Posted by on May 22, 2017 9:00 am
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Categories: Aftermath of the United Kingdom European Union membership referendum Barclays brexit Economy ETC European Commission European Union European Union (Notification of Withdrawal) Act Euroscepticism in the United Kingdom Fail Government of the United Kingdom headlines Institute of Chartered Accountants in England International reactions to the 2016 United Kingdom European Union membership referendum Minister Theresa May’s government Politics of the United Kingdom Prime Minister Theresa May’s government Theresa May Transparency United Kingdom Brexit negotiations Withdrawal of the United Kingdom from the European Union World Trade Organization

With negotiations between the UK and EU likely to formally begin on June 19, Bloomberg reports that Brexit Secretary David Davis has pre-emptively lashed out at EU officials, threatening that “The UK will quit talks on leaving the European Union unless the bloc drops its demands for a divorce payment as high as EUR100bn.”

Britain’s negotiations would otherwise be plunged into “chaos,” and even a 1 billion-pound settlement would be “a lot of money,” Davis said in an interview published in the Sunday Times.

As Bloomberg notes, the size of Britain’s exit bill, and which types of negotiations can begin before it has been agreed, has been a source of debate for weeks.

European Commission President Jean-Claude Juncker has said the U.K. will have to pay about 50 billion pounds, while Luxembourg’s Prime Minister Xavier Bettel has signaled a figure between 40 billion euros and 60 billion euros.

The Financial Times estimated the cost could balloon to 100 billion euros, while a study by the Institute of Chartered Accountants in England and Wales put the cost at as low as 5 billion pounds ($6.5 billion).

Prime Minister Theresa May’s government has said it will meet its commitments to the EU, but has questioned how Brussels officials reached their preliminary estimates… especially the oddly round number of 100-billion-euros…

“We don’t need to just look like we can walk away, we need to be able to walk away…Under the circumstances, if that was necessary, we would be in a position to do it.”

May also weighed in on the Brexit bill, saying in an interview with the Sunday Telegraph that “money paid in the past” by the U.K. into joint EU projects and the European Investment Bank ought to be taken account in the final sum.

“There is much debate about what the U.K.’s obligations might be or indeed what our rights might be,” she said.

“We make it clear that we would look at those both rights and obligations.”

Cable was lowe rin early trading on the headlines…

But, interestingly, Barclays fears that two years may not be enough time to complete comprehensive Brexit talks

  • A long road ahead. We believe full negotiations will last much longer than the two years set out for withdrawal. New trading relationships with the EU and the RoW will likelyto be complex and drawn out. As a result, firms are likely to review their operations along the entire value chain, with tariffs only being a small part of their worries.
  • Accordingly, the government should focus on a bridge agreement to avoid a “cliff edge”. The EU also made clear that a new trade agreement can only be finalised once the UK becomes a third country. That will also involve EU27 member-state ratification.

Which leaves three possible paths ahead…The soft, the hard and the ugly Brexit

While it remains unclear what kind of Brexit PM May is seeking, we believe that her insistence on regaining control of borders and withdrawing from the ECJ is fundamentally inconsistent with the EU’s funding principles and makes an exit of the single market unavoidable.

The distinction between soft and hard Brexit will be whether the final outcome is a trade agreement a minima or whether the UK and EU can agree on maintaining some of the deep and comprehensive ties that create economic value.

We believe the final outcome will be one of the following:

A crash Brexit: the UK leaves the EU without any agreement and falls back to WTO tariffs and rules immediately after leaving the EU. Economic consequences would be maximal and disruptive. Such a scenario is likely to crystallise very late in the process but might be delayed or avoided by an extension of talks, which would require a unanimous vote by the EU27.

A soft Brexit : the UK leaves the single market but is able to establish an enhanced partnership with the EU (such as improved equivalence, preferential access, etc) . Under such a scenario, the deviation from the status quo is small and the economic impact, still negative, but largely contained.

A hard Brexit: the UK leaves the single market but is not able to establish an strong partnership with the EU. Although a transitional period could avoid a cliff edge after the actual exit, the negative economic impact is magnified by the fact that businesses must adjust their operations substantially and over a short period of time

While information regarding a soft and hard Brexit will likely be revealed along the way (that is a transparency prerequisite of the Council), a crash exit might only materialise very late in the process as both parties fail to agree on or ratify a final deal.

Europe still faces a very crowded political agenda ahead..

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Full Barclays Presentation on UK Brexit Themes…

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