Brexit Bulletin: Into the Danger Zone

(Bloomberg) -- Today in Brexit: With a compromise getting closer in Brussels, the perilous part of the battle starts at home.

The signals from Brussels are getting stronger, and a Brexit deal is now in sight. Prime Minister Theresa May briefed her ministers late on Thursday, but two key groups are unhappy with a compromise that will probably tie the U.K. into European Union trade rules indefinitely.

The pro-Brexit wing object because they fear it will keep Britain in the EU’s customs union forever. At least one Cabinet minister is considering resigning, people familiar with the situation told Bloomberg’s Tim Ross. Even more dangerously for May, the Northern Irish Democratic Unionist Party that props up the government says May’s plan is a betrayal and is threatening to withdraw support.

A Cabinet meeting next week looks like being the crunch moment. Pro-Brexit ministers will have career decisions to make.

The fight is (still) over the so-called Irish backstop. That’s meant to be a fallback measure designed to guarantee that no hard border emerges on the island of Ireland after Brexit. The trouble is that many on both sides suspect that the backstop will indeed come into effect and will shape the overall relationship of the U.K. with the bloc indefinitely. European diplomats are working on wording to suggest that the backstop isn’t a big deal because it will never be needed, but few people really believe it.

Brexit Bulletin: Into the Danger Zone

That’s why it’s become such an important battle. As Bloomberg has been reporting since the summer, the British proposal for the backstop is that the whole U.K. would stay aligned with the EU’s customs regime after Brexit – for a limited period. Northern Ireland would align its rules with those of the Republic of Ireland. That would avoid a customs border in the Irish Sea, but would require checks on products between Northern Ireland and the mainland. (That’s the bit the DUP hates.)

In the summer there was a fight between then-Brexit Secretary David Davis and May over how long the U.K. could stay inside the EU’s customs regime; a vaguely worded deadline was inserted into the proposal. But the EU has always insisted that to do its job, the backstop has to be open-ended. The best May can hope for is probably a non-binding fig-leaf of an end-date. The Cabinet is still fighting over how open-ended or indefinite the backstop would be. That’s the bit that is enraging Brexiteers: Staying in the customs union will mean Britain can’t strike new trade deals around the world that are a large part of the pro-Brexit camp’s reason for leaving.

In Brussels, negotiators are discussing how to make the backstop more palatable – with wording to make it look more temporary. EU officials are also worried about the DUP’s reaction, Ian Wishart reports.

Officials on both sides say a deal is within reach, but we’re not there yet. Ambassadors from the 27 European states meet later today to talk Brexit, and we should get a steer as to how things are looking ahead of a critical EU summit next week.

Today’s Must-Reads

Brexit in Brief

‘Severe’ Impact | The U.K. could experience shortages of vital imports, a sharp fall in the pound and higher prices in the shops in the event of a disorderly Brexit, according to the Office for Budget Responsibility. Its current projections are based on the assumption that the two sides reach an agreement but a no-deal Brexit could hit the British economy hard, leading to higher budget deficits and government debt, the OBR said.

Making it Meaningful | Treasury Committee Chair Nicky Morgan has asked the Bank of England for a “full and frank assessment” of the consequences of Brexit before lawmakers vote on the final deal. Morgan requested analysis of any accord that May brings back, as well as a no-deal scenario and the prospect of reaching the end of a transition period in 2020 with no trade agreement. “This analysis will ensure that Parliament’s decisions are based on the best possible evidence,” Morgan wrote.

Death Threats | The head of HM Customs and Revenue said he received death threats after speaking out about the potential cost of Brexit to businesses. Jon Thompson, who told lawmakers that high-tech customs solutions could cost businesses £20 billion a year, said he’s had to change his travel arrangements and personal security. “The personal consequence for me has been very, very significant for doing that,” he was quoted as saying. “We have had two death threats investigated by the Metropolitan Police for speaking truth unto power about Brexit.”

Banking in the Dark | The Bank of England’s Brexit assumptions are looking increasingly doubtful as the clock ticks down to the exit day. Officials are working with Governor Mark Carney on new economic forecasts for November’s Inflation Report, with details on the shape of Brexit still elusive. That’s left the BOE basing its outlook on a premise that will most likely need rewriting as soon as any deal, or lack of one, is announced, writes David Goodman.

Finding a New Role | The U.K.’s competition watchdog is setting out what it wants to look like in a post-Brexit world – and the first step is filling the regulatory gap, Jonathan Browning writes. The Competition and Markets Authority plans to probe control of the take-off and landing slots at London’s Heathrow Airport as part of an investigation into a British Airways alliance on transatlantic flights. It marked its first move to seek oversight of a transaction that would traditionally have been handled by the European Commission.

Trouble in Dublin | Irish Prime Minister Leo Varadkar’s minority administration was dealt a blow by the unexpected resignation of Communications Minister Denis Naughten, who is facing accusations of a conflict of interest. Varadkar already relies on the biggest opposition party, Fianna Fail,to stay in power and the affair comes at a delicate time for the government as the Brexit process moves toward crunch point.

On the Markets | Options traders are bracing for bigger swings in the pound as the U.K.’s exit talks from the European Union approach the finishing line. Sterling has gained this month amid speculation the two sides will announce a Brexit divorce settlement next week. But currency traders are buying protection against big swings in either direction in case events take a turn.

Brexit Bulletin: Into the Danger Zone

Coming Up | Michel Barnier will meet Polish Prime Minister Mateusz Morawiecki at 11 a.m. in Warsaw. EU ambassadors meet in Luxembourg at 6 p.m. to discuss Brexit – a meeting that had been scheduled for Wednesday. Sabine Weyand from Barnier’s team will brief them via video link.

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