Brexit Bulletin: No Deal by Accident

(Bloomberg) -- Today in Brexit: The risk of no-deal is growing.

The threat of a no-deal Brexit is back, and politicians are using it for their own purposes.

Dominic Raab used his first Sunday media round as Brexit secretary to talk up the government’s preparations for the no-deal scenario. People shouldn’t worry or focus on the “selective” media reports about what it would mean to fail to reach an orderly exit, he said.

Hardline Brexit supporters have long called for the government to do more planning so that they can credibly threaten the EU with a walkout. Raab’s message appears aimed at them, and at proving his Brexiteer credentials in a government that’s criticized for going soft on the EU.

Now that the bloc is stepping up its own preparations for what most people consider the worst case, the U.K. needs to be at least as prepared to avoid further weakening its negotiating hand.

Meanwhile new Foreign Secretary Jeremy Hunt travels to Berlin today to try to win over the Germans to the U.K.’s point of view. His message: Be more flexible or risk a “no deal by accident.” As a former health secretary, Hunt probably has a more nuanced grasp of what a chaotic exit would mean than some of the more gung-ho members of his Conservative Party.

Remainers are also using the prospect of a messy divorce to further their cause. Dominic Grieve, the leader of the anti-Brexit Conservative rebels, spoke on Sunday of a “state of emergency” if there’s no deal, with medicines and food running short.

The chances of Britain tumbling out of the bloc without any agreement on trade flows, vital regulations, movement of people or even air travel have probably gone up because of the deadlock in Parliament over what Brexit should look like. The country’s not too convinced by May’s Brexit plan either, the Sunday Times reported, a position that strengthens the case of the hardliners.

The Times quoted the head of Amazon in the U.K. warning of the possibility of “civil unrest” within two weeks after a no deal exit. As the potential implications of no-deal become clearer, a second referendum might become a more palatable way out.

Today’s Must-Reads

• Michael Collins led the Irish delegation that went to London in 1921 to negotiate independence from the U.K. Now the legacy of the long-dead revolutionary influences the Irish premier and possibly the Brexit negotiations, Dara Doyle reports.
• German Finance Minister Olaf Scholz is emerging as a potential successor to Chancellor Angela Merkel. That’s potentially good news for Britain, as Scholz is an anglophile.
• The Times says a Brexit deal must be reached to avoid the damage of a messy breakup.

Brexit in Brief

Another Vote? | In an interview with Sky, Labour’s finance spokesman John McDonnell repeatedly refused to rule out backing a second referendum. Meanwhile, former Conservative Prime Minister John Major said it would be justified because of the gap between what was promised to Leave voters and the reality of the split.

Threat Reheated | Raab told the Telegraph he would make the U.K.’s £39 billion divorce bill conditional on getting a trade deal with the bloc afterwards. U.K. officials floated this idea way back in October, before Raab’s predecessor David Davis acknowledged in Parliament the two weren’t linked. The EU sees the divorce bill as a settlement of past liabilities, unconnected to the future trade accord.

Barnier’s New Tone | EU chief negotiator Michel Barnier took a new conciliatory tone with the U.K. on Friday in his press conference. He said the EU is open to new proposals on the Irish backstop — the main sticking point in negotiations. It’s probably more about making sure a divorce deal in done, and not destabilizing May, than acceding to the U.K.’s demands for the future trade deal or customs set-up. 

Try Again | The EU doesn’t like the U.K.’s proposal for how financial service companies should access the bloc after Brexit, the Financial Times reports. The latest bid was a lot less demanding than the previous one, but called for a bit more flexibility than the EU is prepared to offer.

Opportunities | Arch-Brexiteer Jacob Rees-Mogg told Channel 4 News the “full economic consequences” of the “overwhelming opportunities” of Brexit won’t be known for 50 years. Meanwhile his investment firm has launched a second Irish fund, the FT reports.

Back in Court | Scottish leader Nicola Sturgeon has accused May of a “naked power grab,” using Brexit legislation to send local powers back to London after the split. The standoff now moves to the Supreme Court, where seven judges will on July 24-25 consider whether Sturgeon’s fightback is constitutional, Jonathan Browning reports.

 On the Markets | Investors are the most bearish they have been on the pound in more than a year. “The trend can continue until the mood surrounding Brexit discussions with the EU improves,” says Kenneth Broux, a strategist at Societe Generale SA.

Coming Up | May holds a Cabinet meeting in the North East, while Raab has written an op-ed in the Yorkshire Post. Hunt holds a news conference in Berlin at 11 a.m. local time. On Tuesday, Olly Robbins, May’s chief Brexit negotiator, will appear before the Brexit Committee along with Raab. The usually forensic committee will probably try to make them contradict each other.

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

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