UK And EU Reach Agreement Taking Brexit Talks To "Phase 2" As Irish Border Questions Linger

Early on Friday morning, the EU and UK negotiated a deal allowing Brexit negotiations to move on to the "Phase 2", which will establish their future trading relationship.

The European Commission said it recommends to the European Council to conclude that sufficient progress has been made in the first phase of the Article 50 negotiations with the U.K. The European Council will announce its decision on 15 December 2017. If approved, talks can proceed to second phase. Diplomats from both sides worked into the night to resolve the Irish border issue – although questions remain whether it’s really fully resolved. UK Prime Minister, Theresa May, and Brexit secretary, David Davis, travelled to the Berlaymont building, the headquarters of the European Commission in Brussels, early on Friday morning to conclude the agreement with EU President, Jean Claude Juncker, and the EU’s chief negotiator, Michel Barnier.

Juncker and May subsequently hosted a press conference announcing the breakthrough. In a sign that a deal had been reached Martyn Selmayr, Juncker’s head of cabinet, had earlier tweeted a photograph of white smoke emerging from the chimney of the Sistine Chapel, the signal that the Vatican has successfully chosen a new Pope.



News of the deal led to an immediate spike in Sterling which however faded almost as quickly. Bloomberg reports.

(The) Pound erased earlier gains as investors took profits after U.K. and EU struck a deal to move forward on Brexit negotiations, shifting focus to more difficult trade talks, Mizuho Bank says. “The more important issue is the trade talks which are more difficult, so it’s understandable the pound has been sold on the fact of a breakthrough which has been talked about for the last few days,” says Daisuke Karakama, chief market economist in Tokyo. “There’s political uncertainty over the U.K.’s decision on whether to retain access to the single market or not, and this fluid political situation doesn’t warrant pound buying. I think the pound has seen a peak”.

The major delay in reaching agreement had been the question of the future border arrangements between Northern Ireland and the Republic of Ireland. Northern Ireland’s Democratic Unionist Party, which has been propping up May’s government in Parliament, had demanded a “soft” (basically open) border with its southern neighbour. However, no details were provided during the press conference and the DUP noted this morning that more work is needed (see below).

According to the Financial Times.

Britain reached a historic deal on its EU exit terms on Friday, enshrining special rights for 4m citizens and paying €40bn-€60bn in a hard-fought Brexit divorce settlement that clears the way for trade talks next year. Theresa May and Jean-Claude Juncker, the European Commission president, met early on Friday to sign off a 15-page “progress report” that will allow EU negotiators to recommend opening a second phase of talks on post-Brexit relations. Shortly after the breakfast started, Mr Juncker’s chief of staff Martin Selmayr tweeted pictures of white smoke rising from a chimney stack, indicating the deal was done. The final breakthrough on Northern Ireland’s border came after a week of high drama in Brussels and Westminster, with agreed compromises scuttled on Monday by the Democratic Unionist party, Mrs May’s parliamentary allies.

 

The prime minister’s decision to seal the agreement on Friday marked the finale of a three-week diplomatic effort to finalise the most contentious divorce terms. EU leaders will formally decide at a summit next week whether it represents “sufficient progress” to start the second phase of negotiations. Mrs May is to meet Donald Tusk, the European Council president, later in the morning. In a move intended to show an immediate EU response to Britain’s offer, Mr Tusk intends to release draft negotiating guidelines this morning that set EU priorities for the next phase, including in trade and a post-Brexit transition negotiations.



During the press conference, Juncker commented that “Both sides had to listen to each other, adjust their position and show a willingness to compromise…This was a difficult negotiation for the European Union as well as for the United Kingdom.” In an uncharacteristic gesture of goodwill, Juncker stated “We can now start looking towards the future – a future in which the UK will be a close ally.”

May remarked that securing the deal had “required give and take on both sides”, but she now looked forward to a “positive and ambitious future relationship” and the settlement was “fair to the British taxpayer”. Nonetheless, most British taxpayers will not view a 40-60 billion euro payment to the EU as fair, since the settlement is closer to the opening demands of the EU. May also stated that she will be writing a letter to the people of Norther Ireland and was pleased  that the rights of 3 million EU citizens in the UK and 1 million UK citizens in the EU had been secured.

While today’s agreement is a step forward in the Brexit process, hurdles remain. Last night, DUP leader, Arlene Foster, told Sky News that she had secured “six substantive changes” to the text on the Irish border. However, it’s become apparent that Foster has only given a cautious approval to the deal, noting that there is still work to be done on regulatory alignment and that the initial agreement could “pre-judge” the outcome of political discussions within the UK. In a statement she noted.

We cautioned the Prime Minister about proceeding with this agreement in its present form given the issues which still need to be resolved and the views expressed to us by many of her own party colleagues. However, it was ultimately a matter for the Prime Minister to decide how she chose to proceed.

If the Irish border question can be fully resolved, the negotiations on the future trade relationship could be difficult and prolonged. Responding to the news, Nigel Farage, the high-profile former leader of the UK independence party, stated “The deal is not acceptable”. According to Marc Ostwald, global strategist at ADM ISI in London.

The question now is whether the hard Brexiteers decide to unseat Mrs May.

Readers can peruse the full 7000-page report outlining the Ireland agreement, rights of EU citizens in the UK and the controversial Brexit divorce bill in its entirety at the following link.