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EU vents frustration with #Brexit shambles, but a 'no' to extension not likely

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As frustration with Britain’s Brexit crisis boils over across Europe, France and the Netherlands have raised the prospect that the European Union might reject a request by Prime Minister Boris Johnson to extend the divorce deadline from 31 October, writes John Chalmers of Reuters.

But while patience is wearing thin in capitals of the EU’s 27 other members, few believe it is likely that their leaders will force Britain into a chaotic exit that would deliver a body blow to their own economies as well as its.

A senior EU diplomat said the French and Dutch ministers’ comments may have been aimed at domestic audiences as dismay mounts across Europe over the Brexit drama. They may also have been a warning to Britain that it needs to speed up efforts to reach a deal in time for 31 October.

Officials and diplomats said the 27 will want evidence that a delay would not simply bring a further three months of wrangling in London and a continued impasse that leads to a no-deal Brexit.

An election in Britain, which seems likely, would be enough to convince them that the dynamics could change.

“Nobody in the EU-27 wants to drive the Brits over a cliff, but the request has to be done in good faith,” a senior EU diplomat said. “There has always been a view in the Brussels bubble that something like an election would warrant an extension.”

The British parliament has passed legislation to force Johnson to secure a delay in Britain’s departure from the EU at a summit next month if he has not reached an exit deal.

Although the prime minister has said he would rather be “dead in a ditch” than make such a request, the few options he has to avoid it include resigning or breaking the law.

French Foreign Minister Jean-Yves Le Drian said on Sunday that, as things stand, the EU would not grant an extension and the Netherlands’ Foreign Trade Minister said in an interview published on Monday that a “no-deal” Brexit might be better than further delay.

EU countries would suffer damage equivalent to about 0.5% of annual economic output if Britain left the bloc without a trade and regulatory deal, the International Monetary Fund said in April.

“There comes a point where the certainty of being worse off can be better than ongoing uncertainty without any new prospect,” the Netherlands’ Sigrid Kaag told the Dutch daily Het Financieele Dagblad.

“We need a good reason for further delay. It is hard to say what that would be. So far, the Brits have not presented an alternative to the Brexit deal that is already on the table.”

Johnson insists that the Irish “backstop” must be struck out of the Withdrawal Agreement his predecessor agreed with the EU.

Under the backstop, Britain will remain in a customs union with the bloc “unless and until” alternative arrangements are found to avoid a hard border between its province of Northern Ireland and EU member Ireland.

The EU’s 27 members granted Britain an extension from March until the end of October to give London more time to reach a transition agreement.

Even though French President Emmanuel Macron has previously said that 31 October would be the final deadline, conventional wisdom in Brussels is that if London asked again, the 27 would approve it to avoid the economic shock of a no-deal exit.

Irish Finance Minister Paschal Donohoe, whose country would be the worst-hit of the 27 if Britain left without a deal, said on Monday that Dublin would favour extending the deadline.

Still, the comments by Le Drian and Kaag have introduced doubt into whether EU leaders would automatically approve a delay at their next summit on 17-18 October.

“If London were to ask for an extension to prevent a no-deal, it would ultimately be hard to see how the EU-27 could refuse that. However, frustration about the UK chaos is rising among the EU-27.” said an EU diplomat in Brussels.

There has been no formal discussion among the EU-27’s leaders of whether they would approve a delay because a request has to come from Britain first.

Diplomats said that if Britain does seek a delay, the response will hinge on what the extension is for.

“For an extension of the deadline beyond 31 October, there would have to be some kind of a democratic event planned in Britain, like elections or another referendum,” said a senior official involved in Brexit talks.

“Then the EU would have no trouble extending the time for talks,” he said. “But an extension in the current circumstances, where nothing changes, would be difficult.”

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Irish foreign minster says EU-UK trade deal breakthrough possible

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There is a window of several weeks for Britain and the European Union to reach a breakthrough in trade talks before Britain’s upper house of parliament considers the contentious Internal Market Bill, Ireland’s foreign minister said, writes Conor Humphries.

“I believe there is a window for negotiations that I hope the two negotiating teams, in particular the UK, will take in terms of giving the signals that are necessary to move this process into a more intensive phase,” Simon Coveney (pictured) told parliament. “It is possible to get a deal here.”

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As Brexit talks intensify, banks see sharply higher risk of no-deal exit

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The chances of Britain leaving the European Union without a trade deal have risen dramatically in the last three months, according to major investment banks, most of which now see the probability of such an outcome at 50% or higher, writes Elizabeth Howcroft.

Britain left the EU in January but is currently in a status-quo transition period, which ends on 31 December irrespective of whether or not a deal is agreed. On Monday (28 September), the two sides started a decisive week of talks, with one diplomat noting an improvement in “mood music”. But all six banks which participated in a Reuters poll in June are more pessimistic, with most citing UK legislation that would breach parts of the withdrawal agreement signed with the EU in January. The move has drawn threats of legal action from the EU.

The most dramatic re-assessment was by Societe Generale, which said the bill “gravely damaged” trust. The probability of no-deal now stands at 80%, according to the bank, which had assigned a 17% chance in June.

Germany’s Commerzbank, meanwhile, puts the probability of no-deal at slightly below 50%, versus 10% in June, a scenario which strategist Thu Lan Nguyen warns could hit the pound hard, possibly resulting in depreciation of “something around 10%”. The currency has fallen around 5% this month but with three months still to go before the transition period expires, options markets are pricing in more volatility ahead.

ING now believes the risk of no deal is 50%, up from 40% three months ago. Only a small proportion of this risk premium is priced by sterling, according to economist James Smith, who sees the currency possibly heading towards parity versus the euro.

In a more detailed forecast, Standard Chartered stuck with a one-in-two chance of an agreement by the end of the year but also saw a 20% chance of the transition period being extended and a 30% chance of exiting without a deal. JPMorgan, not included in the Reuters poll, expects the worst-case outcome to wipe at least three percentage points off UK gross domestic product in 2021. It puts the risk of no-deal at one-in-three but told clients that “with brinkmanship part of the process it may appear higher than that before agreement is reached”.

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EU negotiators willing to work on legal agreement with UK - The Times

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European Union negotiators have signalled that they are willing to begin work on a joint legal text of a trade agreement with the UK, ahead of trade talks that resume on Tuesday, The Times reported on Tuesday (29 September), writes Rebekah Mathew in Bengaluru.

EU chief negotiator Michel Barnier is ready to begin work on a joint draft version of a free trade agreement, known as a "consolidated legal text", this week, the newspaper reported.

Barnier expects Britain’s chief negotiator David Frost to provide more details of fishing quotas and the government’s future subsidy policy, the Times report said, adding that EU has also backed away from a threat to suspend trade and security talks.

Britain left the EU last January and is locked in negotiations on a new trade deal from 2021, as well as on implementing the divorce, as set out in the Withdrawal Agreement, especially on the sensitive Irish border.

Trade talks resumed in Brussels on Tuesday. Lasting until Friday (2 October) morning and also due to cover energy links and transport, they are the final round of negotiations scheduled so far.

Brussels have dropped its demands for the two sides to reach a broad agreement on all the outstanding areas of dispute before drafting a final agreement and expects UK to engage in detailed discussions on post-Brexit fishing quotas and the government’s future subsidy policy, the newspaper said.

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