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Speaking in the House of Commons yesterday, the Brexit Secretary Dominic Raab told MPs that any extension of Britain’s participation in the customs union beyond the end of the transition period would have to be “temporary, limited and finite.” Raab added that any divorce deal would have to include clarity on the future UK-EU relationship, saying, “There’s no question of a blindfolded exit.” Under questioning from Democratic Unionist Party (DUP) MP Nigel Dodds, Raab promised that the government would “not do anything which would be a threat to the economic or constitutional integrity of the UK.” He did not explicitly rule out a backstop that included a regulatory border in the Irish Sea, but said that such a border would have to be subject to the approval of the Northern Ireland Executive and Assembly.
Separately, former Brexit minister Steve Baker said yesterday that up to 40 Conservative MPs could rebel against the Chequers proposal if it was brought before Parliament. He also added that he would “be amazed if there were not more resignations” from the Cabinet in the event either of a further “softening” of Chequers, or if the Withdrawal Agreement included a backstop under which the UK would remain “indefinitely” in the customs union.
Elsewhere, around 30 Labour MPs are reportedly considering defying their party leadership and either voting for the government’s final deal with the EU, or abstaining, in order to avoid a no deal exit. Reports suggest MPs may consider initially voting down the government’s deal, but backing the government in a subsequent vote to break parliamentary deadlock.
This comes as the EU27 national ambassadors will meet this Friday in Luxembourg to discuss Brexit negotiations, ahead of the European Council Summit next week.
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Following her meeting with the EU’s Chief Brexit negotiator Michel Barnier in Brussels yesterday, DUP leader Arlene Foster said that the result of the Brexit referendum “must be respected as a whole across the nations” of the UK, while the European Commission had to respect the “sensitivities surrounding Northern Ireland.” She confirmed that her party had not seen the text of a revised backstop proposal from the UK Government.
Following reports that the DUP had softened its opposition to checks between Great Britain and Northern Ireland, Foster said “There cannot be any customs or regulatory barriers between ourselves and the rest of the United Kingdom, both ways.” She added, “It is not just a case of regulations between Northern Ireland and Great Britain, it is also between Great Britain and Northern Ireland…The Prime Minister understands our position, and I expect her to respect that position.” Foster refused to rule out the possibility of DUP MPs voting against a Brexit deal which violated her party’s red lines, but said that the party was working in the “national interest”.
Meanwhile, Michelle O’Neill, the leader of Sinn Fein in Northern Ireland, said that “the ‘backstop’ as already agreed must be maintained and is the absolute bottom line for Sinn Féin, SDLP [Social Democratic and Labour Party], Alliance and Green party as we enter the endgame of the Brexit negotiations.”
Elsewhere, Ireland’s Deputy Prime Minister Simon Coveney said, “the [Brexit] talks process has intensified this week on trying to find a way forward on the [Northern Irish] backstop but I suspect November will probably be needed as well as October to get agreement on that but we’ll know an awful lot more next Monday and Tuesday.”
The former Brexit Secretary, David Davis, has written to Conservative MPs to warn that the “electoral consequences” of supporting Prime Minister Theresa May’s ‘Chequers’ plan on post-Brexit UK-EU relations “could be dire.” The letter argues that ‘Chequers’ would not deliver any of the “benefits” of Brexit promised during the referendum, and would leave the Conservative Party vulnerable at the next election.
This comes as the International Development Secretary, Penny Mordaunt, pledged her “support” for Theresa May at a press conference, but declined to give her explicit backing to the ‘Chequers’ proposal.
Chris Cummings, the head of the UK’s Investment Association (IA), on Monday said that there was now “greater confidence” that British fund managers would have to move fewer people out of the UK over Brexit. He said that a recent statement made by the European Securities and Markets Authority (ESMA) on post-Brexit cooperation agreements gave “great comfort,” adding, “There were some mixed messages from last summer, but that now seems to have been clarified by ESMA, that [cross-border] portfolio management can continue.” He also said, “I am expecting other European financial centres to grow a little, a necessary part of the rebalancing after Brexit, but I think the UK remains the preeminent destination for portfolio management.”
