Europe Speeds Up Plans For No-Deal Scenario As Brexit Chaos Grows

By Beatriz Rios and Jorge Valero

EU leaders will discuss late on Thursday (13 December) how to address the UK’s concerns about its withdrawal agreement from the EU, but discussions on contingency plans are gathering pace as the chances of an orderly divorce continue to wane.

“As time is running out, we will also discuss the state of preparations for a no-deal scenario,” European Council President Donald Tusk wrote in the letter sent to the EU leaders.

As part of this preparations, the EU progressed on plans to protect its financial industry, one of the sectors most exposed ones to a no-deal Brexit.

Member states agreed on Wednesday to grant a one-year permission to European traders to continue using the UK clearing houses in case of a no-deal result, as first reported by Financial Times.

Officials told EURACTIV.com that this temporary equivalence right would avoid forcing traders to redraft thousands of contracts in the derivatives market, most of which are controlled by UK-based Central Counterparty Clearing Houses, which could lead to financial turmoil. 

According to the European Securities and Markets Authority (ESMA), the EU’s derivatives markets amounted to €660 trillion of gross notional outstanding transactions by the end of 2017.

Reassurances

May told her Parliament she would seek some “reassurances” from its EU partners during the summit to be held in Brussels on Thursday and Friday.

On Thursday afternoon she is expected to express her “concerns” about the postponed vote by MPs on the withdrawal agreement, initially scheduled for Tuesday, a senior EU official said on Wednesday (12 December).

Following her presentation, Tusk would open the floor for questions from the 27 leaders.

But it will be later at night, without May in the room, when the heads of state or government of the remaining 27 countries discuss what type of assurances could be offered.

The senior official insisted that these reassurances could not contradict the withdrawal agreement and the political declaration on future relations reached on 25 November.

The EU side remains open to discuss the formula to state the clarifications, as May wants a legally binding text. 

EU sources were considering on Tuesday a declaration, although a protocol attached to the withdrawal agreement was not ruled out by officials and could be part of the leaders’ discussion.

May met on Tuesday with Tusk and the European Commission President Jean-Claude Juncker in a bid to win some assurances on the controversial backstop, which seeks to avoid a hard border on the island of Ireland.

In order to placate hardliners in her party, May wants a clear commitment from the EU side that the backstop, which would force the UK to remain in the customs union, would be temporary.

But EU officials are sceptical that the declaration would play any difference, given the limited chances the withdrawal deal already had and the no-confidence vote put forward by her own Conservative party on Wednesday.

As time is running out, preparations for a no-deal scenario are increasing, EU officials said.

For former Irish minister of European Affairs, Dick Roche, May is going to be confronted with the need for a second referendum sooner rather than later.

Roche told EURACTIV.com that May would reach a point where she would see that “she did her best for passing her agreement with the EU, but it is not possible”. 

In that case, he believes she should go back to the people and allow them pick between two choices: having a no-deal Brexit or remaining in the EU.

A second referendum or snap election would force May to obtain an extension of the Brexit date from the EU beyond 29 March, and beyond the European elections in late May.

Noting that the leaders had not discussed any potential extension, the senior EU official said the reason why the date was being postponed would be key in deciding on the length.  

“We will find a good answer”, the source said.

A post-Brexit EU budget

As the UK leaves the EU, the bloc loses one of the main net contributors, which will heavily impact the next long-term budget, the Multiannual Financial Framework (MFF).

The seven-year budget will be on the leaders’ agenda on Thursday. The EU heads of states and governments will have their first meaningful discussions on the proposal tabled by the Commission in May. 

For Juncker, this long-term budget is not only a counting exercise but a proposal to shape the future of Europe. 

In its proposal, the EU executive took account of leaders’ concerns over the need to finance new priorities, such as migration, security and the fight against climate change, while ensuring that traditional policies – Common Agricultural Policy and Cohesion Policy – are properly funded. 

However, the actual size of the budget, the introduction of a conditionality clause when accessing EU funds, and the redistribution of the money are still controversial issues among member states, and EU sources expect a long debate.

A step forward on deepening the EMU

On Friday, member states will gather for a euro summit and the discussions on the reform of the Economic and Monetary Union are expected to heat up. 

While leaders are expected to give the green light to completing the Banking Union, albeit in a watered down form, there are still some important issues to be discussed.

In particular, it is not clear what should be the scope of the leaders’ mandate when it comes to the Franco-German proposal for a eurozone budget, whose main objective is to boost competitiveness to ensure economic convergence among euro area members. 

However, some non-eurozone member states such as Hungary or Poland might have raised their concerns over the Eurogroup’s intention to include this budget in the next Multiannual Financial Framework, although funds would only be accessible for countries in the euro. 

It is not yet clear either whether or not France will push for the stabilisation function of the budget, which seems largely controversial among member states, particularly for the Netherlands. 

In spite of the remaining differences, EU sources insisted that the work done in the past few months to strengthen the Economic and Monetary Union proves the bloc is able to move forward in difficult areas in times of crisis and also periods of economic stability and growth. 

Neither the dispute over the Italian budget nor the possible deviation of France’s deficit – a result of the new measures announced by President Emmanuel Macron this week in response to ‘yellow vests’ protesters – are on the agenda.

Other topics on the agenda

The EU 28 are also expected to discuss foreign policy, migration, Single Market reform and the citizens’ dialogue proposals. 

On migration, there has not been enough progress for completing the remaining reforms of the common asylum policy legal instruments.

Moreover, the recent signing of the Global Pact on Migration, which several member states refused to back,  has once again exposed the deep divide among member states when it comes to the management of migratory flows. 

Despite the controversies, or precisely because of them, the debate on migration is not likely to last long, according to EU sources.