Brexit Bulletin: Manchester Terror Poses Leadership Test

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Britain remains on alert for more terrorist attacks as police hunt for potential accomplices of the Manchester suicide bomber.

Prime Minister Theresa May raised the U.K. terrorism threat level on Tuesday night to “critical” from “severe”—the highest level—for the first time in a decade.

All campaigning ahead of the June 8 election remains suspended on Wednesday.

As Robert Hutton and Thomas Penny write today, the tragedy once again raised questions about the unintended consequences of the vote for Brexit, given that leaving the European Union will jeopardize the U.K.’s security ties with allies, a topic we’ve analyzed before.

It’s not yet clear what effect the attack will have on the election. Hours earlier, May was being criticized for changing course on social care policy, which many were calling a U-turn. But the bombing could prompt voters to refocus on her message that she’s a strong leader in dangerous times and that they should trust her experience as home secretary.

Or it could bolster the argument of Labour Party leader Jeremy Corbyn that the U.K. made the risk of terrorism greater by fighting wars in the Middle East.

“After an event like this, voters tend to go with continuity,” said Wyn Grant, professor of politics at Warwick University. “It now really becomes a question of leadership.”

The politics of Brexit was largely put on hold on the continent too. Flags of the 28 nations flew at half-staff outside the European Commission in Brussels. French President Emmanuel Macron walked to the British Embassy to offer his condolences.

‘Very Hard’ or ‘Win, Win’

Brexit still remained a discussion point in some capitals.

German Finance Minister Wolfgang Schaeuble said that the majority of euro-denominated clearing should shift from London to inside the EU after Brexit, while Bundesbank board member Andreas Dombret said Britain faces “either a hard Brexit or a very hard Brexit.”

In a potential sign of things to come, the EU circulated criteria for cities wanting to bid to host the European Medicines Agency and European Banking Authority once Brexit forces them out of London. The winner must, among other things, be able to store 34,000 boxes for the EMA.

Sounding more upbeat, Luxembourg Finance Minister Pierre Gramegna said there is still a chance of finding a “win-win solution” for both sides, as long as each favors continued cooperation.

Danish Foreign Minister Anders Samuelsen said in an interview that the U.K. could still ultimately enjoy “unhindered access to our markets” but without “special provisions.” He predicted a “tough battle” with plenty of “booming rhetoric.”

On the issue of whether the U.K. should pay an exit bill, Samuelson likened those talks to buying a new car. “You always start out by telling the dealer the price he gives you is very high before eventually realizing you won’t get the car for free,” he said. “And that goes for the British as well.”

On the Markets

The pound pared most of its losses to recover after the Manchester attack, displaying the resilience witnessed recently in the wake of previous such incidents in Europe.

The currency is nevertheless headed downwards, according to BlueBay Asset Management, which last week began selling it on the assumption the Brexit process will prove damaging.

“You’re going to be facing a Brexit that looks to us like it’s going to be a hard Brexit,” said Mark Dowding, a fund manager at BlueBay which oversees $55.5 billion.

And Finally…

The June 8 vote in the rural constituency of Moray in northern Scotland will arguably say more about Britain’s political and constitutional future than anywhere else in the election, Bloomberg’s Rodney Jefferson and Alan Crawford write.

Conservative Douglas Ross is trying to make inroads in a district held by the Scottish National Party for the past 30 years and where resisting Tory dogma has long been the norm. Now the main dividing line is over whether Scotland should be independent of England.

“It doesn’t seem to be that people are embarrassed about being Conservative voters any more,” said Ross, arguing voters are “fed up” with the nationalists.

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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, Lisa Fleisher