Two important draft documents were published yesterday. The EU's guidelines (HERE) for phase II of the negotiations covering a future trade deal and the EU parliament's draft resolution (HERE) on the same deal. I don't think there were any shocks and both documents say more or less what was expected. We are only negotiating a trade deal. Nothing much more than that.
And Donald Tusk has made it clear that there will be negative economic consequences of Brexit for both sides and pointedly said this would be the first FTA in history that aims to reduce trade. The Politico website (HERE) didn't hold back saying it was a "rejection" of Mrs May's Mansion House Brexit vision.
Hammond greeted the guidelines (HERE) saying they're "a very tough position that any skilled negotiator would start with" as if the EU are going to bend later. There may be some cosmetic changes to the final issue but I think he is being very optimistic if he thinks the EU are going to shift much from their opening position. Firstly, they don't need to and secondly it is in their interests to be as tough as possible to deter others. They have stuck rigidly to the withdrawal guidelines and conceded almost nothing.
This Reuters article (HERE) says:
"Financial services generate more than 10 percent of Britain's economic output and are the only area in which it has a trade surplus with the EU, making London very keen to preserve its banks' current access to continental Europe"
But this is precisely why the EU has left financial services out. They know how important it is to both sides.
The Chancellor thinks if Brussels doesn't agree a financial deal with us, Singapore or New York will benefit and the EU will have to use these markets further away and not as tightly regulated. Again, he is engaging in a bit of wishful thinking. It is inconceivable that a market the size of the EU will want to use an external source of finance in the long term. They will build their own capacity so they are not relying on others. This is inevitable. Signing a permanent trade deal including financial services would only lock in that reliance.
"Financial services generate more than 10 percent of Britain's economic output and are the only area in which it has a trade surplus with the EU, making London very keen to preserve its banks' current access to continental Europe"
But this is precisely why the EU has left financial services out. They know how important it is to both sides.
The Chancellor thinks if Brussels doesn't agree a financial deal with us, Singapore or New York will benefit and the EU will have to use these markets further away and not as tightly regulated. Again, he is engaging in a bit of wishful thinking. It is inconceivable that a market the size of the EU will want to use an external source of finance in the long term. They will build their own capacity so they are not relying on others. This is inevitable. Signing a permanent trade deal including financial services would only lock in that reliance.
He has said we could reject a free trade deal if financial services are not included (HERE). This is like refusing a two course meal because desert isn't included and opting for a sandwich instead. It doesn't make sense and it won't happen.
Some commentators believe individual countries like Luxembourg will try to soften the terms and divisions will emerge in the course of the negotiations when trade talks begin. I wouldn't hold out much hope for this either. The principles are absolutely clear and it's hard to see where or how the EU are going to change significantly.
No doubt people will go over the guidelines in detail but I noted this - 8 i) in the EU guidelines:
"regarding aviation, the aim should be to ensure connectivity between the UK and the EU after the UK withdrawal. This would require an air transport agreement, combined with an aviation safety agreement, while ensuring a strong level playing field in a highly competitive sector".
I take this to mean we are not getting associate membership of the EASA agreement.
And this is paragraph 8 of the EU Parliament draft resolution:
"Nevertheless, notes that, as a third country, such cooperation with the United Kingdom can only take place in accordance with the principles outlined in paragraph 4; recalls that the EU has binding common rules, common institutions and common supervisory, enforcement and adjudicatory mechanisms and that third countries, even those with identical legislation or full regulatory alignment, are not able to enjoy similar benefits or market access as EU Member States, for instance in relation to the four freedoms and financial contributions from the EU budget;"
Painful times ahead I think.
