The EU 'pause' Brexit deal

Cables Slides After UK, EU 'Pause' Brexit Deal Negotiations, Blowing Monday Deadline

Zero Hedge,

14 October, 2018

Update 3: Cable is down around 0.5% in early Asia trading...

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Update 2: After two days of frenzied negotiations, Reuters has finally confirmed that EU and UK negotiators have decided to put discussions surrounding a preliminary Brexit agreement on hold. Though the "Brexit deal" they had been hoping for was merely a nonbinding "political statement" laying the foundation for a more substantive agreement down the road, resistance from within May's conservative party has apparently shifted the dealmaking caluclus in favor of blowing Monday's self-imposed deadline and waiting for Wednesday's regular EU meeting before giving talks another shot.

"Despite constructive and intensive negotiations, several key issues remain unresolved," one senior EU diplomat said. "No further negotiations are planned ahead of the European Council. The EU negotiator will brief the leaders who will then assess the progress so far."

While negotiators have held the exact details of the agreement close, it appears objections over the status of Northern Ireland and a "temporary customs arrangement" have been the biggest sticking points. While the outcome of these talks is looking increasingly uncertain, the one thing analysts can say for sure is that markets, which have optimistically priced in a resolution to the increasingly fraught negotiations, won't be pleased to hear this.

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Update 1: In the latest indication that this weekend's frenzied negotiations will end in a stalemate, Reuters reports that EU leaders have been notified that no deal has been reached. Meanwhile, reports have emerged that Monday's meeting, which was intended to finalize the details of an outline Brexit treaty ahead of a larger summit of EU leaders on Wednesday, has been cancelled.

• EU AMBASSADORS FOR 27 MEMBER STATES WERE TOLD THERE WAS NO DEAL YET WITH BRITAIN ON WITHDRAWAL TERMS - TWO DIPLOMATIC SOURCES: RTRS
• EU SHERPAS' BREXIT MEETING ON MONDAY SAID TO BE CANCELLED

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If you didn't already, developments related to the ongoing negotiations over a Brexit agreement outline - negotiations that, as far as we know, have been an unmitigated trainwreck - should almost engender pity for UK Prime Minister Theresa May and the impossible situation in which she now finds herself. Without a parliamentary majority to fall back on, May has been caught between the warring demands of a fractious conservative caucus and EU leaders who are seemingly unsympathetic to the UK's plight.

Indeed, the poor girl - who for the past few months has been laboring under the threat of internal mutiny - never really had much of a chance to begin with, as the bewildering process of squaring the myriad opposing interests involved in the negotiations - from the pro-remain Labour MPs on whom she must ultimately depend for a modicum of support, to the Brexit hardliners who oppose anything suggesting that the will of the 17.4 million voters who supported leaving the EU could be ignored, to the EU leaders sensitive to "undermining the integrity of the single market" - could be compared favorably to being stretched across the rack.

And in the latest development threatening to roil UK markets on Monday, as the possibility that negotiators will meet the self-imposed deadline for producing an elusive draft "political statement," the Guardian reported on Sunday that EU leaders are prepared to abandon a November conference where the agreement (which will, in reality, likely take the form of a vague "political statement") was supposed to receive the final signoffs from both sides before heading to a vote in the EU Parliament, UK and Dublin. In its place, EU leaders are considering holding a summit to hash out a plan for an extraordinary "no deal" Brexit. Reports about the possibility of an emergency summit followed another round of conflicting reports about the status of a deal - with reports that a draft agreement had been reached were once again immediately followed by anonymously sourced reports to the contrary on Sunday.

These reports closely followed an editorial published by Arlene Foster, the leader of Northern Ireland's Democratic Unionist Party, claiming that her bloc would oppose any agreement leaving open the possibility that any substantive borders could arise between Northern Ireland and the rest of the UK, a possibility that Foster said would be tantamount to the "annexation" of Northern Ireland by the EU.

