Blog: Boris Johnson Says U.K. Is Now Preparing for No-Deal: Brexit Update – Bloomberg

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Negotiations between Britain and the European Union are set to continue next week even after Boris Johnson said he believes a trade deal is now unlikely.

The prime minister insisted the U.K. is ready to leave the bloc’s single market and customs union at the end of the year without a new agreement in place.

He has essentially kept the door open for more talks, while insisting it is up to the EU to make a first concession.

Read more: The Canada, Australia Models for Post-Brexit Trade: QuickTake

Key Developments:

  • Chief negotiators David Frost and Michel Barnier held talks on Friday
  • EU’s von der Leyen says team will go to London next week to intensify talks

Frost and Barnier Spoke (5:40 p.m)

The sense from the U.K. side, after the two key negotiators spoke, is that negotiations are not formally back on but both sides are still talking. That would indicate that things are tense, but confirm that we are not in a walk-out scenario just yet.

Merkel Extends an Olive Branch (2:40 p.m.)

Chancellor Angela Merkel offered Johnson an olive branch, signaling that the EU should make a move in London’s direction, in particular on the so-called level playing field.

“We also need to be ready to compromise,” Merkel told reporters from Brussels after the summit in Brussels. “If we want to have an agreement, then both sides need to make a move toward each other.”

Merkel said the talks are the opposite of a conventional trade agreement because the two sides are trying to negotiate “the new distance” between them.

U.K. Says Trade Talks Are Over (2:08 p.m.)

Britain considers that trade talks with the EU are “over,” Prime Minister Boris Johnson’s spokesman, James Slack, told reporters on Friday, adding that the EU effectively ended them by saying it’s for the U.K. to change its position.

“There’s no point in trade talks if the EU doesn’t change its position,” Slack said. He added that the EU’s chief negotiator, Michel Barnier, should only travel to London next week if he is prepared to discuss “all of the issues on the basis of legal texts.” (See 1:45 p.m.)

Macron Says U.K. Is Using Fish as a Tactic (1:55 p.m.)

French President Emmanuel Macron insisted his push to keep access to British fishing waters isn’t the roadblock to a deal.

“Fishing is used by the U.K. in a tactical way,” he said. “Why? Because if there’s a no deal, this is the only topic where Boris Johnson can say ‘I won.’” The choices of EU member states “aren’t designed to make the Prime Minister of Great Britain happy,” he added.

Fish Are Chips in Post-Brexit Trade Bargaining: QuickTake

Brinkmanship For Now, Real Discussions Later (1:45 p.m.)

How to interpret Johnson’s statement? U.K. officials want the message to be that trade talks are off. But their EU counterparts are letting it be known they expect to be back in London on Monday as if nothing ever happened. The reality is somewhere in between.

The two chief negotiators, David Frost and Michel Barnier, who have a better relationship than the state of the talks suggest, will talk on Friday afternoon and work out a plan. At some point during that conversation the brinkmanship is likely to stop and the two of them will quietly work out how to move things forward. That is likely to depend on three things:

  • The EU going beyond Thursday’s summit communique, which didn’t mention that talks would intensify. Von der Leyen’s tweet (see 12:42 p.m.) appears to have already done that.
  • The EU agreeing it needs to compromise. German Chancellor Angela Merkel said after the summit of EU leaders in Brussels that the EU “too must be ready to compromise.”
  • Both sides being prepared to start work on the legal text of the agreement.

Businesses Not Ready for No Deal (1:39 p.m.)

Companies still don’t know what trading relationship they will face with the EU as time runs out, and many don’t have the resources to prepare, according to Mike Cherry, National Chairman of the Federation of Small Businesses.

“The government is essentially saying get ready for a no-deal outcome even though a deal could still happen,” Cherry said in a statement. “The last time we were told to prepare for a no-deal scenario you saw a big uptick in stockpiling. There simply isn’t the cash or staff capacity to make that possible this time round, with a lot of employees still furloughed amid weak demand.”

Merkel Says “Time Is of the Essence” (1:17 p.m.)

