Brexit Bulletin: Psychological Edge

Days to Brexit Deadline: 44

(Bloomberg) --

What’s Happening? Boris Johnson’s Brexit play keeps the European Union on its toes.

After three years of confidently dictating Brexit policy to a divided U.K., the EU may be feeling a bit wrong-footed by the U.K. prime minister’s vow to prevent the transition period lasting beyond 2020.

Forgoing a chance to prolong the transition would revive the threat of an economically disruptive severing of ties with the EU, this time at the start of 2021. That’s because after Britain departs by Jan. 31 next year, a free-trade agreement between both sides may well take longer than 11 months to negotiate.

Without the luxury of a longer transition to keep the economic status quo in place, the EU may face the prospect of greater internal splits over the strategy for fashioning the future relationship with Britain. This task will involve more than just a free-trade deal, encompassing other matters such as fisheries, aviation and security.

European Commission President Ursula von der Leyen said last week that, in view of the tight timetable, the EU would need to focus on the top economic issues in the negotiations next year. On Tuesday, Sabine Weyand, the commission’s director general for trade, echoed the point by saying “we have to look at those issues where failing to reach an agreement by the end of 2020 would lead to another cliff-edge situation.”

Yet Weyand also made clear the EU’s preference is to negotiate simultaneously on as many of the matters in the future relationship as possible. “All this needs to be coordinated so that we maximize our negotiating leverage, because that is what each side tries to do in a negotiation,” she said.

Intentionally or not, Johnson seems to have gained a psychological advantage over the EU in the wake of his landslide election victory.

Today’s Must-Reads

• Bloomberg’s Alex Morales and Kitty Donaldson show us what to expect from Johnson’s new government.
• Brexit may be fast approaching, but it could take a while to notice any changes to life in the U.K., writes Bloomberg’s Edward Evans. 
• Tony Blair became the latest Labour party figure to round on Jeremy Corbyn following his landslide defeat in last week’s election, report Bloomberg’s Robert Hutton and Greg Ritchie.

Brexit in Brief

Told You So | Emily Thornberry has entered the race to succeed Corbyn as Labour leader, telling the Guardian that she warned the party’s top brass that supporting a Brexit election would be an “act of catastrophic political folly.” Read Bloomberg’s guide to the politicians vying for the party’s top job.

Legal Eagles | The U.K. will extend the power to overturn rulings by the European Court of Justice, a move that could harm negotiations over any future trade deal with the EU, according to the Times.

Brussels Warning | The European Parliament could block a Brexit deal because of the way the U.K. is treating EU citizens, according to Guy Verhofstadt, its Brexit coordinator.

Close Call | The viral video starring Johnson delivering a campaign message in a parody of ‘Love Actually’ almost didn’t happen, The Sydney Morning Herald reports. 

Cuts Coming? | Traders have ramped up bets that the Bank of England will lower interest rates at the end of 2020 after Johnson reignited fears of a hard Brexit.

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To contact the editor responsible for this story: Caitlin Morrison at cmorrison59@bloomberg.net, Chris KayGuy Collins

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