BREXIT

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BREXIT

January 11

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BREXIT

Hard Brexit is not inevitable, says British PM May

By Elizabeth Piper

A

clean break with the EU's

single market is not

inevitable, British Prime

Minister Theresa May said

on Monday, seeking to clarify

comments that pushed down the

pound on the possibility of a hard

Brexit from the European Union.

She criticised British media for

misinterpreting what she described as

long-term position on EU talks but the

pound failed to recover from a 10-

week low and was down more than 1

percent to the dollar and 1.2 percent

against the euro on the day.

May, under pressure to offer more

detail on her strategy before

launching divorce talks with the

European Union, said on Sunday in

her first televised interview of the year

that Britain would not be able to keep

"bits" of its membership.

Some commentators saw that as a

sign she was heading for a hard

Brexit, which business says would

damage the economy by breaking

links with the single market of 500

million consumers. May shot back

that the media was using terms she

did not accept.

"I'm tempted to say that the people

who are getting it wrong are those

who print things saying I'm talking

about a hard Brexit, (that) it is

absolutely inevitable there's a hard

Brexit," she told the Charity

Commission, a government

department that regulates charities in

England and Wales.

"I don't accept the terms hard and soft

Brexit. What we're doing is (that we

are) going to get an ambitious, good,

best possible deal for the United

Kingdom in terms of ... trading with

and operating within the single

European market."

May's frustration was clear. The

former interior minister, who was

appointed as prime minister shortly

after Britain voted to leave the EU at a

June referendum, is increasingly

concerned that Brexit will define her

time in power, sources say.

In her speech on Monday, she said

she wanted her government to help

to heal the divisions in Britain that

were deepened by the EU vote, and

ensure that "everyone has the chance

to share in the wealth and

opportunity on offer in Britain today".

She announced measures to boost

support to those suffering from

mental health problems and said she

would do more on housing, education

and schooling, but despite applause

from the audience, two out of four

questioners asked about Brexit.

May has repeatedly said she will not

reveal her strategy before triggering

Article 50 of the EU's Lisbon Treaty to

start some of the most complicated

negotiations since World War Two,

but her reticence has spurred scrutiny

of her every comment.

She has largely stuck to the script

that she wants Britain to regain

control over immigration, restore its

sovereignty and also to get the best

possible trading relations with the EU,

but any comment that seems to stray

is pored over for signs of how May

sees Britain's future relationship with

the EU.

Asked whether May had ruled out

getting preferential access to the

single market in her interview on

Sunday, her spokeswoman said she

had ruled nothing out or in.

On Monday, May again said she was

ambitious before the talks with the

EU, which are due to be launched

before the end of March.

"But we mustn't think of this as sort of

leaving the EU and trying to keep bits

of membership, what bits of

membership will we keep," she said.

"It's a new relationship, we'll be

outside the EU, we will have a new

relationship but I believe that can be a

relationship which has a good trading

deal at its heart."

UK Prime Minister Theresa May speaks to members of the Charity Commision for England

and Wales at The Royal Society in London, January 9. REUTERS/Dan Kitwood

2


BREXIT

May taps career diplomat to replace EU envoy after scathing

resignation

By Elizabeth Piper and Guy Faulconbridge

B

ritish Prime Minister

Theresa May appointed a

senior career diplomat as

envoy to the European

Union on Wednesday to replace an

ambassador who quit with a scathing

resignation letter that exposed

frustration among officials over her

strategy.

Tim Barrow, political director at the

Foreign Office, will take up the post

next week following the abrupt

departure of Ivan Rogers, who told

staff in his resignation letter they

should "speak the truth to those in

power".

The implicit criticism of the

government's approach in Rogers'

letter put rare strain on rules that

shield the politically neutral civil

service from elected leaders.

The selection of Barrow, a 30 year

veteran diplomat, could disappoint

some Brexit campaigners who would

like to see a known eurosceptic in the

post. But it could help reassure

Britain's cadre of civil servants that

their expertise is still valued.

Barrow, a former ambassador to

Moscow who served earlier in his

career as first secretary at Britain's

embassy in Brussels, is not known to

have taken a strong public position on

Brexit.

In a statement released by May's

Downing Street office, he said he

looked forward to joining the new

government department tasked with

overseeing the exit from the European

Union, "to ensure we get the right

outcome for the United Kingdom as

we leave the EU".

Downing Street described him as "a

seasoned and tough negotiator, with

extensive experience of securing UK

objectives in Brussels". May intends to

launch the two-year process of

negotiating to leave the bloc by the

end of March, beginning what is

REUTERS/Jonathan Ernst

expected to be some of the most

complicated international talks

Britain has engaged in since World

War Two. She has so far said little

publicly about Britain's negotiating

position, arguing that to do so would

weaken London's hand in talks.

Her political opponents say the

government underestimates the task

and has failed to take into account

the position of European leaders, who

say they will not give Britain access to

the EU free trade zone if it closes its

borders to EU citizens.

In his undiplomatically worded

resignation letter, Rogers said May's

negotiating objectives were as yet

unknown. He told his staff: "I hope

you will continue to challenge illfounded

arguments and muddled

thinking".

May's opponents said his departure

would deprive Britain of crucial

expertise about Europe at the time

when it was needed most. But Brexit

supporters described his comments

as sour grapes and said he should be

replaced by someone who was more

positive about Britain's prospects

outside the EU.

PRECARIOUS

With May's end of March deadline to

trigger the formal EU divorce

procedure approaching, her reticence

over her strategy may be contributing

to a lack of coordination among staff

in government departments, say

experts on the British bureaucracy.

Robyn Munro, senior researcher for

the Institute for Government which is

close to the civil service, said there

were questions over what kind of

structure Britain would put in place to

manage the negotiations.

The future of Rogers looked

precarious late last year when a report

was leaked that he had told ministers

that a post-Brexit trade deal with the

EU could take 10 years to finalise.

Prominent eurosceptics in May's

Conservative Party accused him of

being overly "pessimistic" before the

talks. One source in parliament said

Rogers had been victim of a

breakdown in relations not just with

ministers, but within the civil service

after the new Department for Exiting

the EU took precedence over his

Brussels-based mission. Other

diplomats said Rogers, who had been

central to a difficult renegotiation of

the terms of Britain's EU membership

led by former prime minister David

Cameron before last year's

referendum, was frustrated that his

message that the talks would be

tough was not getting through. But

pro-Brexit lawmakers said it was right

that officials who lacked enthusiasm

for quitting the EU should step aside.

