Brexit Bulletin: Global Fears

Brexit is 27 days away.

(Bloomberg) --

Today in Brexit: Boris Johnson’s plan is popular in London, but Brussels wants changes.

What’s Happening? If Britain crashes out of the European Union without a deal, the knock-on effects would undermine an already fragile global economy, according to a string of economists and investors who spoke to Bloomberg as the clock ticks down toward the Brexit deadline of Oct. 31.

They don’t mince their words. “Very severe for the U.K., I’m afraid, but also for each of our EU member states,” former Italian Prime Minister Mario Monti said. “This is a very big issue for the globe,” said Tom di Galoma, a managing director at U.S. firm Seaport Global Holdings LLC, calling no-deal a “catastrophic type risk.”

What will the impact be? Bloomberg Economics predicts a U.K. recession in the event of no-deal; the European Central Bank sees spillover in the euro-area. That impact would likely be unevenly spread, ECB policy maker Oli Rehn said last month, with Ireland (and exporters to the U.K.) suffering the most. The consensus is that a no-deal Brexit would further undermine an already weak outlook for a global economy already under pressure from the U.S.-China trade war, David Goodman, Craig Stirling and Liz Capo McCormick report today.

Hasn’t a no-deal exit been ruled out? Not quite. The prime minister is required by law to request an extension beyond Oct. 31 if there’s no agreement with the EU by Oct. 19. Pound traders now see an extension as the most likely outcome. But even if Johnson does extend — something he vowed never to do — that could just postpone the day of reckoning until after a U.K. general election. 

Johnson has a week to save his Brexit plan. Bloomberg’s Ian Wishart reports today that the prime minister’s revised plan for Brexit is going down well with U.K. lawmakers — but much less well in Brussels. While the prime minister is winning support from lawmakers in London who previously rejected Theresa May’s deal three times, his plan falls far short of what the EU chief negotiator is looking for. Meanwhile, Taoiseach Leo Varadkar says Ireland will not agree to a deal that involves customs checks on the border.

And if not, there’s always Plan B. Right? Ian reports that the prime minister hasn’t ruled out keeping the contentious backstop arrangement for the Irish border, with one crucial condition: that the EU puts a clear time limit on it. France and Germany have also discussed this potential back-up option, EU officials said. Persuading the Irish to accept it would still be a considerable stretch.

Today’s Must-Reads

• Europe should welcome Johnson’s plan for Brexit, Clive Crook writes for Bloomberg Opinion, adding that the proposal gives Europe an interesting opportunity.
• It’s Johnson’s deal or no-deal, says Fraser Nelson in the Telegraph, arguing that the House of Commons could be much more radical and no-deal friendly after a general election.
• Meanwhile, a new Brexit lawsuit starts in Scotland today, with judges effectively asked to decide on whether a no-deal exit on Oct. 31 would be legal. Jonathan Browning and Ellen Milligan have the details.

Brexit in Brief

Storm Over Stormont | The U.K.’s bid to break the Brexit logjam risks failing over plans to give Northern Ireland an “effective veto,” according to Irish Senator Neale Richmond. So-called rule alignment would be dependent on the consent of Northern Ireland’s Assembly and Executive. Richmond told Bloomberg TV that means the assembly could “easily block” Boris Johnson’s plan.

Bankers Poised | Central banks are ready to pump liquidity into the financial system to limit the economic fallout of a no-deal Brexit, Richard Gnodde, vice chairman and chief executive officer of Goldman Sachs International, said on Bloomberg TV.

Optimism | Forget about shorting the pound. The new bet is for sterling to hit $1.50 if Brexit ends with a deal, according to Brandywine Global Investment Management LLC. “The last thing the EU or Europe needs is a weak U.K. economy or a recession,” said Brandywine’s Jack McIntyre. The pound was trading at $1.2347 early this morning.

Rock Hard | In Gibraltar, 96% of voters backed Remain in 2016. Bloomberg’s Charles Penty traveled to the tiny territory that thrives on tourism, financial services and online gambling that is now bracing for a no-deal Brexit. “My role as chief minister of Gibraltar, my core function in government, is to ensure that Gibraltar has food,” Chief Minister Fabian Picardo said.

They Want In | A land of 1.9 million people. A troubled sectarian history. Borders that have known conflict. A looming election. Northern Ireland? Not quite. Kosovo goes to the polls in a snap election at the weekend — and all the leading parties want to join the EU.

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To contact the editor responsible for this story: Neil Callanan at ncallanan@bloomberg.net, Lisa Fleisher

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