Brexit Moves To Phase 2 - Sterling Slides As EU Warns Talks Will Be Far More Testing

Following the humiliation of losing the House of Commons vote on Friday, in which MP’s took the final say on the Brexit deal from the executive, UK Prime Minister was in Brussels as EU leaders gave approval for Brexit talks to move to phase 2. At a dinner last night, she was applauded by leaders of the other 27 EU nations after giving a speech. This morning, the European Council approved the recommendation from the European Commission that talks should proceed to the next phase. Donald Tusk, President of the European Council, tweeted the news.

From the FT “EU leaders have confirmed that “sufficient progress” has been made in the first phase of Britain’s Brexit talks, giving a boost to Theresa May, the UK prime minister, and paving the way for crucial discussions next year on trade. In a summit in Brussels on Friday the EU’s 27 other member states endorsed the European Commission’s recommendation that London had given enough guarantees on the most important divorce issues for talks to begin on a future relationship. The three issues were the UK’s Brexit bill, the rights of EU citizens and the Northern Irish border.

Mrs May was not in the room when her fellow heads of government quickly signed off on the end of phase one talks. They had applauded her on Thursday night to mark the end of several months of fraught negotiations on the divorce. Friday’s declaration was widely expected after Mrs May secured an agreement last week with Jean-Claude Juncker, commission president. That agreement came after the British prime minister assuaged the concerns of Northern Ireland’s Democratic Unionist party over the Irish border; Mrs May relies on DUP support in the UK’s parliament.

The pound fell on the news, as traders focused on the tough negotiations ahead on trade (see below). According to Bloomberg.

Pound Falls to Day’s Low After EU Agreement on Brexit Progress


Pound falls as much as 0.5 percent to $1.3363 following agreement among EU leaders to move on to the more challenging phase two of Brexit negotiations, according to Neil Jones, a strategist at Mizuho in London.


There’s a “good chance now the first phase is done and dealt with, the market will now turn to tougher negotiations ahead,” he says in emailed comments

While the discussion about moving into phase 2 talks of Brexit has always focused on the future trade agreement, the first subject of discussion will be the terms of the UK’s transition phase. This is set to last two years during which the UK will not have a vote on EU proposals but will still have to abide by EU laws and regulations. After Britain sets out what it wants from the future trade relationship, formal discussions on this will begin in March 2018 and, it’s hoped, will be concluded by Autumn next year. The UK parliament can vote on the agreement by the end of next year. The FT notes comments from Malta’s leader.

Joseph Muscat, Malta’s prime minister, said on Friday that the “first big step is for the UK to say what it really wants in clear terms” on its relationship with the EU. “If this happens in the next few weeks then by March we will have a very clear position,” Mr Muscat said. “We are totally committed from our side to deliver.”

Five UK business groups - the British Chambers of Commerce, Confederation of British Industry, EEF (manufacturers’ organisation), Federation of Small Businesses and the Institute of Directors – welcomed the progression to phase 2. However, they warned the UK government that a transition deal needed to be agreed as soon as possible, so business can prepare for Brexit.

We welcome the fact that the European Council has approved the progression of talks to the discussion of a transition period, and a future trade relationship.


It is our collective view that the transition period must now be agreed as soon as possible, to give businesses in every region and nation of the UK time to prepare for the future relationship. Further delays to discussions on an EU-UK trade deal could have damaging consequences for business investment and trade, as firms in 2018 review their investment plans and strategies.


While our members will be particularly pleased that EU citizens currently living and working in the UK now have more clarity, it’s still essential that an unequivocal commitment on their future rights is made whatever the outcome of negotiations.


We will continue to work with the government to ensure that UK firms can overcome the challenges and take advantage of the opportunities that a new trading relationship with the EU and the rest of the world will bring.

While the negotiations over the divorce settlement were often tortuous, as the EU was determined to extract its “pound of flesh” from UK citizens, Donald Tusk noted last night that trade negotiations might be even more challenging.

Donald Tusk, president of the European Council, had said on Thursday that leaders would certainly confirm that “sufficient progress” had been made but that the next phase of talks would prove far more testing. The talks up to now have “demanded courage, realism but — above all — our unity,” he said.

The Telegraph published this timetable for Brexit negotiations, coutesy of the Press Association.


December 19 - The Cabinet will discuss what sort of long-term relationship they want Britain to have with the EU after it has withdrawn from the bloc.
December 20 - Ministers face the prospect of a second Commons rebellion on the EU (Withdrawal) Bill over plans to write the Brexit date into law.

Winter/spring - Negotiations on the transition to future EU/UK relations, along with "exploratory talks" on a possible free trade agreement.
March 22-23 - European Council summit in Brussels. An opportunity to assess what kind of trade deal can be expected.
May - English local government elections will provide the Prime Minister Theresa May with her first widespread electoral test since the disastrous snap election of June 8 2017.
October - A final treaty on withdrawal and transition should be ready by this point in order to allow time for ratification before the end of the two-year Article 50 deadline. EU chief negotiator Michel Barnier says that it is only at this stage that the "real negotiation" on a free trade deal will begin, and that the parties will be "hard pressed for time" to conclude this before the March 2019 date of Brexit.

Winter/spring - Ratification process involving as many as 38 national and regional parliaments, with any of them effectively holding a veto.
Brexit Secretary David Davis has promised that Parliament will have to approve any deal in a Withdrawal Agreement and Implementation Bill, although this will be on a "take it or leave it" basis. MPs will consider the legislation before MEPs in the European Parliament carry out the final vote on any agreement.
March 29 - Two years after the invocation of Article 50, the UK ceases to be a member of the EU and is no longer subject to its treaties, whether or not a withdrawal agreement has been reached. Because the exact moment of exit is midnight Brussels time, the UK is due to leave at 11pm on March 29. Under the terms of the EU (Withdrawal) Bill, the bulk of Brussels legislation would be automatically transposed on to the UK statute book.
June - European Parliament elections will take place without the UK.

December 31 - Britain ceases payments into the EU budget.

If a two-year "implementation period" is agreed, Britain will finally move to its new relationship with the EU in the spring of 2021, ceasing to observe EU rules and regulations.

Expected end of the European Court of Justice's role in the oversight of the rights of EU citizens living in the UK.