"Some have been passionately

committed to the previous pro-EU

consensus and they are in real grief,

like many others we know. If they

cannot adapt to the new policy, then

they are right to go," said

Conservative lawmaker Bernard

Jenkin, who campaigned for Britain to

leave the European Union.

3


BREXIT

Merkel says no 'cherry picking' for Britain in Brexit talks

By Joseph Nasr

T

he European Union must

consider limiting Britain's

access to its market if

London fails to accept the

bloc's 'four freedoms' in Brexit

negotiations, German Chancellor

Angela Merkel said on Monday.

Merkel's remarks add to pressure on

British Prime Minister Theresa May,

who has been criticised for hinting at

a "hard Brexit" - in which border

controls are prioritised over market

access - and had to clarify her

comments.

The most controversial of the

'freedoms' in Britain is freedom of

movement within the EU.

"One cannot lead these (Brexit)

negotiations based in the form of

'cherry picking'," Merkel said in a

speech before members of the

German Civil Service Association in

the city of Cologne.

"This would have fatal consequences

for the remaining 27 EU states,"

added Merkel. "Britain is, for sure, an

important partner with whom one

REUTERS/Wolfgang Rattay

would want to have good relations

even after an exit from the EU."

But it was important, said the

chancellor, "that on the other hand,

we are clear that, for example, access

to the single market is only possible

under the condition of adherence to

the four basic principles. Otherwise

one has to negotiate limits (of

access)."

May said on Monday that a clean

break with the EU's single market is

not inevitable, clarifying comments

that had pushed down the pound on

the possibility of a hard Brexit.

She had said during an interview at

the weekend that Britain would not be

able to keep "bits" of its membership

of the bloc. May has repeatedly said

she will not reveal her strategy before

triggering Article 50 of the EU's

Lisbon Treaty to start some of the

most complicated negotiations since

World War Two. She has largely stuck

to the script that she wants Britain to

regain control over immigration,

restore its sovereignty and also to get

the best possible trading relations

with the EU. The single market

emerged from the 1992 Maastricht

Treaty on European integration. This

enshrines the EU's "four freedoms" -

of movement of goods, capital,

people, and services.

FACTBOX

Senior UK officials with EU experience who have left their posts

B

ritish Prime Minister

Theresa May has appointed

a senior career diplomat as

her envoy to the European

Union, replacing an official who

criticised the government's Brexit

strategy in his resignation letter.

Tim Barrow, political director at the

Foreign Office, will replace Ivan

Rogers. His appointment marks a

return to a candidate from the foreign

ministry after the post was filled twice

by veterans of Britain's finance

ministry.

Government officials say that Barrow

is "a seasoned and tough negotiator,

with extensive experience of securing

UK objectives in Brussels" and will

complement what they say are teams

with strong EU knowledge based in

Britain and in Belgium.

Some commentators say Rogers'

departure was a positive step to

allow his successor to follow the

Brexit process from start to finish.

Rogers was due to step down in

November.

But others have said it is the latest

loss of a senior civil servant with

knowledge and experience of the EU,

with one Rogers ally describing his

departure as part of the "wilful and

total destruction of EU expertise".

Following is a list of the top civil

servants with EU experience who

have left their posts over the last five

years: (Sources of information: gov.uk,

Wikipedia, local press)

REUTERS/Francois Lenoir

4


BREXIT

Ivan Rogers, who resigned as the UK

Permanent Representative to the EU,

has had several roles in British

government including working for

former prime minister Tony Blair as

his principal private secretary in 2003.

After five years in the private sector at

banks, Rogers returned to the civil

service in 2012 as the prime minister's

adviser for Europe and Global Issues

and the head of the European and

Global Issues Secretariat. Rogers

moved to Brussels in 2013.

REUTERS/Francois Lenoir

Jonathan Faull, 62, was head of a

special Commission task force on

negotiating a package of reforms to

try to persuade British voters to stay in

the European Union before June's

referendum. The Brexit task force

ended late last year and Faull, who

joined the Commission in 1978 and

held many positions, announced his

retirement.

Shan Morgan, 61, was deputy to

Rogers after a career which saw her

become Director European Union in

the Foreign Office in 2006,

responsible for negotiations on the

Lisbon Treaty and management of

the UK parliamentary process of

ratification. British Ambassador to

Argentina and Paraguay between

2008-2012. On Nov. 9, 2016, it was

announced that Morgan had been

appointed as the new permanent

secretary for the Welsh Government.

Tom Scholar, 48, is a veteran of

Britain's finance ministry, working in

several positions since 1992. He

became the British representative on

boards for the International Monetary

Fund and World Bank in 2001 and

then worked at the British embassy in

Washington before returning to

London as the principal private

secretary to former prime minister

Gordon Brown in 2007.

In 2013, former prime minister David

Cameron put Scholar in charge of the

European and Global Issues

Secretariat in the Cabinet Office, a

role in which he was Cameron's main

EU adviser during his renegotiation.

Scholar returned to the Treasury on

March 11, 2016, as permanent

secretary.

Jonathan Hill was Britain's EU

commissioner, responsible for

financial services. He resigned two

days after the Brexit vote last June.

Hill had campaigned for Britain to

stay in the bloc and said he didn't

believe it was right for him to carry on

"as though nothing had happened".

Hill, a former Conservative leader in

the upper house of parliament, had

become a popular figure among EU

colleagues during his 18 months in

Brussels. European Commission

President Jean-Claude Juncker

described him as a "true European"

whom he had tried to persuade to

stay on. A former lobbyist, Hill had

also served as chief of staff to

Conservative prime minister John

Major in the 1990s.

REUTERS/Francois Lenoir

Robert Madelin, who spent more

than 20 years in senior posts at

European institutions after 13 years

working for the British civil service

mainly in London and Brussels, also

stood down last year. During his

career he had negotiated for Britain

and Europe in trade, investment and

services.

