Brexit Bulletin: Peering into the Abyss

(Bloomberg) -- Today in Brexit: As Brexit starts to get real at home, EU leaders will warn May they’re preparing for a messy breakup.

Theresa May heads to Brussels today to face a rebuke and a warning from her European Union peers: The risk of a chaotic Brexit is rising and the bloc is taking steps to prepare. 

The gathering of EU leaders comes at the end of a week that marked an intensifying public debate about the risks of Brexit. Companies that are household names, including Airbus and retailer John Lewis, started speaking out about the risks of Britain leaving the bloc without an orderly agreement, and thus tumbling into the chaos of legal limbo.

At the summit, leaders will add their voice to the concerns with a call to member states, institutions and other “stakeholders” to prepare for the worst. A French official said their message was “serious,” as the October deadline to get the divorce agreement wrapped up looks increasingly hard to reach. Irish Prime Minister Leo Varadkar said leaders would send a strong message.

If the EU does step up its contingency planning – and does more work to prepare for the worst than the U.K. does – May’s negotiating hand could be further weakened because the EU could be in a stronger position to walk away than the U.K. That’s the last thing May needs in an already lopsided negotiation.

This summit was long meant to be a landmark meeting just 16 weeks before the final deal is due to be done. Instead, May is expected to tell leaders of her plans to bring her warring ministers behind a coherent Brexit plan. First a Cabinet meeting next week. Then, a policy document, known as a white paper, setting out the government’s vision of the relationship it wants to negotiate with the bloc after the split. Channel 4 reports that the paper will set out several negotiating options, including one that would keep Britain tied closely to the EU and its rules.

If that is May’s plan, there is a line in the otherwise frosty draft summit conclusions that offers some encouragement. The EU repeats a phrase first floated in March that if the U.K. erases its negotiating red lines, which for now include an end to free movement of people and the jurisdiction of the European Court of Justice, the EU will make Britain a better offer on a post-divorce relationship.

The view from Brussels is that the summit isn’t about Brexit at all: Other crises are more pressing. The migrant crisis, in fact, offers May an opportunity to show what she means when she says she wants a deep and special relationship with the bloc.

But the EU’s other crises are probably bad news on balance for the U.K., strengthening the EU’s resolve to make sure Brexit doesn’t become a success and encourage others to follow Britain out the door.

Today’s Must-Reads

• A Cabinet minister says the U.K. is worried that when President Donald Trump meets Russian leader Vladimir Putin, he may offer to weaken defenses around Europe’s eastern boundaries, Rob Hutton reports.
• Tax and spend is the new game in Brexit Britain, and life is about to get harder for the pragmatists steering the U.K. economy, argues Lionel Laurent.
• Former May aide Nick Timothy calls for a tougher approach to Brexit in an article for the Telegraph.

Brexit in Brief

What the Summit Is About | EU leaders will tackle a growing number of challenges with the economic and political stakes rising, Jonathan Stearns reports. Refugee routes, trans-Atlantic ties, banks and the Balkans are on the agenda for the two-day summit.

Trillions at Stake | Bank of England Governor Mark Carney warned that time is running out to remove the threat that Brexit poses to trillions of pounds of derivative contracts, saying the EU’s refusal to act risks creating havoc in financial markets.

The Rock in a Hard Place | The latest draft of the summit conclusions on Brexit – which are a page long – includes a pointed reference to the lack of a deal on Gibraltar. Spain and the U.K. need to sort out a bilateral deal in order for the transition deal to apply to the rocky outcrop, giving Spain leverage over the British territory that it claimed for centuries. 

Doctors vs Brexit | Britain’s doctors’ union has called for a referendum on the final Brexit deal, saying the divorce will be bad for public health, the Press Association reports. 

Planning for the Future | Trade Secretary Liam Fox has appointed Natalie Black as Trade Commissioner for Asia Pacific as the department plans for post-Brexit trade deals. Black was previously in May’s office and worked on the government’s industrial strategy.

Chaotic Message | Irish Foreign Minister Simon Coveney called on the U.K. to halt its incoherent Brexit messaging, and intensify the search for a solution to the Irish border question. “We want a good solution here for Britain too, but unfortunately what we are hearing out of Westminster is somewhat chaotic in terms of messaging and that needs to stop,” he told the Parliament on Wednesday.

Practicality vs Ideology | John Lewis Partnership reported a hit to its profits and warned of the disruption of a no-deal exit. “It’s become a battle between practicality and ideology and I hope practicality wins,” Chairman Charlie Mayfield said. “Leaving with no deal is unthinkable because we are completely unprepared for it. The chaos that would ensue is something that no rational person would want.”

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--With assistance from Ian Wishart, Gregory Viscusi and Helene Fouquet.

To contact the editor responsible for this story: Anne Swardson at aswardson@bloomberg.net, Jones Hayden

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