Brexit protesters wave flags made up of a European Union flags and British Union flags, otherwise known as a Union Jack, outside the Houses of Parliament in London, U.K. (Photographer: Chris Ratcliffe/Bloomberg)

May Unveils U.K. Soft Brexit Blueprint, But Banks Cut Loose

(Bloomberg) -- Follow @Brexit on Twitter, join our Facebook group and sign up to our Brexit Bulletin.

Theresa May released the most contentious document of her two-year premiership on Thursday, vowing to push through her plan to keep the U.K. closely tied to the European Union single market after Brexit.

Despite the resignation of two pro-Brexit Cabinet ministers and a growing rebellion from within her own party, May published a 98-page “white paper” setting out in detail the deep trading partnership the U.K. wants with the EU.

Yet the critical test is still to come: how will the EU respond? Time is running out to reach an exit agreement by the self-imposed October deadline, and May’s proposal says nothing new about the critical issue that’s holding up progress -- avoiding customs checks at the border with Ireland.

The EU did not reject immediately May’s blueprint, but EU chief Brexit negotiator Michel Barnier gave a muted response. “We will now analyse the Brexit White Paper” with other EU member states, he said on Twitter.

He also reminded the British that his central offer was for a free trade deal, something well short of May’s ambition for a broader partnership spanning customs and full alignment of regulations for all goods.

Backlash

To add to May’s difficulties, she’s facing a growing backlash from euroskeptics in her Tory party fueled by the resignations of Foreign Secretary Boris Johnson and Brexit Secretary David Davis in protest at her plan.

Brexit campaigners hate the fact that May wants to keep the U.K. tied to the EU’s regulatory and tariff regime forever, insisting that voters chose to break free of European influence over British laws in the 2016 referendum.

Pro-Brexit Tories are also angry at May’s proposal for how to supervise the new relationship, including a mechanism to solve disputes and to discuss rule changes. Under the plan, the European Court of Justice -- for Brexit campaigners, a potent symbol of the bloc’s power -- could have the final say on the interpretation of EU rules that the U.K. has agreed to adhere to.

Jacob Rees-Mogg, the de facto leader of pro-Brexit Conservative lawmakers, said he would not vote for the government’s plans because they don’t respect the wishes of the British people.

“This is the greatest vassalage since King John paid homage to Philip II at Le Goulet in 1200,’’ Rees-Mogg said in a statement, referring to a treaty that secured the English throne for John in return for accepting the overlordship of the French monarch. “There are very few signs of the prime minister’s famous red lines.”

‘Brexit Is Brexit’

Even U.S. President Donald Trump took a view. Hours before he was due to touch down in the U.K., he lobbed a verbal hand grenade at his host, saying May isn’t giving voters the Brexit deal they wanted.

“I would say Brexit is Brexit,” Trump said Thursday at a news conference at the NATO summit in Brussels. “The people voted to break it up so I would imagine that’s what they would do, but maybe they’re taking a different route -- I don’t know if that is what they voted for.”

May appealed to European negotiators to “engage” with her blueprint in the same spirit of respect that she said her government was taking toward the EU’s own principles and red lines.

“Our proposal is comprehensive. It is ambitious. And it strikes the balance we need -- between rights and obligations,” May wrote in the foreword to the white paper. “It would deliver a principled and practical Brexit that is in our national interest, and the U.K.’s and the EU’s mutual interest.”

Banks Adrift

At its heart is a proposal for a new U.K.-EU “free trade area,” with interlinked customs regimes, and identical regulations for industrial goods and agri-food.

The U.K. says the new relationship “could take the form of an Association Agreement” with the EU. That means stronger ties than a traditional free-trade arrangement, such as the EU’s with Canada, and would be similar to the type of status Ukraine has. But the EU has previously ruled this out, saying it’s not on offer because of the U.K.’s own red lines: leaving the single market and customs union, and taking control over immigration and lawmaking.

In May’s plan, there would be “no tariffs on any goods,” though the U.K.’s vast services sector would suffer significant disruption.

In particular, banks will lose their current access levels to the EU market as the government abandons its earlier plan for both sides to recognize each other’s regulations. Miles Celic, chief executive officer of TheCityUK representing the financial services industry, said it was “regrettable and frustrating” that the principle of mutual recognition was dropped.

“In hundreds of discussions across the EU, the industry has never come across an unanswerable technical or commercial barrier to this approach,” Celic said in a statement. “The EU’s objections have always been political.”

©2018 Bloomberg L.P.