At the beginning of Monday’s European session, British Prime Minister Johnson will tell the European Union today that he will not change his position, vowing to oppose France’s demands to leave the European Union, according to the Sun newspaper. Johnson may announce that Britain is moving forward with a no-deal Brexit, which would mean a complete break in negotiations with the EU. Johnson could address the nation as early as tomorrow night and mention the statement.
The British pound continued to extend its losses against the U.S. dollar, dropping 1% on the day and losing the 1.33 handle. As Brexit negotiations continue, implied volatility for the pound rose to an eight-month high overnight and in the first cycle.
The Daily Telegraph’s Gordon Rayner reveals that British sources say there is little chance of a Brexit trade deal being reached today. But if a deal is still possible, the prime minister won’t leave. The U.K. feels less time pressure than the EU because it can ratify the deal faster, so it won’t set a deadline and is willing to talk for a few more days.
In the EU, according to sources, the EU’s chief negotiator, Barnier, told MEPs that negotiations on a Brexit trade deal could last until Wednesday, but will not continue beyond Wednesday. According to Barnier, the negotiations are in their “final phase” and a decision on whether to reach an agreement must be made by Thursday. If no agreement is reached, then the European Commission will be ready to “react immediately” and make contingency plans.
Both sides say no breakthrough on fisheries
Overnight, a number of foreign media reported that the EU and the UK are close to reaching an agreement in the fisheries sector. The Guardian notes that the UK and Europe have almost finalized the terms of access for EU vessels to waters within the UK’s 200 nautical mile exclusive economic zone, with a transitional phase of five to seven years. Given the sensitivity of the negotiations, neither side was willing to provide details of the agreement.
But British government sources denied to Sky News that there had been any breakthroughs or new developments in this regard. In a follow-up report, Sky News explained that the EU sources believe that the issue of fishing rights is no longer their concern and that the biggest obstacle to an agreement is the issue of fair competition rules.
It was later reported that the EU’s chief Brexit negotiator, Barnier, told delegates that there was no breakthrough in the fishing industry and that the report was completely inaccurate.
On Monday, senior EU diplomats said that EU chief Brexit negotiator Barnier was quite pessimistic about the prospects for an agreement in a briefing to EU member state envoys.
As we all know, there have been three core disputes between the UK and the EU: the level playing field, the fisheries sector and compliance management, with the level playing field being particularly difficult. Reaching a consensus in the fisheries sector is an important breakthrough in the protracted negotiation stalemate.
At the end of last week, France “threatened” to use its veto power if the Brexit deal did not serve its interests, mainly in the fisheries sector. Clement Beaune, French Minister of European Affairs, said that France knows that French fishermen will not maintain their current quotas in British waters in any post-Brexit trade agreement with the UK. If the fisheries issue is resolved, it could accelerate the chances of a successful negotiation.
Still a long way to an agreement?
Ireland’s Prime Minister, Michele Martin, has said that the situation is on the edge of peril, with Brexit negotiations likely to continue until the EU Council meeting on December 10-11.
Before then, there are several opportunities for the two sides to go head-to-head, with British Prime Minister Johnson scheduled to speak with European Commission President Jean-Pierre Von der Leyen on Monday night, which EU sources say is an important moment in the troubled negotiations.
Today, according to the Guardian, the negotiations are focused on the “ratchet clause,” under which the British government must comply with EU environmental, social and labor standards or face tariffs on British exports.
The EU proposes that if the UK fails to comply with EU regulations, the EU should have the right to unilaterally impose tariffs on UK exports. The U.K. is taking a tougher stance. According to British sources, unless this demand is reduced in the next 48 hours, negotiations will break down.
“If the EU doesn’t recognize reality, there will be no agreement.”
But there is more than one problem before the UK.
The first is that the UK’s previous bets on divisions within the EU have failed. France’s tough stance, mentioned above, is also reportedly supported by German Chancellor Angela Merkel. France and Germany have instructed the EU’s chief negotiator, Michel Barnier, to say that they are united in their belief that the UK needs to face the consequences of a further disconnect with EU rules.
Another issue was the UK’s Internal Market Bill. This bill has been strongly opposed by the EU, with parts of the package violating the one-month Brexit agreement on state subsidies and Northern Ireland tariffs, and many are concerned that the bill will override the Brexit agreement and diminish the UK’s international credibility.
Last month, some of the controversial provisions were removed. On Monday, the U.K. Parliament will debate amendments to the Internal Market Bill. However, according to the Financial Times, it is still up to Prime Minister Johnson to decide whether to leave the illegal provisions in the Internal Market Bill in place or remove them.
After so many Brexit crises, many Pound investors are betting on a positive outcome to the negotiations. Last Friday, the Pound hit its highest level against the U.S. dollar since May 2018, reaching 1.3539. Driven by the depreciation of the U.S. dollar and rising expectations for a trade deal, the Pound moved higher.
It is believed that the pound will only become more volatile in the coming days on news surrounding the UK-EU negotiations, says Marshall Gittler, Head of Investment Research at BDSwiss Group.
“The pound is expected to remain volatile and it is conceivable that they won’t reach any agreement before the end of the transition period on January 1, and that they will continue to negotiate some form of trade deal after the UK’s no-deal Brexit.”
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