U.K. to trigger Brexit March 29, starting two years of talks

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Photo Source: BBC

Prime Minister Theresa May will file divorce papers to leave the European Union on March 29, launching two years of complex negotiations that will pit the U.K.’s need for a trade deal against the bloc’s view that Britain shouldn’t benefit from Brexit.

More than 40 years after the U.K. joined the EU and nine months since it voted to quit it, Britain’s envoy to the bloc, Tim Barrow, informed EU President Donald Tusk on Monday of her plan to invoke Article 50 of the Lisbon Treaty, the mechanism for quitting that has never been used.

At stake in the looming talks is whether Britain — the world’s sixth biggest economy — can regain powers over immigration and lawmaking without derailing trade with its largest market or threatening London’s status as the region’s leading financial center. England’s 310-year-old union with Scotland is also in jeopardy, while the border separating Northern Ireland — a U.K. province — from the Republic of Ireland could become a hard one.

“We are on the threshold of the most important negotiation for this country for a generation,” Brexit Secretary David Davis said in a statement after the date was announced by May’s spokesman, James Slack. “The government is clear in its aims: a deal that works for every nation and region of the U.K. and indeed for all of Europe — a new, positive partnership between the U.K. and our friends and allies in the European Union.”

The EU is “ready to begin negotiations,” European Commission spokesman Margaritis Schinas told reporters in Brussels. The pound fell 0.2 percent to $1.2378 as of 12:15 p.m. London time. It earlier touched $1.2436, the strongest level this month.

For the EU, the focus will be on ensuring there is no easy ride for the British as it tries to safeguard the stability and the commitment of its 27 remaining member states to the postwar project of deepening economic and political union. It is also tested by growing nationalism at home and meddling from beyond by Russian President Vladimir Putin and President Donald Trump.

May will soon be working against the clock. Realistically, she has until the end of 2018 to agree the terms of the breakup and try to win what she calls the “best possible” trade arrangement for the future. If she can’t secure an agreement, Britain will crash out of the EU and over what businesses call a “cliff edge” of uncertainty and higher trade tariffs.

No details of the letter submitted to Tusk’s office were disclosed. EU leaders plan an initial response within two days before convening a summit to ratify guidelines for their chief Brexit negotiator, Michel Barnier. Officials have said they may wait until June to fully engage, and then German elections in September could serve as a distraction.

The British premier is up against European leaders who are showing no desire to give her generous terms, fearing that would encourage exit campaigners elsewhere. The EU is already planning to focus the early part of talks on the exit fee — estimated as high as 60 billion euros ($64 billion) — and May has been repeatedly told she won’t be allowed to “cherry-pick” the best bits of EU membership without bearing the costs.

Irish Prime Minister Enda Kenny has warned the talks could turn “vicious” and European Commission President Jean-Claude Juncker has predicted they will be “very, very, very difficult.” Even Davis is readying for what “may be the most complicated negotiation of all time.”

May has already conceded Britain will have to quit the single market for goods and services — accounting for about 44 percent of its exports — to avoid being bound by European court rulings and the free movement of migrants. She says it would be “rational” for the EU to agree to her terms given the amount of goods and services its companies ship to the U.K. and the security her government provides the continent.

While May says “no deal for Britain is better than a bad deal for Britain,” quitting the bloc without a pact or more time to negotiate one would leave the country exposed to World Trade Organization tariffs, putting duties of around 10 percent on car exports alone. Strengthening May’s hand to push for a so-called hard or clean Brexit is the British economy’s defying of predictions that voting to leave the EU would spark a recession.

Still, signs are emerging that consumer spending — the engine of the British economy –is starting to slow as the pound’s 17 percent decline since the June 23 referendum drives up inflation.

It’s a high-wire act for May. She campaigned to remain in the EU but must now navigate the exit, after succeeding David Cameron, who resigned when he lost the referendum. Having already faced pushback, first from the Supreme Court and then from parliamentarians, she leads a Conservative Party split between lawmakers who want a clean, swift break and those who worry she risks hurting the economy. Fresh calls for a second independence referendum in Scotland from First Minister Nicola Sturgeon only intensify the pressure on her.

An early flashpoint will be the bill Barnier wants to present Britain with. EU officials say they aren’t willing to discuss trade until that’s settled and that the matter could take until early 2018 to resolve in a best-case scenario. A worst case would see the talks break down prematurely. Other issues to be discussed early on include border issues and rights of EU citizens residing in the U.K. as well as Britons living in the bloc.

May’s team has questioned the size of the bill and how much legal obligation Britain is under to pay it. It wants to discuss the exit and the new free-trade deal together, to save time, give businesses certainty and to preserve bargaining power. The two sides may also have to line up a transitional phase to bridge leaving the bloc and new trade rules with banks threatening to shift staff from London if they don’t get time to adjust.

“This is not only the beginning of the process, it’s also the beginning of a process by which the delusions of the Brexiteers will have a very brutal collision with reality,” former U.K. Deputy Prime Minister Nick Clegg said in an interview. “Now they actually have to negotiate with 27 other governments and parliaments — it’s going to be incredibly complex.”

(c) 2017, Bloomberg