May Courts EU Leaders as Brexit Signals Rattle Global Nerves

  • Prime minister travels to Denmark and the Netherlands Monday
  • Draghi leads downbeat comments at IMF meetings on Brexit

Brexit Is Brexit, No Matter What Type of Brexit It Is

Prime Minister Theresa May will resume her foreign outreach this week after stirring global concern that her government’s focus on immigration controls as it leaves the European Union risks alienating international partners as well as curbing access to the single market.

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The Conservative Party leader will travel to Denmark and the Netherlands on Monday for talks with prime ministers Lars Lokke Rasmussen and Mark Rutte respectively as she tries to build understanding for her position ahead of this month’s EU summit in Brussels, her first as premier. The visits to two traditional allies within Europe follows trips to other EU capitals including Berlin, Paris and Warsaw as the U.K. prepares to trigger Article 50 by the end of March, beginning up to two years of Brexit negotiations.

The prime minister is under pressure from financial markets, business leaders, government colleagues and a cross-party group of lawmakers after she set out her vision of how Britain will exit the 28-nation bloc. May’s pledge to restrict immigration is increasingly seen by investors and fellow EU governments alike as incompatible with continued U.K. access to the single market, posing a risk to the economy.

That realization has sent shock waves through markets and pushed the pound to its biggest weekly loss since the Brexit vote in June. Sterling resumed its decline on Monday, and was down 0.2 percent as of 10:35 a.m. in London.

“The U.K. is really shooting themselves in the foot and it is going to get ugly,” Nouriel Roubini, professor of economics at the New York University Stern School of Business, said at an event in Washington on Sunday. “The risk is not that the U.K. has a recession of two-three quarters; the risk is that the U.K. will stagnate at 1 percent growth for the next five years,” Roubini said. Then, “those that voted for Brexit are much worse off.”

The political shock waves from the signals out of last week’s Conservative Party conference mirrored the market tremors that reverberated around the globe. The Observer newspaper reported that former Labour Party leader Ed Miliband held talks with pro-EU Conservative lawmakers on forming an alliance to demand the government allow a parliamentary vote on the terms of Brexit. Miliband is considering pushing for May to appear before Parliament to explain the body’s role in EU-exit decisions.

‘Complete Outrage’

“It would be a complete outrage if May were to determine the terms of Brexit without a mandate from Parliament,” Miliband told The Observer. “There is no mandate for hard Brexit.”

Keir Starmer, Labour’s newly appointed spokesman for Brexit, said on Sunday that it could be a “disaster” if lawmakers weren’t able to have a say on the terms of Britain’s departure from the EU.

“Nobody, whether they voted to leave or remain, voted for the government to take an ax to the economy,” he said on the “Andrew Marr Show” on the BBC. “The prime minister’s stance on the single market is making it nigh on impossible to have access to the single market, and that is a huge risk to the economy, jobs and working people.”

Splits have also emerged in May’s administration. A government minister condemned as illegal and discriminatory a proposal to force companies to list foreign workers made by Home Secretary Amber Rudd at the Tory conference. The minister, who asked not to be named discussing internal policy, said the proposal would have to be abandoned because it wouldn’t pass a vote in Parliament.

Business Letters

While the government later clarified its stance, saying that the lists would not be made public, the damage appeared to be done. More than 100 leaders of small and medium-sized businesses called Rudd’s proposals “anti-business and dangerously naive” in a letter to the Daily Telegraph newspaper published Monday.

“Foreign workers are not taking British jobs; they are helping to create them,” said the company chiefs, including Cobra Beer Ltd. founder Karan Bilimoria, Solarcentury Holdings Ltd. founder Jeremy Leggett and TechHub Chief Executive Officer Elizabeth Varley. “The prime minister cannot claim to be open to trade while demonizing workers from other countries, nor can she claim to be pro‑enterprise when her ministers use such anti-business rhetoric.”

It followed another letter released at the weekend, signed by the Confederation of British Industry and other trade groups, pleading with the government to be included in the process to formulate Britain’s negotiating position in talks with the EU.

Northern Ireland Secretary James Brokenshire moved to allay fears that a hard border will be reimposed between the U.K. province and the Republic of Ireland, telling the Guardian newspaper that London and Dublin would work together to introduce tighter immigration controls at ports and airports once the U.K. leaves the EU. The Irish government has cited among its chief concerns the re-establishing of a border to prevent illegal migration into the U.K. -- a move that could violate the terms of the Good Friday peace agreement and stir up sectarian tensions.

IMF Chatter

May’s comments last week, and the prospect of tougher Brexit arrangements than global policy makers had previously assumed, also dominated talk on the sidelines at the International Monetary Fund meeting in Washington.

“What exactly these medium-term consequences will be is hard to say, because also it will depend on how long will be the uncertainty following the outcome of the referendum and what’s the final shape of the agreement,” European Central Bank President Mario Draghi said at a press conference in Washington. “To think that it won’t have any consequence would probably be to hope for too much.”

Philip Lane, the governor of Ireland’s central bank, said in Washington Sunday that if harder versions of Brexit are played out, then growth and asset-price assumptions will have to be reassessed. “For central bankers, the transition towards the new arrangements has the potential to be a source of volatility and will require continuous monitoring and risk assessment,” he said.

If investors needed any evidence of future volatility, the British currency’s flash-crash on Friday provided it. It followed declines earlier in the week when investors sold after May signaled a crackdown on immigration and what some interpreted as an anti-business outlook.

The view “of a future U.K. as a globally attractive, business-friendly and dynamic economy, freed from the shackles of the EU, has been put to bed, with the government’s talk of an inward-looking, near-nativist vision for the country,” Erik Nielsen, chief economist at UniCredit Bank AG, said in a note. “To say that everyone I have spoken with here in Washington is shocked by what comes out of London now would be an understatement.”

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