5


BREXIT

INTERVIEW

Norway PM says UK lacks negotiating experience, fears

"very hard Brexit"

By Andreas Rinke

B

ritain lacks experience in

international negotiations

due to its long membership

of the European Union and

this could slow talks on its departure

from the EU, the premier of non-EU

Norway said, adding that she feared

"a very hard Brexit".

British Prime Minister Theresa May

intends to launch by the end of March

the two-year process of negotiations

to leave the EU. They are expected to

be some of the most complicated international

talks Britain has engaged

in since World War Two.

In an interview with Reuters, Norwegian

Prime Minister Erna Solberg said

she hoped Britain would be able to

negotiate an agreement that keeps it

very close to the EU but it would be a

difficult task.

"And we do feel that sometimes when

we are discussing with Britain, that

their speed is limited by the fact that

it is such a long time since they have

negotiated" alone on such issues, she

said late on Wednesday while attending

a meeting of the Bavarian Christian

Social Union (CSU) in southern

Germany.

"I fear a very hard Brexit, but I hope

we will find a better solution," Solberg

said.

Though not in the EU, Norway is part

of the bloc's single market and allows

free movement for EU workers. It also

contributes to the EU budget and

participates in Europe's open-border

Schengen agreement.

Some Britons favour a Norway-style

close relationship with the EU after

Brexit. Others argue for a "hard Brexit"

that would take Britain out of both

the single market and the bloc's customs

union. Britain has never joined

the Schengen scheme.

Prime Minister May has so far said

little publicly about her negotiating

Prime Minister Erna Solberg of Norway addresses the UN General Assembly in the Manhattan

borough of New York, U.S., September 22, 2016. REUTERS/Carlo Allegri

position, arguing that to do so would

weaken London's hand in the talks.

A spokesman for Britain's Department

for Exiting the EU said the government

was preparing for a "smooth

and orderly exit" and was confident a

deal could be reached that worked in

the interests of both sides.

"We have been clear that we are

seeking a bespoke arrangement that

is unique to Britain, one that gives our

businesses the maximum freedom to

trade with and operate in the single

market but also allows us to make

our own decisions on immigration,"

the spokesman said.

In a move that highlighted tensions

at the heart of the British government

over how to handle Brexit, Britain's

ambassador to the EU, Ivan Rogers,

resigned this week. In his letter of

resignation he also referred to a lack

of negotiating experience within the

British civil service. "Serious multilateral

negotiating experience is in short

supply in Whitehall, and that is not

the case in the (European) Commission

or in the (European) Council," he

wrote. The Commission in Brussels

handles trade and some other negotiations

on behalf of the EU's member

states. Britain joined the bloc in 1973.

Solberg said it would be very hard for

Britain to accept the EU's "four freedoms"

- of movement of goods, capital,

people, and services - without

having a vote in the EU Council.

"I hope that we will find a solution

that leaves Britain as a partner in a lot

of the European activities that we

need them to be a partner in," the

Norwegian leader added.

6


BREXIT

Cracks exposed at heart of N. Irish peace by "cash-for-ash"

scandal

By Amanda Ferguson

A

fter a decade of bitter

compromises over

paramilitaries and policing,

Northern Ireland's powersharing

government finally fell apart

this week over the abuse by farmers

of a green-energy grant to burn fuels

such as wood pellets instead of coal.

The confrontation has exposed a

growing rupture in trust between

Catholic Irish nationalists and pro-

British Protestant unionists whose

cooperation underpins the 1998 Good

Friday peace agreement that ended

three decades of bloodshed.

While there is no sign of a return to

violence that killed 3,600 people, the

political crisis looks set to paralyse

government in the province for

months at the same time as Britain's

exit from the European Union

threatens simultaneous shockwaves

to its economy and constitutional

status.

"I'm not sure that power-sharing can

be restored now," Jeffrey Donaldson,

a senior member of the ruling pro-

British Democratic Unionist Party

(DUP) told Irish state radio RTE on

Tuesday, a day after Irish nationalist,

and ex-Irish Republican Army (IRA)

commander, Deputy First Minister

Martin McGuinness, resigned over the

affair.

"I really don't think that Martin and

his colleagues have begun to

contemplate the damage the decision

they made yesterday has done to the

prospect of power sharing in the

future."

The Good Friday Agreement,

negotiated by former U.S. senator

George Mitchell and ratified in May

1998, effectively ended the

"Troubles" that had torn apart

Northern Ireland and was based on a

power-sharing pact to govern by

cross-community consent.

McGuinness's resignation means a

snap election is more than likely,

bringing the power-sharing

Martin McGuinness arrives at Stormont Castle in Northern Ireland November 3, 2016.

REUTERS/Clodagh Kilcoyne

government to the brink of collapse.

McGuinness raised the prospect of a

lengthy renegotiation of any powersharing,

saying there would be "no

return to the status quo" after an

election.

There has been a decade of powersharing

between Sinn Fein, once the

political arm of the IRA, and the DUP

which have overcome fierce

disagreements over rival marches, the

legacy of the Troubles and

constitutional issues. The green

energy scandal proved to be the final

tipping point.

"CASH FOR ASH"

For months Northern Irish media have

revelled in stories of farmers heating

barns night and day to burn as many

wood pellets as they and other

business owners could to take

advantage of a subsidy that gave

them 1.60 pounds for every 1 pound

spent.

Unlike a similar scheme elsewhere in

the United Kingdom legislation lacked

a cap and could cost taxpayers up to

490 million pounds ($595 million),

almost 5 percent of the region's

annual budget.

First Minister Arlene Foster, who

launched the scheme four years ago,

apologised, but insisted her party

closed it as soon as flaws became

apparent. While her refusal to resign

was the trigger for the first collapse of

the government since McGuinness

agreed to share power with rivals a

decade ago, all sides admit that the

political fissures go much deeper.

"The heating scandal is the occasion

for the resignation, it's not the cause,"

said Brian Feeney, a columnist for

Irish nationalist newspaper the Irish

News.

"They have a long list of grievances

and they have just decided it's not

going to go on any longer."

While the power-sharing deal calls for

7


BREXIT

a partnership of equals, Sinn Fein says

the DUP has been treating it with

"provocation, arrogance and

disrespect" culminating, they say, in

the scrapping of a 50,000-pound

grant for disadvantaged children to

learn the Irish language just days

before Christmas.