This development has apparently shattered EU negotiators' willful illusion that May might be able to unite Parliament around an agreement that the Continent would also find palatable. What's worse, these last-minute difficulties arose after both sides had leaked hat a draft agreement had nearly been reached.

In response to concerns over May’s ability to hold her government together and push through a deal, however, the EU is now planning an alternative use for the November summit should it be required.

The bloc’s deputy chief negotiator, Sabine Weyand, had told EU ambassadors gathering in Luxembourg on Friday that talks were progressing well, and that results might be made public as early as Monday. One senior EU diplomat said: “The wedding knot is tied.”

The two negotiating teams were due to make an assessment of the state of play on Sunday evening. A leaked EU planning document, obtained by the German newspaper Süddeutsche Zeitung, noted: “Deal made, nothing made public (in theory).”

May’s volatile domestic situation remains the greatest risk to a deal. Internal government emails leaked to the Observer revealed on Sunday that the DUP leader, Arlene Foster, had privately let it be known that following a “hostile and difficult” meeting with the EU’s chief negotiator, Michel Barnier, last week that she was now ready for a no-deal scenario. She said she regarded it as the “likeliest outcome”.

In a story published in Sunday's Financial Times, the paper's reporters offered a broad outline of the negotiations surrounding the Brexit withdrawal treaty and its controversial "backstop" plan (which has been revised again and again since the initial agreement-to-agree on a protocol for the Irish border was reached last December).

Mrs May has said that leaving the customs union is "non-negotiable" and the deal is expected to be premised on Britain ultimately pursuing an independent trade policy, with separate agreements from the EU around the world.

But any deal this week will turn on Britain being able to stay in a “temporary customs arrangement” with the EU while the Northern Irish border issue is solved — a period that will be finite but without an immovable end date.

Such an option will allow Mrs May will be able to say she has agreed terms to ensure Britain’s economic union with Northern Ireland will remain undivided, at least in terms of the UK’s customs territory.

But as a point of law, the withdrawal treaty will also make clear that regulatory and customs barriers could be erected across the Irish Sea as a last resort as part of a "backstop" plan specific to Northern Ireland.

It is for this reason that Mrs May’s partners the Democratic Unionist party are threatening to oppose the deal. Writing in the Belfast Telegraph this weekend, Arlene Foster, DUP leader, urged Mrs May "to stand by her principles and instincts rather than accepting a dodgy deal foisted on her by others".

While EU officials reportedly insisted that these preparations represent a "parallel track" to negotiations over a deal, the preparations will include plans to avoid such practical concerns as how to avoid "long lines of lorries" arriving from the UK from piling up at customs.

The European commission’s secretary general, Martin Selmayr, told member states last month that their governments would need to decide how far it would be in the EU’s interest to mitigate some of the impacts of a scenario in which the UK leaves the bloc without a deal.

A senior EU diplomat said leaders at the November summit would also want to coordinate their responses in areas where national governments have competence, such as contingency measures to avoid long queues of lorries waiting at customs, or in aviation and haulage.

A senior EU diplomat said: "Preparations on contingency are really advancing in almost all member states. We’re in close contact with our neighbours and exchanging all these issues. The commission has beefed up its team working on contingency."

"This is a parallel track. We’re going to do this anyhow whatever the outcome because even if there’s a positive outcome [this week] we’ll still need to continue preparedness and contingency because we can never exclude the possibility that negotiations will break down at a later stage”, the same source said.

"Unless we have a final deal agreed upon by the House of Commons and the British parliamentary system we’ll carry on with our preparedness and contingency. That’s normal work."

As a reminder, here's a timeline of important Brexit-related dates and a summary of four different possible outcomes once "Brexit Day" (set for March 29, the last business day of the first quarter) arrives (charts courtesy of ING and Statista):

It's not surprising that the EU is moving ahead with this badly needed contingency planning. What is surprising, however, is that it took them this long - though we imagine they held off to avoid any damaging leaks that could have further destabilized May's already tenuous grip on power. With nearly all of the difficulties over the negotiations arising from the UK's side, it's worth asking at what point will the UK's Continental partners simply throw up their hands and walk away?

