No-Deal Brexit Risk Is Back as Barnier Warns Talks May Fail

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(Bloomberg) -- The prospect of a no-deal Brexit is real again. European Union chief negotiator Michel Barnier is ramping up his rhetoric and officials in private worry that the risk of a messy divorce, which had receded at the end of last year, is now back.

At least twice in the last week Barnier has made public warnings that talks could still fail, including a speech to bankers and finance lobbyists in which he told them to prepare for the worst. "No one should underestimate the risk of disagreement," he said.

And in private too, there’s a sense that the reassurance provided by two preliminary agreements in December and then March is fading, and no deal is being considered as a possible outcome again, according to one person involved in the negotiations.

Talks are making slow progress and the Irish border issue remains intractable. Most of the talking is still about separation issues rather than the future relationship that the U.K. says it’s keen to pin down. EU officials say not much has happened since March.

Flights, Food and Medicine: The Chaos of a No-Deal Brexit

It’s a change from the early part of this year when many officials became more optimistic.

Striking an interim deal in December and provisionally agreeing on a transition period in March reduced the chances of the overall agreement failing, they thought. Prime Minister Theresa May dropped her mantra that no agreement is better than a bad one and in March called for an end to threats of walking out. With the transition agreed in principle, there was now more to lose from a breakdown.

Brexit Secretary David Davis continues to say in public that the chances of failure are very small.

But adding to the uncertainty is that May’s grip on power is not as strong as it seemed earlier this year. She’s under pressure from both euroskeptics and pro-EU rebels, and also tarnished by an immigration scandal that has cost May her trusted home secretary Amber Rudd. If she goes, the chances of a messy divorce probably increase, depending on who replaces her.

Fears of a crisis have contributed to the pressure on the pound, which has fallen 1 percent against the dollar this week. The currency is down more than 5 percent since April 17, when it posted its highest level since the Brexit referendum in June 2016.

Barnier visited the Irish border this week, and again warned of the risk that talks could fall apart. He has also made clear his view that the ball is now in the U.K.’s court. The EU sees no reason to budge and says it’s for the U.K. to produce ideas that work, not only when it comes to the future relationship but also the divorce issues and the question of the Irish border.

Onus on Britain

"It is now up to the U.K. to come up with its vision for the future, which should confirm the U.K.’s red lines or adapt them. This is true for the future relationship. It is also true for issues of the withdrawal such as Ireland and Northern Ireland, where we have done our share of the work," he said in Hannover on April 23, in remarks that were noted by officials on both sides.

Talks resume this week in Brussels. Officials say they will be very technical and are unlikely to tackle the biggest issues. The EU side thinks that may only happen if the U.K. puts forward ideas after Thursday’s local elections. For now, there’s no hint a breakthrough is near.

©2018 Bloomberg L.P.

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