"Sinn Fein will not tolerate the

arrogance of Arlene Foster and the

DUP. We now need an election to

allow the people to make their own

judgment," McGuinness said after his

resignation.

ELECTION "HIGHLY LIKELY"

An election is the "highly likely" next

step, the British government's

Secretary of State for Northern Ireland

James Brokenshire said on Tuesday,

unless Sinn Fein agrees to appoint a

replacement for McGuinness within

seven days, something it has said it

will not do. McGuinness recently took

a break from some of his duties

because of an undisclosed illness.

But an election appears likely to just

mark the starting gun for a

renegotiation of the terms under

which the two parties share power.

Sinn Fein members in recent days

have begun to hint at demands likely

to be made including funding

additional rights for Irish speakers and

the lesbian and gay community, which

the DUP has blocked and for inquiries

into deaths in the "Troubles".

Failure in those talks could cause

devolved powers to revert to London

and open the possibility of a deeper

rethinking of the concept of power

sharing.

The collapse of the relationship

between McGuinness and Foster also

risks paralysing the region's response

to Britain's planned exit from the

European Union as London prepares

to trigger divorce talks.

Sinn Fein, which campaigned for

Britain to stay in the European Union,

says Foster has failed to properly

represent the 56 percent of Northern

Ireland voters who voted "Remain".

Foster, who campaigned to quit the

EU, said she must instead respect the

opinion of the 52 percent of voters in

all of the United Kingdom who

wanted to leave. "Brexit is a complete

mess and everyone here seems to be

ignoring it," said Ollie Woodhouse, a

21-year-old bar-tender walking

through central Belfast on Tuesday.

"It is definitely time for change in

Northern Ireland."

EXPOSED TO BREXIT

A number of studies have named

Northern Ireland, which is the

poorest region of the United

Kingdom and has its only land border

with the European Union, as the most

economically exposed to Brexit.

"There has seldom been a more

important time for all our citizens to

have a strong well-functioning

Executive," said Angela McGowan,

Northern Ireland Director of the

Confederation of British Industry.

But Brexit's impact could go much

deeper, shifting the constitutional

architecture on which Northern

Ireland's peace deal sits.

There are several references to the

European Union in the good Friday

Agreement and the DUP's Donaldson

on Tuesday suggested that Britain's

exit from the European Union could

undermine the Republic of Ireland's

ability to share in the governing of the

province under the Good Friday

Agreement.

In recent days, fears have grown

about the return of border posts after

suggestions Britain may leave the EU

customs union, a development that

would anger Northern Irish

nationalists and, experts say, provide

obvious targets for paramilitaries.

"Whilst these negotiations are about

to start you have the Scottish

government lobbying for Scottish

interests, you have the Welsh

government lobbying for Welsh

interests and who does ... (prime

minister) Theresa May pick up the

phone to in Northern Ireland?," asked

University politics lecturer David

McCann. "Northern Ireland cannot

afford to be stuck in neutral."

The Parliament Buildings at Stormont are seen behind railings in Belfast Northern

Ireland, January 10. REUTERS/Clodagh Kilcoyne

8


BREXIT

No Brexit panic yet as foreigners buy UK bonds at record pace

By Jamie McGeever and Andy Bruce

B

ritain's shock vote to leave

the European Union has yet

to scare off overseas

investors, who are snapping

up British government bonds at the

fastest pace on record, figures on

Wednesday showed.

This suggests that foreigners have

doubled down on gilts and are taking

advantage of the slide in sterling since

the June 23 Brexit vote to load up on

assets that are now around 20

percent cheaper.

The pound's steep fall is also likely to

have forced central banks to buy more

British bonds in order to stick to their

mandates and keep the sterling

weighting of their foreign exchange

reserves steady, analysts said.

The BoE figures show, however, that

domestic investors are going

completely the other way and selling

British government bonds at the

fastest pace on record.

Overseas investors bought 15.61

billion pounds ($19 billion)of gilts in

November last year, the highest for a

single month since October the year

before, the BoE said.

That brought the rolling three-month

total purchases up to 39.43 billion

pounds, the highest since BoE records

began in 1986, Reuters calculations

show.

Domestic investors sold 14.61 billion

pounds of gilts, bringing the threemonth

rolling total sales to 67.68

billion pounds, also the highest since

1986.

"With the currency so cheap, it looks

like overseas investors have bought

heavily on a non-hedged basis," said

Antoine Bouvet, rates strategist at

Mizuho Securities in London.

"The slide in sterling helped the stock

market move higher, so perhaps there

was some reallocation among

domestic investors there too," he said.

Britain's benchmark FTSE 100, which

derives some 70 percent of its

Participants hold a British Union flag and an EU flag during a pro-EU referendum event at

Parliament Square in London, Britain June 19, 2016. REUTERS/Neil Hall

earnings from abroad and therefore

benefits from a lower pound, hit its

highest ever closing level this week.

The Brexit shock initially sent

sterling, stocks and gilt yields

tumbling, and prompted the BoE to

cut interest rates to a new low and

revive its bond-buying stimulus

programme.

Alan Clarke, UK and euro zone

economist at Scotiabank, noted that

holdings of gilts at British insurers

and pension funds decreased

markedly after they started selling

gilts to the BoE in 2009.

The latest BoE data showing a big

drop in domestic gilt holdings may

signal a renewal of this trend, Clarke

said, reflecting the BoE expanding its

gilt purchases programme by 40

billion pounds in August 2016.

By contrast, some overseas central

banks and sovereign wealth funds will

have been under pressure to top up

sterling portfolios battered by the

pound's post-Brexit vote plunge.

"It's a currency effect - gilts are

cheaper to buy but also a lot of these

overseas investors are mandated to

maintain a certain percentage of their

portfolios in sterling assets, which

means they have been compelled to

buy gilts," Clarke said.

While stocks and bond yields have

recovered since last June, the pound

has remained under the cosh and was

the worst-performing major currency

in the world last year.

Britain's current account deficit is 5.9

percent of gross domestic product,

meaning Britain relies on "the

kindness of strangers", in the words of

BoE governor Mark Carney, to balance

its books.

