EU negotiators (not to mention international investors) are finally being forced to reckon with the reality that the Gordian knot of conflicting interests that UK Prime Minister Theresa May must balance to secure a Brexit treaty with the EU might be an impossible task, and, already weary of wasting their time in fruitless negotiations when May can’t even rally unilateral support within her own party, EU negotiators could be close to pulling the plug on talks and accepting that a ‘no deal’ Brexit is an inevitable political reality.
After frenzied weekend-long negotiations to secure a draft agreement in the form of a nonbinding “political statement” that would have sketched out the details of a final treaty, including the controversial “backstop” provision that would govern how trade barriers are erected across the border between Northern Ireland and Ireland should continued negotiations during the transition fail to yield an agreement on trade, May and EU chief negotiator Michel Barnier affirmed that no agreement would indeed be forthcoming, despite a deal purportedly being “90%” of the way done. As has been the case since early this year, it’s that last 10%, chiefly pertaining to how Northern Ireland would be treated during the post-Brexit transition, and after Dec. 31, 2020, when the transition period is slated to end, that has proved to be an intractable sticking point.
After reports surfaced earlier this week that the EU was planning an emergency “no deal” summit to begin working out the logistics of a ‘no deal’ Brexit, European Council President Donald Tusk said earlier this week that he wasn’t optimistic about the prospects for a deal in the short term.
After last night’s EU meeting failed to yield any discernible progress, a reporter from the Sun sent the British pound sliding…
…when he tweeted Thursday that May is “very worried” that the EU is close to pulling the plug on talks – which is why she floated the idea of a transition extension, an idea that will almost certainly be vehemently opposed by the restive Brexiteers in May’s caucus, who favor a Canada-style trading relationship with the EU and are wary of a soft Brexit that could effectively leave the UK under the Continent’s thumb. This followed a report in the Financial Times that the EU is shelving plans for a special Brexit summit next month, saying they were waiting for May to make a “decisive move” and that negotiations could continue for “weeks or months.”
Why would the PM appear to commit near political suicide by flaunting a transition extension? Because, I’m told, she thinks it may be the only way to re-engage Barnier. Appears No10 are now v worried that EU27 are close to pulling the plug entirely, and ready to go for no deal.
— Tom Newton Dunn (@tnewtondunn) October 18, 2018
Meanwhile, a chart published by Jefferies in a recent research note showed the European economies that will be hardest hit by a ‘no deal’ Brexit by measuring the impact on both their banking systems and supply chains.
— LongConvexity (@LONGCONVEXITY) October 18, 2018
As a reminder, the stalemate over the “backstop” agreement, which would sit beside agreements on immigration and the legal system fleshed out in May’s Chequers agreement, is over whether the backstop would keep the entirety of the UK within the EU customs union – which is opposed by both the EU and the Brexiteers – or whether the backstop would keep only Northern Ireland in the customs union, which the Democratic Unionist Party, which has helped to prop up May’s government, has likened to “annexation” by the Continent. Showing that bureaucrats can have a sense of humor, Tusk told May earlier this week that it was up to her to deliver a “creative” solution on this issue.
Reports circulating on Thursday claimed that the EU might be willing to accept May’s push for the customs union to apply UK-wide as part of the backstop agreement. If true, this could be a huge victory for May. But still, Brexiteers, who have already balked at open-ended negotiations for a new trade deal, could balk, virtually ensuring that the backstop issue could sink the whole deal.
But it increasingly looks like creativity can’t change the fact that, for an agreement to be reached, one side would need to cave. And so far, nobody has proven willing to accept that risk.