13 February 2019

Running down the ‘atomic bomb’ clock

Once again, Theresa May is putting off the day of reckoning. The UK PM is running talks down to the wire and will ask MPs for more time to try to renegotiate her deal, in hope of delaying a crunch vote in Parliament until Brexit's eve. Prospects for the UK economy never looked so bleak.

Paula Martín Camargo

Officials in Brussels were appalled to see the deal they have been toiling on for two years crushed by MPs in the heaviest defeat for a government in UK parliamentary history, only to be brought back to life by a slim margin after PM Theresa May caved in to Brexit hardliners’ demand that she goes back to Brussels in search of changes to the Irish backstop – the most loathed part of the deal. May was condemned in Brussels as untrustworthy and, what’s worse, willing to put her party unity above her country’s interest.

The PM made her way back to Brussels with nothing to offer in return except a bleak threat of a crude divorce in just over a month -  an ‘atomic bomb’ Brexit “everybody dreads”, as the Maltese Finance Minister recognised.

The EU didn’t play ball. Top EU Brexit broker Michel Barnier said firmly that the backstop was needed “as it is”, while Donald Tusk said the core parts of the agreement were “not open for renegotiation”. The European council president Donald Tusk’s remarks that there should be a “special place in hell” for those who promoted Brexit without a concrete plan drew Brexiteer’s outrage, but for the first time he sounded reconciled to the fact the divorce would happen. He recognized that there’s “no effective leadership for Remain.” Barnier praised Labour’s leader Jeremy Corbyn’s letter offering May Labour’s support for her Brexit deal if she made five binding commitments, including joining a customs union – the PM declined the offer but asked for a meeting soon with the opposition leader, in what has been seen as aimed at quelling another rebellion within Tory ranks.

A sci-fi solution to the Irish border conundrum remains an impossible task on which the EU will not budge, but officials are considering offering May a plan on technological fixes to their proposal in order to avert a cliff-edge Brexit that might be blamed on the Irish issue – something’s got to give!, Barnier said. Whatever the insurance solution against a hard border on Irish soil, MEPs warned they would veto a Brexit deal without a backstop. A world leading expert on customs reminded that checks on both sides of the Irish border would be ‘mandatory under a no-deal Brexit’, which could spur an Irish unity poll, several cabinet ministers told the BBC. The push could jeopardize UK trade talks with the US, officials at Washington warned.  

Theresa May’s demand to reopen the backstop issue was rebuffed but Commission President Juncker pledged further talks on the deal. Lawmakers are to vote other amendments on Thursday instead of the planned vote on further concessions to Brexit hardliners on a backstop to Ireland’s border solution – which May will most likely fail to secure. This might be the last chance for Parliament to avert a no-deal Brexit, Brendan Donnelly writes. But there may be a cross-party motion – backed by EU Parliament Brexit chief, Guy Verhofstadt - that could make Theresa May win Parliament’s approval for her controversial Brexit deal in return for guaranteeing another referendum with a binary choice: to confirm the decision or stay in the EU.

Business and public support a second referendum: More than 170 business leaders joined the campaign for People’s Vote, which would be won by Remain, with support for staying in EU at 56%, the highest level since the referendum.

Only a Government of National Unity (GNU) can solve the situation at this point, Graham Bishop said. A GNU must ask EU27 for a timetable extension to work thoroughly through the options. Then Parliament decides or puts it back to the people. The Queen called for "coming together to seek out the common ground".

Officials point out that, if no final plan is put to the Parliament by February 27^th – something Labour is seeking to force, - the vote could drag on until late March, with just days to go until the exit date, forcing MPs to put a stamp on whatever deal emerges to avert the hard-crash abyss on March 29^th , and making Brussels offer a technical delay of Brexit to allow the UK Parliament the necessary time to pass legislation.

European policymakers are split on the length of any Article 50 extension: they concede that less than a year will be too little to prevent a no-deal Brexit but reckon that May won’t have the courage to ask for such a lengthy postponement. A majority of voters would endorse a delay, a poll for The Independent found. But can the UK extend the Brexit deadline, Agata Gostyńska-Jakubowska at CER wonders, without being forced to hold European Parliament elections? Yes, lawyers advised the EP assembly. Cabinet members like Chancellor of the Exchequer Philip Hammond and Foreign Minister Jeremy Hunt hinted that a delay is possible if a new deal is reached.Germany and France have signalled their willingness to delay Brexit.

Just in case things go wrong – or in order to pile pressure on policymakers both in the EU and at home – a secret Cabinet members group has stepped up plans to kick-start the British economy in the event of a no-deal Brexit.

But few outside Britain want a no-deal Brexit: German Chancellor Angela Merkel and Japanese Prime Minister Shinzo Abe joined efforts to head off a no-deal Brexit that could rattle their economies. The ensuing chaos would threaten 100,000 German jobs, Welt am Sonntag reported. The Japanese are waiting for the final deal to continue informal talks on a future trade deal between the UK and Japan, which raises the odds of reverting to WTO tariffs unless the UK ratifies a Brexit deal. 

Prospects for the UK economy hasn’t been this sombre since the global financial crisis, the Bank of England warned. British economy is on course for its worst year in over a decade, and official Office for National Statistics figures showed all three drivers of growth in the British economy – services, production and construction – tumbled into recession territory during December. The latest analysis from YouGov and the Centre for Economics and Business Research painted a bleak scenario, with consumer confidence at a five-year low.

Uncertainty is taking its toll across all sectors of British industry, and the decision to leave the EU has already cost dearly, whatever Brexit looks like: the UK economy is 2.3 per cent smaller than it would be if Britain had voted to remain in the European Union, think tank CER warned. UK firms are investing millions abroad instead of doing in in British territory, a study by the Centre for Economic Performance show, which finds no evidence of a ‘Global Britain’ effect.

A gloomy scenario that may turn into doomsday if no-deal Brexit finally happens: the British Chambers of Commerce warned that thousands of UK firms plan a mass exodus if the UK crashes out of the EU, while the CBI issued an ‘emergency’ call and analysed economic fallout, the loss of jobs and lowering living standards in every region and nation across the UK.  

The cost of a no-deal is starting to be seen as irreversible for one of the UK’s biggest contributors, The City, and the ripple effects would resonate across Europe if financial industry doesn’t prepare for the impact, said German Finance Minister Olaf Scholz. EU regulators speeded up new rules to prevent the chaos taking place: ESMA agreed no-deal Brexit MoUs with the Bank of England for recognition of UK CCPs and the UK CSD as well as with the UK’s Financial Conduct Authority. The EU financial watchdog clarified the reporting and handling of derivatives data in case of no-deal Brexit and set out use of UK data in ESMA databases under a no-deal Brexit , which was commented on by ICMA in a briefing note. The FCA outlined how it would use the temporary transitional power.

While the UK Parliament bickers over the withdrawal from the EU agreement, money is flooding out of London: Five of the largest banks looking to serve continental European customers intend to move 750 billion euros of balance-sheet assets to Frankfurt, according to Bloomberg. Swiss group UBS was clear to move some of its UK business- involving assets valued at more than 32 billion euros - to Germany.  The bank will keep equity trading in London post-Brexit. Citigroup CEO Michael Corbat confirmed that the bank will shift a large chunk of its non-UK European assets to the continent in the event of UK-based finance firms losing their passport to sell services into the European Union.

The shift of capital out of The City is the most concerning effect of Brexit uncertainty, but a drop in demand for services in the banking industry for the first time in five years is spreading pessimism, and the drip-drip of jobs to the continent keeps on, with Bank of America starting to move400 staff to Paris this month. [...]

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