9


BREXIT

UK court to hear challenge over access to single market next week

A

legal challenge to the

government over whether

Britain's exit from the

European Union will

automatically take it out of the single

market will be heard in court next

week, the group that initiated the

action said on Tuesday.

It is one of several legal battles over

how Britain should go about quitting

the EU and trading with it afterwards

- a conundrum requiring a trade-off

between Brexit voters' desire for

immigration controls and the

economic need for good trading terms

with the bloc.

The government argues that Britain's

exit from the EU, known as Brexit, will

also end its membership of the

European Economic Area (EEA),

which provides access to the single

market and its free movement of

goods, capital, services and people.

Prime Minister Theresa May said on

Sunday that Britain would not be

keeping "bits" of its EU membership,

a comment that was interpreted by

financial markets as pointing to a

clean break from the single market.

British Influence, the think-tank

behind the challenge, says the

government should approach Brexit

on the basis that Britain would remain

part of the EEA, which includes EU

member states as well as Norway,

Iceland and Liechtenstein.

A hearing will take place in the High

Court in London next week, most

likely on Jan. 20, said Jonathan Lis,

deputy director of British Influence.

"We want the government to agree

with us that we're in the EEA

independently (of EU membership),

and that ideally forms a cast-iron

negotiating tool because it means the

EU can't force us out of the EEA," he

told Reuters.

He added that if the government did

want to take Britain out of the single

market, it would have to trigger

Article 127 of the EEA Agreement,

and would require parliament's

approval to do so. Lis said that would

be a separate process from the

triggering of Article 50 of the EU's

Lisbon Treaty, the formal step

required to start the process of

leaving the bloc. Article 50 is at the

heart of a separate court battle pitting

the government, which wants to use

executive powers to trigger it, against

claimants who say it needs

parliament's assent. The Supreme

Court is expected to rule on that case

this month. The claimants in the

British Influence challenge include

Peter Wilding, the group's director

who campaigned against Brexit, and

Adrian Yalland, a former adviser to

the group who campaigned for Brexit.

Demonstrators supporting Brexit protest outside of the Houses of Parliament in London,

Britain, November 23, 2016. REUTERS/Toby Melville

Money can't buy single market access, ex-British EU official warns

B

ritain

ed this could include paying to maintain

access to the single market.

But Jonathan Faull, who worked in

the Commission for 38 years until

retiring in 2016, said paying to access

the tariff-free zone was not how the

EU worked.

"Can you buy access to the single

market? It's not something that's on

sale in that way," he told the BBC's

Newsnight programme late on

Thursday.

That contrasts with the idea floated

will not be able to buy

access to the single market

following its exit from the

EU, a former top UK official

at European Commission warned,

casting doubt on mooted government

plans for Britain's future relationship

with the bloc.

British Prime Minister Theresa May

intends to launch the two-year process

of negotiations to leave the EU

by the end of March and some members

of her government have suggestby

Brexit minister David Davis, who

has said that after the UK leaves the

EU, giving it control over migration,

the country could continue to make

payments into the EU budget in order

to maintain access for its exporters to

the single market.

One area in which Britain did have a

strong hand to negotiate with the EU

as defence co-operation which the

bloc will want to continue, Faull said.

"But that's more complicated if you're

outside the EU, because part of the

10


BREXIT

mechanisms used for this purpose are

today EU mechanisms," he said.

Faull's warning that Britain won't be

able to buy EU single market access

comes at a time of change for Britain's

Brexit negotiating team. Ivan Rogers,

the country's envoy to the EU, quit

earlier this week and was replaced by

Tim Barrow.

Prime Minister May has so far said

little publicly about her negotiating

position ahead of what are expected

to be some of the most complicated

international talks Britain has engaged

in since World War Two.

Some investors fear the government

will prioritise curbing immigration, a

so-called "hard Brexit", over ensuring

Britain maintains single market access.

Faull dismissed the idea that Britain

could have an arrangement with the

bloc similar to that of non-EU member

Norway, pointing out that Norway

makes budgetary contributions to the

EU as well as accepting the free

movement of people.

"It's (Norway is) not buying access to

the single market in that sense, it's

taking part in a project," Faull said.

Lobby says City of London should be priority in EU divorce talks

By Huw Jones

B

ritain's financial services

sector must keep its

unfettered access to the

European Union's single

market after Brexit given that

available alternatives don't provide a

sustainable long-term solution, an

industry report said on Tuesday.

British Prime Minister Theresa May is

due to launch formal divorce talks

with the EU by the end of March,

leaving banks, insurers, asset

managers and markets wondering

how they can serve customers on the

continent in future.

Currently, they use an "EU passport"

allowing them to operate across the

28-nation bloc from a base in Britain.

The International Regulatory Strategy

Group, made up of financial and

professional services firms operating

in Britain, said the sector should be

"prioritised in the forthcoming

negotiations" given its importance to

Britain's economy. "This must include

securing continued access to the

single market on terms that resemble

those currently in operation as closely

as possible," the report seen by

Reuters said. The report is due to be

published later this month and has

been written in collaboration with

lawfirm Hogan Lovells. It looks at

alternatives to passporting, a nod to

how many in the sector now believe

there is no realistic chance of

maintaining full passporting rights

after Brexit, and that some banks will

begin moving operations to the

continent as soon as this year. EU

leaders say access to the single

A river ferry passes in front of the Canary Wharf business district at dusk in London, Britain

December 11, 2016. REUTERS/Toby Melville

market can only be granted in return

for accepting the free movement of

EU citizens and complying with

rulings from the bloc's top court, both

of which are unacceptable to many of

those who voted for Brexit.

Alternatives to passporting mainly

include "third-country regimes" or

TCRs, whereby the EU allows British

financial firms to serve continental

customers on condition they abide by

rules similar to those in the bloc.

"Only a very small proportion of

financial services which are currently

covered by the passporting regime are

the subject of TCRs," the report said.

Britain may end up being "something

of a rule taker, that is having to

implement changes in its own law to

follow changes in EU law," it added,

reiterating pitfalls and

recommendations that other industry

reports have already highlighted.

"Taking the above issues into account,

the most favourable solution is likely

to be for the UK and EU to enter into a

bespoke agreement allowing mutual

access to each other's markets."