Conservatives should trigger leadership contest unless Theresa May drops her Brexit plan, David Davis tells MPs

Exclusive: 'If she doesn’t move, the Tory party will lose its patience. They will put the 48 letters in calling for a leadership election'

the Independent,

15 October, 2018

David Davis has told Tory MPs they should trigger a leadership contest to topple Theresa May unless she drops her Brexit plan this week, The Independent can reveal.

The former Brexit secretary wants the prime minister to be presented with an ultimatum that her party will seek to remove her if she refuses to budge before Wednesday’s crunch EU summit.

If she stands firm, Tory MPs will immediately trigger a leadership contest by sending in the required 48 letters calling for a vote of confidence in her, he is warning ministers.

Davidson hints she will quit if Northern Ireland given special terms

The dramatic ramping-up of pressure on Ms May – to switch to seeking a looser, Canada-style trade deal – comes as the chances of a breakthrough in the Brexit talks over the next few days faded.

Dominic Raab, the Brexit secretary, suddenly arrived in the Belgian capital for face-to-face talks with Michel Barnier, the EU’s negotiator, prompting a flurry of excitement that a deal was close.

But Mr Raab went home within hours and Mr Barnier tweeted that “despite intense efforts, some key issues are still open”, in particular how the proposed “backstop” can guarantee no new hard border in Ireland.

It appeared that no further talks would be held between officials before the summit, when the prime minister will issue a make-or-break appeal directly to fellow EU leaders to save the negotiations.

Now The Independent understands that Mr Davis has told friends: “If she doesn’t move, the Tory party will lose its patience. They will put the 48 letters in calling for a leadership election.”

Back home, the prime minister’s troubles deepened as:

* Ruth Davidson, the Scottish Tory leader, and Scottish secretary David Mundell, hinted they would resign if the Brexit deal gives Northern Ireland special trading terms with the EU

* Up to nine cabinet ministers, including Mr Mundell, prepared to challenge the prime minister’s backstop plan at a meeting on Tuesday

* The number of letters calling for the vote of confidence, sent to Sir Graham Brady, chairman of the 1922 Committee, was reported to have reached 44 – just four short of the total needed

* A cabinet minister admitted Ms May will not insist on an “end date” for the UK staying in the EU customs territory – increasing the risk of resignations on Tuesday

* The EU said it would stage a no-deal Brexit summit in November, to prepare for the UK cr

The growing Brexiteer revolt appeared to have succeeded in preventing Ms May signing off on a weekend agreement that could lock the UK into the EU’s customs territory indefinitely.

Cabinet ministers fear that, without a legal end date, the EU will be left to decide whether as-yet-unproven technology has produced an alternative solution to avoid the need for border checks in Ireland.

And that in turn would leave the UK unable to sign its own trade deals for years to come – to Leave supporters, a key prize of Brexit.

Until now, Mr Davis has insisted he is campaigning to “change the plan, rather the prime minister”, heaping praise on Ms May when he resigned in July.

However, a switch to seeking a Canada-style trade deal – unless accompanied by an Irish backstop – would be rejected immediately by EU and would almost certainly collapse the talks altogether.

The 69-year-old Mr Davis is not interested in being a caretaker prime minister who would finalise a deal with the EU and then stand down, The Independent understands.

He has told friends: “I have had five people this week contacting me and trying to get me to run. Some are saying they want an interim prime minister, but nobody wants to be an interim prime minister.

“It wouldn’t work. You would be a lame duck from day one. We need a powerful prime minister to lead the negotiations.”

However, Mr Davis is also confident he could beat Boris Johnson in a leadership contest. “Boris is easy,” he joked to friends. “The battle is never between favourites.”

Theresa May puts brakes on customs union deal with Brussels amid Cabinet opposition