Brexit Bulletin: A Christmas Argument
The harmony didn’t last long.
It’s less than two weeks since Theresa May and European Commission President Jean-Claude Juncker were all smiles, boasting of a breakthrough in the first phase of Brexit negotiations at the crack of dawn in Brussels. It’s less than one week since the European Union’s 27 other leaders sang May’s praises and applauded her around the summit table for steering her ship through 2017’s troubled waters.
They warned then that the next stage – dealing with what comes after March 2019 rather than how to get out of the existing relationship – would be the difficult part. We’re already seeing why, and the negotiating hasn’t even really started yet.
Take the plans for the transition phase, which both sides say should kick in when the U.K. leaves. Michel Barnier, the EU’s chief Brexit negotiator, announced his plan, confirming that the EU won’t allow any transition to last beyond 2020. May told a parliamentary committee a couple of hours later that the issue was still a matter of debate.
On the type of trade deal the U.K. might get after a transition, Barnier was more forthright than ever. “There is no free-trade agreement between the European Union and third-country partners that would enable privileged access for financial services,” he said.
But that’s not the end of the story. May and Co. have have different ideas.
“The City of London is actually the banker for Europe,” May told that same parliamentary committee. “It’s a significant provider of capital finance for Europe. There will be greater recognition for the role that the City plays.”
Bank of England Governor Mark Carney went further, issuing a direct riposte to Barnier’s main excuse for the exclusion of financial services in the final deal. “I don’t accept the argument that just because it has not been done in the past, it can’t be done in the future,” he said. “We’d just walk away from progress if that were the approach we took to issues.”
The debate demonstrates how complicated and acrimonious the next phase of the Brexit negotiations could become. And that’s even before you factor in the increased likelihood that the 27 remaining EU countries might start to disagree over what should be their common position. Barnier also had a word of warning: The U.K. will have its work cut out to replace the 750 international deals in trade and aviation the EU has with countries round the world. “The U.K. needs to prepare, as of now, to be able to replicate these agreements,” Barnier said. “They need to ensure they have the administrative capacity.”
It was another topsy-turvy 24 hours for May, who heads to Poland on Thursday. Earlier on Wednesday, she headed off a rebellion by pro-EU lawmakers in her party over plans to write into law the date Britain will exit the bloc. In the evening, one of her closest allies, Damian Green, the first secretary of state and her de-facto deputy, resigned following an investigation into allegations that there was pornography on his parliamentary office computers.
I Spy | Britain’s intelligence chiefs have warned that a failure to agree on data-sharing rules after Brexit could threaten security both in the U.K. and the EU. The comments were published in a report by Parliament’s Intelligence and Security Committee, which monitors the work of the domestic security service, known as MI5, the Secret Intelligence Service, known as MI6, and the government’s interception service, GCHQ.
Tightening Up | The EU plans to plug a potential Brexit loophole by bringing the biggest investment firms in the euro area under European Central Bank supervision. Under a bill proposed on Wednesday by the European Commission, the ECB would assume oversight of companies classified as “systemic,” while smaller firms would become subject to a new regime that’s better tailored to their activities. The larger firms are mostly units of major investment banks.
Chinese Visit | Theresa May is planning to visit China at the end of January with a delegation of business leaders, Sky News reported.
Rock or Hard Place? | The U.K. won’t be excluding Gibraltar from the Brexit negotiations, Theresa May said. “We’ll be negotiating to ensure the relationships are there for Gibraltar as well,” she told Parliament on Wednesday. The EU has said Spain and the U.K. would need to sign a separate agreement if Gibraltar is to be covered by the transition period.
Not Yet | The Bank of England is holding off from forcing most European banks operating in the U.K. to become subsidiaries, but says it’s ready to get tougher if progress toward a Brexit deal breaks down. Governor Mark Carney told lawmakers in London Wednesday that making lenders and insurers go through the process of setting up subsidiaries, only to then reverse course later, would be costly and disruptive. He spoke after the central bank proposed new measures for handling the branches of European banks in Britain after the split with the EU.
Euro Goal | Star Belgian footballer Kevin De Bruyne’s new contract at Manchester City will stipulate that he’s paid in euros because of the pound’s depreciation, according to the Independent. The newspaper says that several players feel that they have lost money after the drop in stirling since the Brexit vote.
On the Slide | U.K. consumer confidence slipped to a four-year low in December and risks weakening further in 2018, according to a report on Thursday. GfK said its key index fell by one point to minus 13, the lowest since December 2013 and below the level reached in the aftermath of the Brexit vote last year. Households declared themselves deeply pessimistic about the economic situation and less willing to make major purchases than at any time since 2014.
When Michel Barnier speaks in public he prefers to talk in French, reserving English only for the most important Brexit soundbites or pithy one-liners that he wants to get on the British television news.
So in among the long addresses in his native language, we’ve had his heavily accented “keep calm and negotiate” (a mantra now emblazoned on mugs in his office), “the clock is ticking” and “no cherry-picking.”
Wednesday was different. It was his last appearance of the year, on the podium in the European Commission where May and Juncker hailed the breakthrough two weeks ago.
After 15 minutes of French, he finally switched to the language of Brexit: “Pour terminer, juste quelques mots en anglais... Merry Christmas and a Happy New Year to all of you.”
Just like Monsieur Barnier, we wish all our loyal readers well over the festive season. We’re taking a holiday break ourselves, and will return on Jan. 3, when the ticking clock will be at 450 days and counting until Brexit.
Emma Ross-Thomas is away.
©2017 Bloomberg L.P.