11


BREXIT

London banks' Brexit battle heads to Europe

By Andrew MacAskill and Anjuli Davies

B

anks with large London

operations say they will

step up lobbying European

officials because they are

running out of arguments to convince

the British government the industry

needs single market access after

Britain leaves the European Union.

Banks have focused on pressuring

British officials to push for as much

market access as possible since voters

decided seven months ago to leave

the EU. They held fewer meetings

membership, interpreted by some as

signalling she will favour

immigration controls over access to

the single market.

Banks are now planning a new round

of lobbying to highlight how a hard

Brexit could harm the EU and the UK.

They have identified French

politicians, EU regulators and

government officials, as key groups

to win over.

"The battle for Britain is over, the

battle for France is about to begin,"

said one senior lobbyist.

Another senior lobbyist for one of the

collision points in the Brexit talks.

Some European politicians see an

opportunity to challenge British

dominance of finance after decades of

viewing its free-wheeling "Anglo-

Saxon" model of capitalism with

suspicion.

EU leaders like French President

Francois Hollande have said they plan

to weaken Britain's grip on finance by,

for instance, demanding the lucrative

business of clearing euros should

move to the euro zone.

Finance is Britain's most important

industry, accounting for about a tenth

of its economic output and is its

biggest source of business tax

revenue.

People walk accross a plaza in the Canary Wharf financial district at rush hour in London,

Britain January 9. REUTERS/Dylan

with European officials, according to

several senior sources in the financial

services industry.

The focus is shifting because after

scores of meetings and research

reports, banks, which say they may

begin moving staff and operations out

of London in the next few months if

there is no clarity, feel they are

running out of new points to make.

Prime Minister Theresa May said on

Sunday she was not interested in

Britain keeping "bits" of its EU

major global banks said he will spend

more time in Brussels this year to

target the EU's chief Brexit negotiator

Michel Barnier and his teams as well

as Didier Seeuws, a Belgian diplomat,

who is helping coordinate the Brexit

negotiations.

Another lobbyist said he is planning

to visit Paris to meet with French

politicians and regulators later this

month.

Britain's position as Europe's financial

centre is emerging as one of the main

EUROPE'S INVESTMENT BANKER

But Britain also acts as "the

investment banker for Europe", Bank

of England Governor Mark Carney

said in November, with more than half

the equity and debt raised for

European governments and

companies done in the UK.

Banks will argue that Europe depends

on the strength and the depth of the

financial sector in London to service

its economy and companies. If access

to the EU is cut off, regional financial

stability could be in jeopardy, they will

say.

UK-based banks had total

outstanding loans of more than 1.1

trillion pounds to European

companies and governments at the

start of 2016.

The British government has also

privately appealed to financial

organisations to make their case in

Europe if they want a transitional

period where their ability to operate in

the EU would be phased out gradually

over several years.

Finance minister Philip Hammond

told a meeting of finance executives

at the end of November they should

lobby European governments if they

want to secure a post-Brexit

transitional deal, according to two

people who were present.

Hammond made the comments at the

12


BREXIT

annual dinner of the All-Party

Parliamentary Group on Wholesale

Financial Markets and Services,

attended by executives from the

major British and international banks,

according to the people who

attended.

"He basically said we need a

transitional deal to avoid a cliff edge

effect, but the EU also needs to argue

for it," one person at the dinner said.

"He was implying that we need to

help the government prepare the

ground."

A Treasury spokesman, when asked

for comment, reiterated Hammond's

previous statements to lawmakers

that Europe will harm itself if they use

Brexit to undermine London's position

as the region's principal financial

centre.

Bankers say more work is needed on

forging a consensus between Britain

and Europe on what any transitional

deal may look like. European officials

say they will not discuss such a deal

before Britain triggers Article 50 of

the EU's Lisbon Treaty to start the

process of leaving the EU.

"Everyone has a different definition of

what it means in Europe and within

Whitehall. We're trying to get a

common view on what transition

means," one of the lobbyists said.

THAWING RELATIONS

The British government's relationship

with business has gradually improved

after months of friction after the vote.

It hit a low point during the

Conservative party conference in

October when May attacked a

"rootless" international elite and

officials privately suggested banks

would get no special favours in the

Brexit negotiations.

Nevertheless, banks feel they have

largely finished putting forward their

case for single market access.

"We feel we've been lobbying the UK

government to death. We've

presented every piece of evidence,

every report, research, you name it,"

one of the lobbyists said.

"We've been repeating ourselves for a

month or two now... What else do

they really need from us now?"

One government official, who asked

not to be named, said regular

dialogue with the finance sector will

continue, but the number of meetings

may reduce.

"The door is open if people want to

talk to us. There is not an arbitrary

point at which speaking to people is

no longer helpful," the person said.

"But it has been intense, as we

wanted it to be, and that intensity

may ease."

A man looks towards the Canary Wharf business district in London, Britain December 11, 2016. REUTERS/Toby Melville

13


BREXIT

Brexit could put tens of thousands finance jobs at risk

By Huw Jones and Andrew MacAskill

T

ens of thousands of jobs in

Britain's financial services

sector could be lost if euro

clearing shifts to continental

Europe and full access to the bloc's

single market is lost, top industry

officials said on Tuesday.

London has become the world's

biggest centre for clearing eurodenominated

financial contracts, and

some continental policymakers want

this shifted to the euro zone after

Brexit.

Xavier Rolet, chief executive of the

London Stock Exchange Group, owner

of the world's biggest clearing house

for euro-denominated contracts, said

that without clarity on what happens

to markets after Brexit, clearing

customers in London will leave.

Some tens of thousands of jobs could

leave London, not just from clearing

itself, but also from ancillary services

like software and IT, risk

management, and administrative

staff, Rolet told parliament's Treasury

Select Committee.

To avoid customers quitting London

when Britain begins formal divorce

talks with the EU in March, existing

rules should stay in place until 2022

to avoid disruptions that could

undermine financial stability, Rolet

said.

Already, banks with large London

operations say they will step up

lobbying European officials because

they are running out of arguments to

convince the British government the

industry needs single market access.

Douglas Flint, chairman of HSBC

bank, told the lawmakers that banks

without operations elsewhere in the

EU will likely trigger migration plans

immediately after EU divorce talks

begin in March, estimating that "tens

of thousands" of jobs are linked to EU

"passporting" rights.

