Brexit Bulletin: Bridge in Troubled Water

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As Tory Brexit hardliners ramp up the pressure on Theresa May, the prime minister vowed to fight the European Union over the next stage of divorce talks. That will unnerve businesses crying out for the government to pin down the two-year transition, which they hope they’ll be able to rely on starting in March 2019.

Trade Secretary Liam Fox added to the uncertainty on Thursday, casting doubt on whether there would be a transition deal at all. For companies, it’s the number one priority: The bridging period would give them time to prepare the shift from one set of trading rules to another. The government has said it’s working to secure a transition deal by the end of the first quarter, but Fox said it was still a question of “if.”

“As everybody knows, we can’t negotiate, never mind sign, any agreements while we’re still in the EU, and that’s likely to be extended if we were to have an implementation period, which business seems to want us to give them in terms of stability,” Fox, a veteran Brexit backer, told Sky News in China, where he’s traveling with May.

Liam Fox.

Photographer: Luke MacGregor/Bloomberg

May, who had been expected to accept the EU’s conditions for the transition deal wholesale, now says she will fight some of the terms, including a change the EU made to how its citizens will be treated after the split. It’s a sign of the influence wielded by hardline Brexit backers such as Jacob Rees-Mogg, and is a reminder of why May’s vulnerability as leader matters to the negotiations: She doesn’t have the authority to face down opponents and press for the deal that most economists say would best serve the national interest.

Rees-Mogg – who says a transition deal will turn Britain into a “vassal state” and wants a clean and quick divorce instead – leads a group of about 50 euroskeptic lawmakers and is a potential leadership rival to May. The prime minister doesn’t have a majority in Parliament, and continues to lead a deeply divided Cabinet that hasn’t yet decided what kind of trade deal it should seek from Brussels. With newspaper reports suggesting May is close to a leadership challenge, she can’t afford to alienate the Brexiters.

Brexit Latest

Minister to Quit? | The Sun reports that a senior minister is preparing to resign and “denounce Theresa May from the backbenches,” in a move the paper says could trigger the prime minister’s downfall. The minister has told friends he is close to quitting in a “principled protest at the PM’s failing leadership,” the Sun’s Tom Newton Dunn reports.

Continent Cut Off | Ryanair Holdings Plc said it will go ahead with plans to stamp tickets with a warning that flights from the U.K. may not be able to operate immediately after Brexit day. If no air-service deal is reached, Ryanair would add the caveat to its tickets starting in September, when summer 2019 flights go on sale, Chief Marketing Officer Kenny Jacobs said Wednesday. 

London’s Appeal | Uncertainty about U.K. immigration policy once the country leaves the European Union is hurting London’s prospects for attracting corporate investment, according to the chief financial officer of Europe’s biggest listed landlord, Unibail-Rodamco SE. For companies now deciding where to invest in Europe, the cities of Paris, Frankfurt and Amsterdam are “more appealing places” than London, Jaap Tonckens said.

Financial Ties | The EU wants to ensure “strong convergence of rules and supervision” of finance after Brexit, the commissioner in charge of financial services said Wednesday. “We are enhancing EU rules on equivalence, which is an important tool under EU law to ensure such convergence,” Valdis Dombrovskis said in Dublin. “As we move on to define our future relationship, we should bear in mind that financial stability is best protected by coordinating rules and supervision – this a lesson from the financial crisis.”

Swiss Hit | The EU has toughened its stance toward Switzerland and is less likely to give it special treatment in light of Brexit, Foreign Minister Ignazio Cassis said. “The fact is that the European Union’s stance toward us is more compact and more self confident – the Brexit crisis has closed the ranks and we have a partner who is less willing to make concessions than previously,” he said. “Not because Switzerland is less likable than before, but because other countries also have expectations.” The two have been in talks for years about streamlining relations via a so-called institutional framework agreement. 

Blacklist Threat | The EU may threaten sanctions to prevent Britain undercutting the level playing field after Brexit, the Financial Times reports. The measures to protect the continent’s economy from any attempts by the U.K. to slash regulation and levies could include “tax blacklists” and penalties against subsidized companies. While the U.K. has said it doesn’t want to lower its standards, an early threat to the EU was that if it didn’t get the trade deal it wanted, London would pursue a different economic model.

On the Markets | The pound’s strongest start to a year on record has prompted bearish money managers to revise their forecasts, Charlotte Ryan reports. The pound surged 5 percent versus the dollar in January, its best run in the first month since at least 1971. “Market focus has moved onto the transition period so the downside didn’t materialize,” Algebris Investments money manager Alberto Gallo said. Still, investors may be confusing the transition deal with the final one or are “simply focusing on the short term.”

Coming Up | Brexit Secretary David Davis takes questions in parliament at 9:30 a.m., May is in China, MEPs discuss citizens’ rights.

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