Brexit Bulletin: Postponing the Cliff Edge

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The Brexit transition deal has finally been agreed. Now what?

Businesses aren’t convinced it’s as helpful as they had hoped and a major hurdle still remains on the road ahead: The crucial Irish border issue is no closer to being resolved.

Markets rallied on Monday, though some analysts warned the optimism might not last. Businesses were divided as to whether to celebrate. Some welcomed the deal, while others expressed concern because it’s not legally binding until the final Brexit withdrawal treaty is signed. The Institute of Directors said the two sides should commit to a second transition that would come into effect once a trade deal is agreed.

Transition was once imagined as a period during which businesses and the government would have two years to prepare for a new regime whose rules and regulations had been set out by the time the grace period started. Now it’s clear it will be used to hash out the details of the trade deal. That doesn’t leave much time for companies or for the U.K. government to prepare for life in January 2021 – and explains why the IoD is already talking about a second transition. 

The riskiest aspect is that it could all unravel, because nothing is agreed until everything is agreed. And the Irish border issue remains the biggest hurdle. A compromise has been made but it basically takes us back to where we were in December – another fudge that will be tested again before the withdrawal treaty can be signed.

“Whether the political agreement on a transitional deal will prevent businesses from putting their Brexit contingency plans into effect depends on where they are on the spectrum of risk,” says Paul Hardy, Brexit Director at law firm DLA Piper. “Without some form of legal guarantee that what is going to be agreed in Brussels on Thursday will hold fast until 29 March 2019, there is simply too much scope for the promise of a transitional deal being derailed in the months to come.”

There’s now a special series of talks planned, but the underlying problem remains intractable: avoiding a hard border between Northern Ireland, which is part of the U.K., and Ireland, a European Union member state. Currently, U.K. membership of the customs union and single market makes an invisible border possible.

The problem demands either a rewrite of Prime Minister Theresa May’s Brexit policy or accepting a border between Northern Ireland and mainland Britain. At least one of those options could also bring down May’s government.

Brexit Latest

Bone for the Brexiters | The EU forced the U.K. to accept a series of concessions to get the transition deal, but it also threw a free bone to Tory bulldogs who want a quick, clean split, Tim Ross reports. The U.K. will be able to sign trade deals during the transition, and even implement them with EU approval. That’s a massive win for the likes of Foreign Secretary Boris Johnson, for whom getting back Britain’s ability to strike trade deals around the world was a key part of the Brexit narrative. It’s a concession that has no cost for the EU, and indicates European negotiators want to help May keep her job. 

Devil in the Detail | The EU will consider offering the U.K. “improved equivalence” for financial services, according to the latest draft of its negotiating guidelines for the post-Brexit trade agreement obtained by Bloomberg. The addition to the draft makes clear that equivalence mechanism would still be unilateral – something the U.K. is trying to avoid.

Moving Out | Nearly one in seven EU companies with U.K. suppliers have already moved some of their business out of Britain and almost a quarter of U.K. businesses are planning to reduce their workforce to offset Brexit-related costs, according to a report from the Chartered Institute of Procurement & Supply.

Banks Ask for Help | Bank lobby U.K. Finance said financial firms may not be able to rely on the transition deal without additional guidance from regulators. It asked watchdogs to be flexible and “not to insist on worst-case contingency planning” now that the deal is in place. 

Sting Operation | Cambridge Analytica, the data firm accused of harvesting Facebook Inc. user profiles, was captured in secret footage bragging about how it could use prostitutes and former spies to ensnare politicians and influence elections. In a four-month-long sting operation, Channel 4 News filmed executives talking about their illicit tactics to sway campaigns, including the 2016 U.S. presidential election and the Brexit referendum. The company denied the allegations.

On the Markets | The pound rallied 1 percent and gilts slid after confirmation of the Brexit transition deal. But the currency’s medium-term gains are likely to be limited and gilts will be bought again, Charlotte Ryan and Anooja Debnath report. Nomura’s Jordan Rochester sums it up: “Whenever the market gets a bit of good news for the U.K. the reaction tends to be 1) excitement, 2) a rush to understand the facts followed by 3) is that it? Oh well Brexit is still rubbish. Today followed a similar script.” 

Coming Up | EU ministers will sign off on conclusions and Brexit negotiating guidelines ahead of a summit on Thursday and Friday. EU chief negotiator Michel Barnier will hold a press conference at 5 p.m. London time. Office for Budget Responsibility Chairman Robert Chote will be questioned by Treasury Select Committee at 10 a.m. May chairs a Cabinet meeting.

And Finally...

A Brexit comic will come into circulation next month, the Guardian reports.

The characters will include Reverend May, David Dealin’ Davis and Boris “Captain Brexit” Johnson and will be based on the 1960s kids program Trumpton.

The print comic is the a remainer project, led by illustrator and author Mike Dicks, and was crowdfunded.

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©2018 Bloomberg L.P.

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