Currently, banks have passporting

rights, allowing them to operate

across the 28-nation bloc from a base

in Britain. They could lose this right

under Brexit.

Possible job losses in banking would

depend on how lenders in Britain

negotiate new licences with

regulators on the continent, raising

question marks about the back office

staff across Britain's regions.

This could hit JPMorgan, Citigroup

and Deutsche Bank which currently

employ thousands of back-office staff

in regional cities around Britain in

places such as Bournemouth and

Glasgow.

"Clearly you would need to move the

front part of the business," Flint said.

"The question would be whether the

negotiation would allow the middle

and back office, the settlement, the

risk management, the accounting

and so on to be done out of the EU

27."

Rolet said that since Britain's

referendum on the EU, he has heard

of calls made by continental

European regulators to customers,

warning them of the risk of euro

clearing leaving Britain.

"That resulted in commercial

pressure on our business," Rolet said.

The EU is reviewing its derivatives

trading and clearing rules which could

include ways to making it impossible

to clear euro-denominated contracts

in the UK, Rolet said.

"Those sort of pesky, well-targeted,

seemingly minor regulations that

actually have a major impact on

customer behaviour."

It would amount to an effective

control on currencies in the EU and

backfire on the bloc, he added.

Flint, Rolet and Allianz Global

Investors Vice Chair Elizabeth Corley

appearing before the lawmakers all

said a transitional deal would need to

last until at least 2021 to allow

companies enough time for a smooth

departure from the EU. Flint said one

of his biggest concerns is that by

Britain leaving the EU the regulatory

rules that have converged in the

decade since the start of the global

financial crisis risk being fragmented,

undermining economic stability.

"After 10 years of putting it in place it

would in my view, be seen with

hindsight, as one of the worst actions

that could have ever taken place,"

Flint said.

Workers are seen in office windows in the financial district of Canary Wharf in London,

Britain, November 3, 2015. REUTERS/Kevin Coombs

14


BREXIT

More Britons want greater control of immigration than EU

free trade – poll

By Joseph Nasr

G

reater control of

immigration is more

important for Britons than

access to free trade with

the European Union during

negotiations for the UK's departure

from the bloc, according to a poll on

Monday.

Britain has said it will trigger formal

negotiations with the EU by the end of

March, starting a two-year process to

define the future relationship of the

UK with its biggest trading partner.

Pollster ORB found that 46 percent of

Britons agreed that greater control

over immigration was more important

than access to free trade, while 39

percent disagreed.

That has flipped since November,

when 43 percent disagreed and would

prioritise access to free trade,

compared to 41 percent who agreed.

"This poll clearly shows that if the

country had to choose it would prefer

greater control over its borders to

access to free trade," said Johnny

Heald, managing director of ORB

International.

"If we can’t have both, then having

greater control over our borders is

increasingly the preference."

A British government Home Office van is seen parked in west London, Britain, in this photograph

taken on May 11, 2016. REUTERS/Toby Melville

While Prime Minister Theresa May

has been vague on her priorities

heading into negotiations, markets

have taken fright at hints at a deal

which may threaten trade links, often

called "hard Brexit".

Sterling slid to a ten-week low on

Monday morning after May said she

was not interested in keeping "bits of

membership" of the EU and denied

her government's strategy was

muddled.

The poll found that 62 percent of

people disapproved of the way the

government is handling Brexit

negotiations, a level roughly

unchanged since November.

The online survey polled 2,075

people, with fieldwork conducted

between Jan. 6-8.

BREAKINGVIEWS

Brexit could derail UK's anti-corruption push

By George Hay

B

ritain's war on graft is in

danger of falling at the first

hurdle. At last May's

landmark anti-corruption

summit in London, the government

headed by then-Prime Minister David

Cameron said it would present an anti

-corruption strategy by the end of the

year. But it didn't. The missed

deadline potentially says something

unsettling about Britain's post-Brexit

priorities.

The idea that Britain has a graft

problem may come as a surprise. In

the global Corruption Perceptions

Index compiled by Transparency

International, the UK came a

creditable tenth out of 160-plus in

2015 in terms of perceived

cleanliness. Britain's judiciary and

civil service are the envy of the world,

and its 2010 Bribery Act acts as a

check on its companies paying bungs

for business abroad.

Yet this ignores London's status as a

magnet for money laundering.

According to the National Crime

Agency, 90 billion pounds of illicit

financial flows could slosh through

the UK system every year. The classic

ruse is to use this kind of money to

buy London property via anonymous

shell companies based in overseas

dependencies historically linked to the

UK, like the British Virgin Islands.

According to Transparency

International, overseas companies

own 44,022 London land titles, and 91

percent of those companies are

registered in these so-called "secrecy

15


BREXIT

jurisdictions". Over half of these own

real estate in Kensington & Chelsea,

Westminster and Camden - the

capital's most exclusive postcodes.

The cynical approach is for Britons to

shrug. In the context of London's

overall financial flows, the illicit bit is

a tiny slice. Britain's services sector,

which includes real estate, wealth

management and fees from setting

up overseas shell companies, helps

offset the country's large trade deficit

in goods, and its banks and

professional services firms paid 66

billion pounds in taxes in 2015.

Between the third quarter of 2008

and the first quarter of 2015, the

British government granted 3,002 socalled

"golden visas" - enabling

eventual permanent residency if the

migrant paid over 2 million pounds.

It's hard to argue that has been in

Britain's long-term interest. Threefifths

of the golden visas went to

nationals from Russia and China,

both states with high corruption risks.

Aside from the moral problem with

welcoming individuals who might

have defrauded their own states, the

influx pushed up already sky-high

property prices. That feeds into the

inequality that is one of the perceived

causes of the British vote to leave the

European Union.

Under Cameron the UK started to do

something about it. When rules

requiring greater oversight on new

migrants by obliging them to open a

UK bank account were introduced in

April 2015, golden visa applications

dropped sharply, according to

Transparency International.

Talk at last May's summit was of

introducing a public register for

overseas territories so potentially

corrupt owners of UK property could

be identified, and joining together the

patchwork of anti-money laundering

supervisors into a single monitor.

