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The European Central Bank is preparing for a disorderly Brexit and isn't relying on the transition period to save the day.
ECB President Mario Draghi gave a stark warning on Monday in the European Parliament: “The bottom line is this one – either the negotiation is well managed and there won't be substantial risk, or it is not and then the risks will be there, so we're certainly looking at that and we've got to be prepared.”
While the U.K. government says it plans to get a quick agreement on the transition – the two-year grace period designed to allow businesses prepare for the shift in regulation – Draghi underlined the uncertainty that still surrounds such a deal, Mark Deen and Lucy Meakin report.
First of all, the U.K. government says it plans to fight the European Union on some of the conditions attached to the arrangement, possibly delaying the agreement. But then even once a deal is secured, it will be no more than a political accord without legal weight until the final exit deal is inked and approved. That is scheduled to happen toward the end of this year. If there's a bad tempered walkout and the much feared no-deal scenario, there's no transition either.
“As we all know, the realization of the transition period is still exposed to political uncertainty and that will remain for some time to come,” Draghi warned.
Brexit Latest
Another Round | Brexit negotiations get going again in Brussels on Tuesday, with a focus on some of the leftover issues from the first phase, including the Irish border – where a compromise was stitched together in December that risks falling apart when it's put into legal language. The transition will also be discussed. On Friday, the EU is expecting an “update” from the U.K. on the future relationship. Meanwhile there's a Cabinet meeting in London.
£26 Trillion | U.K. Financial Conduct Authority CEO Andrew Bailey said a transition deal must be reached by the end of March and that a notional £26 trillion ($36 trillion) of financial contracts are at risk. “Given its size, complexity, and global interconnectedness, if these risks were to materialize they could have a major impact not only on the U.K. but also on the global financial system. Financial stability in the U.K. is thus a global public good,” Bailey said on Monday.
Energy Costs | U.K. businesses could face higher power prices if the country leaves the EU's energy market after Brexit, according to a new report commissioned by the Aldersgate Group. Industrial power prices are already higher than in France and Germany, Bloomberg BNA reports.
Australian Friends | Prime Minister Theresa May spoke to Australian Prime Minister Malcolm Turnbull and discussed how their future trading relationship might develop after Brexit, according to May's office.
On the Markets | Since the start of 2018, investors have priced in an increasingly aggressive path for U.K. interest rates. They now see a more than 60 percent chance of a hike in May, and expect more than three increases over the Bank of England's three-year policy horizon. The danger is those expectations may be too high for Governor Mark Carney when he presents the bank's Inflation Report on Thursday, risking a selloff in the pound, David Goodman and Charlotte Ryan report.
And Finally...
“There is lots of bad feeling in the Tory Party at the moment,” said Paul Whitely, professor of government at Essex University. “It is like World War I – all the conditions are in place, but you need an assassination to set it off.”
Robert Hutton and Kitty Donaldson have more on the battle inside the Conservative Party, and go beyond the elegant exterior to look at what the rise of Jacob Rees-Mogg could mean for Brexit.
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To contact the editor responsible for this story: Jones Hayden at jhayden1@bloomberg.net, Andy Reinhardt
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