Photographer: Chris Ratcliffe/Bloomberg

Brexit Bulletin: Brussels Sprouting Divisions?

The united EU front could be showing signs of strain.

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Cracks may be starting to appear in the European Union’s united front.

After months in which EU officials have maintained the same line – warning Britain what it can expect from Brexit – this week revealed differences over how governments and EU bodies will be represented in the negotiations.

The conflict centered on to what extent Michel Barnier, chief negotiator for the European Commission, will be able to take the sole lead in haggling with the U.K. At a meeting on Monday, Martin Selmayr, the top aide to Commission President Jean-Claude Juncker, objected to a request from governments that they too have a representative.

An additional spat concerned the involvement of the European Parliament, with the assembly’s president, Martin Schulz, warning that lawmakers could disrupt a final Brexit deal unless they were properly involved in the process.

Martin Schulz, president of the European Union, pauses during a Bloomberg Television interview at the European Parliament in Strasbourg, France, Wednesday, Sept. 14, 2016. European Commission President Jean-Claude Juncker said that the coming year will be vital for the European Union as it seeks to remain relevant following the U.K. decision to quit the 28-nation bloc. Photographer: Jasper Juinen/Bloomberg
Martin Schulz.
Photographer: Jasper Juinen/Bloomberg

At a meeting in Brussels on Thursday a compromise was found, in which the country holding the six-month rotating presidency of the EU will sit alongside Barnier. In 2017, that’s two of the bloc’s smallest nations: Malta and Estonia. As for the Parliament, leaders backed down and agreed that representative MEPs could join meetings to prepare Brexit talks.

Any sign of discord within the EU-27 will likely be welcomed in private by British Prime Minister Theresa May, who will hope she can widen splits when the divorce talks get underway.

May met on Thursday for 20 minutes with Barnier and the European Parliament’s Brexit negotiator, Guy Verhofstadt, to discuss how to ensure a smooth and orderly Brexit.

The EU released a statement reiterating areas of agreement. There will be “no negotiations of any kind” before Britain triggers formal talks and the EU-27’s plan is to conduct the talks “in a spirit of trust and unity among us.” Access to the single market requires “acceptance of all four freedoms,” the bloc repeated, which includes the free movement of people across internal borders. That’s a principle May rejects. May wants the issue of U.K. citizens living in Europe and European citizens living in Britain dealt with early, Irish Prime Minister Enda Kenny said. Sky News repeated Barnier’s estimates that Brexit will cost the U.K. up to 60 billion ($62 billion) euros to leave.

Holding these lines will ultimately count for more than who is in the room. Bank of America Merrill Lynch economist Rob Wood this week told clients that “what EU governments are prepared to offer matters more than what the U.K. asks for.”

End of Year Report Card

An Ipsos MORI poll released on Wednesday showed just 33 percent of Britons reckon the U.K. government is doing a good job at handling the withdrawal from the EU, down from 37 percent in November. Fifty three percent think it’s doing a bad job.

Screen Shot 2016-12-16 at 06.49.51

The good news for May is that 51 percent believe she is doing well at handling Brexit, and half say she’s doing well overall. Foreign Secretary Boris Johnson (32 percent) and Brexit Secretary David Davis (29 percent) fare less well.

“Theresa May’s honeymoon is mirrored in the public’s views of her handling of Brexit, but once you get past her personal popularity, ratings of her government – and her Foreign Secretary – on the issue are much lower,” said Gideon Skinner, head of political research at Ipsos MORI.

An American Ally?

The British government may be about to get another ally in President Donald Trump’s White House.

Economic commentator Larry Kudlow, who once advised President Ronald Reagan, is close to being named to chair Trump’s Council of Economic Advisers, the Detroit News reported on Thursday.

Kudlow told Politico earlier this week that “one of the things that’s gonna happen, I think very early, is the president-elect will wish to negotiate a free trade agreement with Britain. He will move Britain from the back of the queue to the front of the queue and it will be a solid free-trade agreement.”

Trump, of course, has praised the referendum result and given hints that he backs bilateral trade pacts. Kudlow said in June that the vote for Brexit was “good for freedom, good for growth.”

Brexit Bullets

  • Santander, whose main business in the U.K. is linked to mortgages, is concerned Brexit may affect house prices, said CEO Jose Antonio Alvarez
  • Argentina says it will seek a trade deal with U.K. after Brexit, pending settlement of the Falkland Islands dispute
  • Brexit may put Britons’ safety at risk unless May ensures closest possible policy and security ties with Europe, House of Lords report says
  • Chancellor Philip Hammond discusses potential trade deal with South Korea
  • AstraZeneca won’t leave the U.K. after Brexit, CEO tells Handelsblatt

On the Markets

The pound’s slump is a “critical driver” of U.K. inflation, according to Bank of England policy maker Kristin Forbes. Her mechanical simulation suggests sterling’s decline since the end of 2015 will raise inflation some 0.75 percentage points by the middle of next year.

The pound on Wednesday fell to a two-week low after the central bank voted to keep its key interest rate at 0.25 percent.

And Finally…

Giving the word its official stamp, the OED defines the term thus:

“The (proposed) withdrawal of the United Kingdom from the European Union, and the political process associated with it. Sometimes used specifically with reference to the referendum held in the U.K. on 23rd June 2016, in which a majority of voters favored withdrawal from the EU.”

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