German Chancellor Angela Merkel says the EU will continue to seek an accord.

“It would be of mutual interest to have an agreement, but of course we must be prepared for the opposite case,” she said after a summit of EU leaders in Brussels. “For us, from the Council, talks that will continue in coming days are foremost.”

U.K. Hasn’t Agreed to Talks, Yet (1:10 p.m.)

The EU assumes that talks will continue in London on Monday as planned. But the U.K. side hasn’t agreed to that yet, or discussed it with the bloc — and it will only happen if the bloc’s negotiators are prepared to start working on a legal text and make some compromises, according to a person familiar with the U.K. government’s position.

U.K. Food Lobby Says U.K. in “Dangerous Territory” (1:07 p.m.)

“The Prime Minister’s statement signals that we are heading into very dangerous territory,” Ian Wright, chief executive of the Food and Drink Federation, a U.K. lobby group, said in a statement. “We need leaders on both sides to find a way past the current impasse in order to progress talks.”

Without a trade deal, food and drink imported from the bloc would face tariffs averaging 18%, which will spur higher prices, Wright said.

EU’s Von der Leyen Says Team to Go to London (12:42 p.m.)

Negotiators from the bloc will travel to London next week to “intensify” their discussions with the U.K., European Commission President Ursula von der Leyen says in a tweet.

What Would an Australian-Style Deal Mean? (12:34 p.m.)

An Australian Brexit is essentially a re-branded “no deal” Brexit. Firms would trade on terms set by the World Trade Organization in most areas, with tariffs on goods and an agreement on the processes to reduce some regulatory barriers.

The imposition of tariffs means U.K. exporters lose competitiveness in their biggest market — with the EU accounting for more than 40% of foreign sales — and U.K. consumers face higher prices in stores. That inflationary hit could be compounded if investors take fright and sell the pound, putting additional upward pressure on import costs.

In an analysis published earlier this week, Bloomberg Economics, forecast that the absence of a deal could deliver a near-term shock of around 1.5% of gross domestic product — about 300 billion pounds ($388 billion) to the U.K. economy. It would also have a long-term effect, permanently putting a brake on potential growth.

Chief Negotiators to Hold Talks on Friday (12:27 p.m.)

U.K. chief negotiator David Frost and his EU counterpart Michel Barnier are set to hold further discussions on Friday afternoon, according to a European official with knowledge of the matter.

Johnson Tells EU: ‘Come to Us’ (12:10 p.m.)

Prime Minister Boris Johnson said the U.K. will now get ready to split from the EU’s single market and customs union without a new trade agreement, while leaving the door open to more talks. The EU is not serious about giving Britain the kind of deal it wants, “unless there is some fundamental change of approach” from the bloc’s negotiators, Johnson told a television crew.

Asked to clarify if he was calling time on negotiations on a trade deal, Johnson said: “We’re saying to them: come to us.”

“Since we have only ten weeks until the end of the transition period on January 1, I have to make a judgment about the likely outcome and to get us all ready,” Johnson said.

“And given that they have refused to negotiate seriously for much of the last few months, and given that this summit appears explicitly to rule out a Canada-style deal, I have concluded that we should get ready for January 1 with arrangements that are more like Australia’s based on simple principles of global free trade.”

U.K.’s Raab Says Deal Depends on EU (Earlier)

Foreign Secretary Dominic Raab said the U.K. is “disappointed and surprised” that the EU had watered down its commitment to intensifying the trade talks. A deal, he said, “depends on the other side.”

“We have been told that it must be the U.K. that makes all of the compromises in the days ahead,” Raab told Sky News on Friday. “That can’t be right in a negotiation so we are surprised by that, but the prime minister will be saying more on this later today.”

Still, the two sides are “close” to a deal, he said, with only “only two issues — fisheries and the so-called level playing field” left to resolve. “With goodwill on both sides we can get there,” Raab said.

— With assistance by Patrick Donahue, Ania Nussbaum, John Follain, Ian Wishart, and Nikos Chrysoloras

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