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Draghi Says ECB Needs to Prepare for Possible Cliff-Edge Brexit

ECB’s Draghi is preparing for a Brexit without a detailed trade agreement. 

Draghi Says ECB Needs to Prepare for Possible Cliff-Edge Brexit
An illuminated euro currency symbol is projected on to the European Central Bank (ECB) headquarters during the Luminale light festival in Frankfurt, Germany (Photographer: Martin Leissl/Bloomberg)  

(Bloomberg) -- Mario Draghi said the European Central Bank has no choice but to brace for the possibility that the U.K. will exit the European Union without a transitional agreement.

“We always prepare for any eventuality but at the same time we are assessing the direction, probability and potential impact of risk,” Draghi told members of the European Parliament in Strasbourg Monday. “The bottom line is this one -- either the negotiation is well managed and there won’t be substantial risk, or it is not and then the risks will be there, so we’re certainly looking at that and we’ve got to be prepared.”

The U.K. is scheduled to leave the EU in March 2019 and Prime Minister Theresa May currently wants to negotiate a transitional phase after that in which business between her country and the remaining 27 members of the bloc carries on as usual. Yet disagreement within Britain’s ruling Conservative Party, as well as the negotiations with the EU, mean that achieving such a deal is far from certain.

“At this stage, we do not have clarity regarding the shape of the U.K.’s future relationship with the EU,” Draghi said.

Close cooperation with the Bank of England on regulatory matters is needed to help smooth the impact of Brexit on the financial industry, he said.

“As far as our role is concerned as supervisors, good cooperation with the Bank of England is quite important in coping with potential risks, especially risks of any potential cliff-edge effects,” he said. “As we all know, the realization of the transition period is still exposed to political uncertainty and that will remain for some time to come."

--With assistance from Nikos Chrysoloras and Jonathan Stearns

To contact the reporters on this story: Mark Deen in Paris at markdeen@bloomberg.net, Lucy Meakin in London at lmeakin1@bloomberg.net.

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Paul Gordon at pgordon6@bloomberg.net, Brian Swint, Kevin Costelloe

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