Brexit Bulletin: Oh, Canada

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A Brexit breakthrough next month could still end up disappointing Theresa May.

As the European Union waits for a U.K. offer that could unlock trade talks, the thinking in Brussels is that the deal ultimately available won’t be anything like the “deep and special partnership” the British leader craves. Instead, a consensus is forming that Britain will get a Canada-style deal,  a model which, while considered the most ambitious of all EU accords, falls short of what Prime Minister May has in mind.

EU negotiators told the ambassadors of member states on Wednesday that both sides will start work on a joint document setting out the progress that’s been made in the talks so far, according to a person familiar with the discussions. While there’s still skepticism of a breakthrough at a mid-December summit of EU leaders, negotiators anticipate an improved offer on the financial settlement soon, the person said.

The whole point of putting more money on the table is to convince the EU side to move on to talks about the future trading relationship. EU27 governments have started talking about what kind of trade agreement they will seek with the U.K., and the feeling is that a Canada-style deal can be struck, according to the person.

Brexit Bulletin: Oh, Canada

More than a year after the referendum that set Brexit in motion and with just 16 months to go until the U.K. leaves the bloc, the negotiations have still not broached trade, nor the crucial transition period that businesses are crying out for to smooth the exit process. If an agreement isn’t reached in December so that trade talks can start, the chances of a chaotic breakup increase.

Still, the chances of a breakthrough next month are as high as 70 percent, according the Centre for European Reform, which has a track record of predicting the next steps in talks. The think tank’s director, Charles Grant, says the perception in Brussels of the British team has improved, with the catalyst possible a meeting between European Union President  Donald Tusk and May in Gothenburg, Sweden, last week. Tusk tweeted yesterday that he was meeting EU chief negotiator Michel Barnier to prepare for another meeting with May on Friday.

Donald Tusk @eucopresident
With @MichelBarnier to prepare for my meeting on #Brexit with PM @theresa_may on Friday. https://t.co/HrII9tePA2
https://twitter.com/eucopresident/status/933383972750577664

“Whatever May said to Tusk in Gothenburg appears to have impressed the EU side,” Grant said, adding that a dinner between European Commission President Jean-Claude Juncker and May on Dec. 4, which neither side has officially confirmed, is also expected to be a key moment.

Brexit Latest

More Money for Brexit | U.K. Chancellor of the Exchequer Philip Hammond laid aside an extra 3 billion pounds ($4 billion) to prepare for all Brexit outcomes when he delivered his budget on Wednesday. He is to be willing to allocate further sums if and when needed. The pledge, coming as he announced the Office for Budget Responsibility has cut its U.K. growth forecast for every year through 2021, shows Hammond has relented to demands by pro-Brexit factions in May’s cabinet to make money available so the U.K. can walk away from the divorce talks if necessary.

Irish Optimism | Irish Foreign Minister Simon Coveney appears to be optimistic on the chances of progress next month and has urged the U.K. to make further concessions to allow talks to move to trade. “We have a reasonable chance for sufficient progress in December,” Coveney said in Belfast on Wednesday. “It’s Britain that controls the odds.” With that summit gaining importance by the day, Bloomberg’s Ian Wishart has a timeline of key dates on the way to the crunch talks.

Brexit Bulletin: Oh, Canada

Agency Complaints | Smaller post-communist members of the EU have lashed out over how the spoils of Brexit are being divided, after secret ballots this week saw Amsterdam and Paris chosen to replace London as the new homes of the European Medicines Agency and the European Banking Authority. Slovakia said criteria – including availability of schools and health care for staff families – were violated; Romania complained that technical aspects were discounted; and Croatia pulled its bid before the decision in protest at what it called “non-principled” selection.

ECB Expansion | The European Central Bank is beefing up its banking-supervision arm as its workload grows, in part because of the U.K.’s decision to leave the EU. The institution is adding about 170 staff, although fewer than a third of the new positions will be for anticipated supervisory tasks related to Brexit, according to an ECB spokeswoman. Meanwhile, Korbinian Ibel, a director general at the ECB’s single supervisory mechanism, said he was “surprised” more banks hadn’t been in touch as Brexit looms, while Governing Council member Francois Villeroy de Galhau warned U.K. insurers not to set up empty-shell companies in the EU.

Business Lobby | The City of London says the government needs to do more to protect Britain’s legal services sector after Brexit, the  FT reports. TheCityUK lobby group said in a report that leaving the EU poses a threat to the primacy of English law.

On the Markets | The pound was little changed against the dollar on Thursday, after seven days of gains. Meanwhile, investors who were hoping for a turnaround in gilts after Wednesday’s  budget were left disappointed after the U.K. Debt Management Office raised its issuance target for the current fiscal year by almost 1 percent. The bonds, already one of the worst performers in Europe, face an uphill task to catch up with the added supply.

Brexit Bulletin: Oh, Canada

And Finally…

The audience at Tuesday night’s Institute of Directors’ annual dinner, who were expecting to be addressed by International Trade Secretary Liam Fox, ended up with a slightly different evening of entertainment. Late-night voting – a peril of life in a minority government – kept Fox in the House of Commons, meaning the audience were denied a chance to hear his thoughts on the current state of Brexit and trade.

Instead, they were treated to a longer set from comedian Jo Brand, who joked about feminism, her husband and the fact business leaders have a higher-than-average tendency toward psychopathic behavior, 

Emma Ross-Thomas is away.

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Before it’s here, the Brexit Bulletin is on the Bloomberg Terminal.

To contact the author of this story: David Goodman in London at dgoodman28@bloomberg.net.

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