear: no, we do not take that into account.”

The Belgian said the reverse was true and that his institution would miss the quality input from the U.K.’s legal eagles when referring cases to the Luxembourg-based court.

“Quality-wise it is a loss, which I publicly regret,” he said.

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To contact the author of this story: Simon Kennedy in London at skennedy4@bloomberg.net.

To contact the editor responsible for this story: Adam Blenford at ablenford@bloomberg.net, Andy Reinhardt