Live Blog

U.K. PM Theresa May Calls for Brexit Transition Period

Friday September 22, 2017
Welcome to TOPLive. We'll be blogging Theresa May's Brexit speech at 2:15 p.m. London time. The U.K. prime minister will speak from the heart of Europe, in Florence, Italy, updating her government's position on negotiations to leave the European Union. Join us for news, analysis and market reaction.
Photographer: Jasper Juinen/Bloomberg
I'm Rob Hutton, U.K. government reporter in London. Today's speech is supposed to cut through the deadlock that negotiators have hit in Brussels. But the first question is to what degree she's managed to cut through the deadlock in her own government about what it actually wants from Brexit.

For over a year, May has tried to steer between those in her Cabinet who think Brexit is a good idea and the government should get as far from the EU as possible, and those who think it's a bad idea and the government should do all it can to mitigate the effects.

May hoped June's election would give her the authority to assert her own will. Instead it has left her even more vulnerable.
The week began with Foreign Secretary Boris Johnson apparently on the brink of resignation at the prospect that May was going to concede too much to the EU in a bid to get a deal. He seems to have backed down, and will be joining May in Florence, along with Chancellor of the Exchequer Philip Hammond -- a Brexit doubter -- and Brexit Secretary David Davis. It will make for an awkward holiday photo.

May's office has tried, not entirely successfully, to keep the speech a surprise: The lines that were given out overnight lacked any detail. We're expecting May will say that she wants a two-year transition period after March 2019, in which Britain stays inside the single market and the customs union. In return, she'll offer to fill the hole that Britain's departure would otherwise leave in the EU budget.

Joining me today on the blog are Svenja O'Donnell in London and Ian Wishart in Brussels.
More than anything, the rest of the European Union will be focusing on Theresa May's tone rather than specific pledges.

Negotiators in Brussels, led by Michel Barnier, and policy makers in capitals from Berlin to Madrid, have had a sense that the U.K. hasn't taken the Brexit talks seriously yet, especially when it comes to responding to the EU's toughest demands over budget payments and the protection of European citizens' rights.

If the EU's takeaway is that May has been able to put divisions in her cabinet behind her and that she now has a clear mandate to work toward an agreement, it will kickstart the stalled talks.
But no more than that. EU officials warn that the U.K. has a lot of making up to do, a lot of missteps to be put right and a lot of hard work ahead.
Traders are betting the pound will have the upper hand against the euro in the immediate aftermath of May's speech, but they're also wagering those gains won't last. While EUR/GBP's one-week risk reversal rate stands below zero, signaling expectations for sterling gains, the one-year measure remains positive -- an indicator of longer-term bets on a euro advance.

Here are link options to watch Theresa May's speech:

  • To watch the speech on the Bloomberg Terminal, click here
  • For a fast audio feed on the Bloomberg Terminal, click here
  • To watch the speech on the Bloomberg website, click here
Margaret Thatcher chose Bruges for her now famous speech on Europe given in September 1988. May goes to Florence. Note, they are the host cities of the two main graduate schools to foster study of the European Union -- The College of Europe in Bruges and the European Union Institute in Florence. I wonder what other echoes of Thatcher's famous speech we may hear today.
Back in January, May wore a blue-green tartan outfit against a background slogan that said "A Global Britain." In Florence the backdrop said: "Shared history, shared challenges, shared future." But what will she wear?
The Daily Telegraph has tweeted that May could use the speech to raise the prospect of the U.K. leaving the EU before March 2019.

It's unclear what would be the point of this, other than to give the pro-Brexiteers in the cabinet something to be happy about amid all of the prime minister's concessions.

It's legally possible. And if the U.K. is just going into a transitional period anyway that looks a lot like membership -- and will use this time to negotiate the trade deal -- it may not make a whole lot of difference.

But the U.K. would still have to strike a deal with the EU on the separation issues, the money and the transition arrangement before leaving.
From Paul Dobson on our sister blog Markets Live: Some pound weakness after the Telegraph tweeted that May will raise the prospect of Britain leaving the EU before 2019. That move is minimal and shows traders want to hear more before reaching a verdict on that.
May says Britain wants to be the EU's "strongest friend and partner." May's language on security is all a far cry from her tone earlier in the year, when she accused EU leader of trying to subvert the election and, at another point, threatened to withdraw security cooperation.
Using words like "exciting," "promise" and "optimism" at the start, she seems to be taking a page from Boris's "glorious" Brexit article in the Daily Telegraph. Optimism sells. 

And talking about common challenges she's subtly reminding the EU that while it may have the upper hand in trade talks, it needs Britain on security matters.
I spoke to a British former senior member of the European Commission, Sir Michael Leigh, who is now political adviser at Covington. He said:

"This speech is the first time that the British prime minister has understood that the U.K. has to be much more precise in formulating its positions if there is to be any chance at all of the negotiations being completed by October 2018."
May says the vote doesn't mean "that we do not wish the EU to succeed." Well, up to a point. There are certainly some in her party and Cabinet who would be very happy to see the EU break up.
Apart from the pound-dollar rate, keep an eye on the EUR/GBP cross too -- arguably a better reflection of investors' perception of the ties between the EU and U.K. as the Brexit process gets underway. The pair's climbed toward the day high as May progresses with her speech.

She's also addressing immigration and borders:
  • Won't Accept Any Physical Ireland Border
  • On EU Citizens: You Can Carry on Living Here as Before
  • We Want You to Stay and Value You
First bone of contention to come up: EU citizens' rights. May arguing that British courts can be trusted to protect them, something she's said before. Then she goes further. The deal will be written into British law, and British courts will continue to refer to European Court of Justice rulings. This is a concession, I think.