Brexit could throw a spanner in the

works. Were the UK government to

rebrand the country as the cleanest

hub for global business activity, it

could actually drive business to

London. But the need for the civil

service to focus on how to strike a

decent deal with the rest of the EU

will probably mean that attention and

resources are diverted away from

making Britain cleaner.

The resignation on Jan. 3 of Ivan

Rogers, the UK's ambassador to the

EU, exacerbates a growing sense that

Britain lacks sufficient expertise in the

negotiating skills that will be needed

to secure a workable EU exit.

Benign neglect of the fight against

corruption may not even be the

biggest risk. If Britain's quixotic

attempt to strike a beneficial trade

deal with the 27 other member states

gets off to a shaky start, the need to

make new friends and forge new trade

links is liable to trump everything

else. Political leaders may then feel

like they did in 2008, and focus on

where the money is, rather than what

kind of odour it gives off.

Britain in 'front seat' for US trade deal, top Republican says

B

ritain will be in the "front

seat" to negotiate a new

trade deal with the

incoming administration of

Donald Trump, a top Republican in

the United States Senate said, the

BBC reported.

Senate Foreign Relations Committee

Chairman Bob Corker said after

meeting British Foreign Secretary

Boris Johnson that a trade deal

between the two countries would be a

priority as Britain prepares to leave

the European Union.

Ahead of the Brexit vote, President

Barack Obama exhorted Britons to

stay in the EU and warned that if they

left they would be at "the back of the

queue" for a U.S. trade deal.

Corker said Johnson knows "full well"

that "there is no way the United

Kingdom is going to take a back seat".

"They will take a front seat and I think

it will be our priority to make sure that

we deal with them on a trade

agreement initially but in all respects

British Foreign Secretary Boris Johnson (L) meets with Senate Foreign Relations

Committee Chairman Bob Corker (R) in the U.S. Capitol in Washington, U.S., January 9.

REUTERS/Kevin Lamarque

16


BREXIT

in a way that demonstrates the longterm

friendship that we've had for so

long," Corker was quoted as saying by

the BBC.

Trump, while a candidate for the U.S.

presidency, hailed Brexit as a "great

thing" when visiting Scotland the day

after the vote though Britain cannot

sign a trade deal until it leaves the EU

which under current plans will likely

be in 2019.

After visits to see aides in Trump

Tower in New York and meet

members of Congress in Washington,

Johnson said: "Clearly, the Trump

administration-to-be has a very

exciting agenda of change. One thing

that won't change, though, is the

closeness of the relationship between

the US and the UK.

"We are America’s principal partner in

working for global security and, of

course, we are great campaigners for

free trade," Johnson was quoted as

saying by the Guardian newspaper.

"We hear that we are first in line to do

a great free trade deal with the United

States. So, it's going to be a very

exciting year for both our countries,"

Johnson said.

Hard Irish border likely in hard Brexit - EU's Hogan

T

he return of a "hard border"

between Northern Ireland

and the Irish Republic looks

inevitable if Britain leaves

the European Union's single market,

Ireland's European Union

Commissioner, farm chief Phil Hogan,

was quoted as saying on Monday.

Northern Ireland, a British province,

will represent the only land frontier

between Britain and the EU once it

leaves. Leaders in London, Dublin and

Belfast have said they want to avoid a

hard border, with customs checks and

border posts.

The Irish Independent newspaper

quoted Hogan as saying that if the

United Kingdom leaves the EU Single

Market, then a hard border, involving

potential identity controls and

customs tariffs, looked inevitable.

He added, however, that he hoped the

EU may be able to persuade London

on a common position for the island

of Ireland, to avoid such measures

and preserve a common travel area

between the two countries that

predates their entry into the EU in

1972.

"Clearly, Brexit is a mess and getting

messier," Agriculture Commissioner

Hogan, a former Irish government

minister and close ally of Prime

Minister Enda Kenny, told the

newspaper.

Britain will by definition leave the

bloc's single market in which goods

and services trade tariff-free once it

European Agriculture and Rural Development Commissioner-designate Phil Hogan of

Ireland speaks at the EU Parliament in Brussels October 2, 2014. REUTERS/Francois

Lenoir

leaves the EU, and exit talks expected

to begin by the end of March will

determine what level of access it gets

to it afterwards.

Britain's pound slid almost 1 percent

against both the dollar and the euro

in early London trading after

weekend comments from Prime

Minister Theresa May that she was

not interested in keeping "bits of

membership".

May said she instead wanted a

bespoke deal with the rest of Europe.

EU officials say Britain cannot have

access to its single market of 500

million consumers without accepting

the principle of free movement.

Given the countries' close trading

links, neighbouring Ireland is widely

considered the European Union

economy most at risk from Britain's

decision to quit the bloc.

17


BREXIT

Could put secession on hold if UK avoids "hard Brexit": Scotland

S

cotland

could suspend its

drive to become independent

if Britain avoids a "hard

Brexit" in which it loses

access to the European Union's single

market, the head of its secessionist

government said on Friday.

Nicola Sturgeon said she still wanted

Scotland to remain a member of the

EU, but was open to finding a Brexit

deal that suited all parts of the United

Kingdom.

While the UK voted narrowly in favour

of leaving the EU in last June's

referendum, Scottish voters wanted to

stay by a margin of two to one.

Last month, the devolved Scottish

government set out its thinking on

Brexit, including Sturgeon's preferred

option of an independent Scotland

that remains in the EU.

"I've been willing, and am willing, to

put aside my preferred option of

independence in the EU to see if we

can explore a consensus and

compromise option," Sturgeon told

BBC radio.

However, she added that any

suspension of the drive towards

independence would be temporary.

"I'm never going to stop arguing for

independence," she said. "I think

Scotland will become independent

and I think that's the direction of

travel."

Scotland's First Minister Nicola Sturgeon delivers a statement on Brexit during a session

of Scotland's Parliament at Holyrood in Edinburgh, December 20, 2016. REUTERS/

Russell Cheyne

British Prime Minister Theresa May

intends to launch the two-year

process of negotiation to leave the

EU by the end of March and some

members of her government have

suggested this could include paying

to maintain access to the single

market.

But a former top UK official at

European Commission warned on

Friday that Britain will not be able to

buy access to the single market

following its exit from the EU, casting

doubt on mooted government plans

for Britain's future relationship with

the bloc.

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