Meanwhile, the Bank of England (BoE) yesterday warned that up to £41tn of derivatives contracts were at risk after Brexit. The BoE said that “absent action by EU authorities to address these issues, contracts EU clearing members have with UK CCPs [Central Counterparties] will need to be closed out , or transferred, before March 2019.” This would result in a “costly… movement of a large volume of contracts in a short timeframe… and disrupt the derivatives positions of EU businesses and could strain capacity in the derivatives market.” It also claimed that EU banks would have to bear the costs of this disruption.
Separately, the International Monetary Fund (IMF) warned in a new report that a breakdown in Brexit negotiations poses a risk to global financial stability, adding that in the short-term, ensuring continuity of contracts is “one of the most pressing issues” for derivatives. The IMF urged financial institutions to “step up their preparations for a post-Brexit landscape” and recommended that the UK and the EU create institutions that would cooperate on harmonising financial regulations after Brexit.
The Daily Telegraph
The Irish government has set aside €110 million in its budget for 2019 to address the “challenge” raised by Brexit. Ireland’s Minister for Finance, Paschal Donohoe said, “ Brexit, the outcome of which is still unclear, edges closer each day. Increasing trade barriers are raising the spectre of protectionism and the international tax landscape is changing rapidly. Brexit is the political, economic and diplomatic challenge of our generation.”
Elsewhere, latest forecasts by Danske Bank estimate a slowdown in Northern Ireland’s growth rate to 1% this year and 1.1% next year. Danske Bank’s chief economist, Conor Lambe, also said, “A no-deal Brexit would undoubtedly lead to negative economic consequences for both Northern Ireland and the wider UK and, as such, it is the most significant risk facing the economy at this time.”
Responding to recent comments from former US Secretary of State Hillary Clinton that it was “disheartening” that Conservative MEPs had failed to vote in favour of opening Article 7 proceedings against Hungarian Prime Minister Viktor Orbán, the Conservative home affairs spokesman in the European Parliament, Daniel Dalton, said, “I can reassure Hilary Clinton that Conservative MEPs have not voted in support of the Hungarian government. We opposed the European parliament resolution because it went way beyond the parliament’s competency and will never be applied because Poland has already pledged to veto it in the European Council,” adding, “We take very seriously the direction the Hungarian government is taking, particularly in its rhetoric surrounding migrants and ethnic and religious minorities, and the rule of law and freedom of the press.”
The German Economic Institute, a free market think tank, yesterday published a study warning that a ‘no deal’ Brexit “could cause considerably high costs on both sides of the Channel,” adding, “In the short run, companies will be charged more than 15 billion euro as tariffs. In the long run, UK-EU trade could be reduced up to 50 percent.” It claimed, “Manufacturing-intense regions in Germany face the highest Brexit exposure on the continent, with roughly five percent of GDP being directly or indirectly dependent on UK trade – compared to an exposure of up to 16% of GDP in British regions through EU27 trade.” The Institute also suggested that the reintroduction of tariffs on UK exports to the EU “will refund half of the loss of UK net contributions to the EU Budget … assuming unchanged trade volumes.” On the relative damage a ‘no deal’ Brexit would do to the UK and EU economy respectively, it said, “In absolute terms, [there would be] a higher burden for EU than for UK companies. In terms of GDP, however, the tariff burden for UK companies is 2.5 times higher than for EU companies.”
German Economic Institute
The US could block the UK rejoining the Government Procurement Agreement (GPA), an agreement within the framework of the World Trade Organisation (WTO) which opens government procurement markets among the parties, after Brexit, Bloomberg reports. Two US trade officials are quoted as saying that the UK would need to revise its GPA application as it is outdated. The UK is due to ask GPA members to provisionally approve its application at a meeting on October 17, arguing that it could receive faster approval due to its current membership. Any member state can veto the UK’s accession bid.