Pound Tumbles As Chief EU Negotiator Says Brexit Talks Are “Paused”

Update (1420ET): Yet again, Brexit headlines on Friday have now come full circle as a day that began with surging optimism about the prospect for talks has given way to more FUD. Despite earlier reports that talks were continuing Friday night in London, the EU’s Michel Barnier has reportedly ‘paused’ the negotiations, following what’s been said to have been an extremely unproductive week of negotiations.

After one week of intense negotiations in London, together with @DavidGHFrost, we agreed today that the conditions for an agreement are not met, due to significant divergences on level playing field, governance and fisheries.

— Michel Barnier (@MichelBarnier) December 4, 2020

We agreed to pause the talks in order to brief our Principals on the state of play of the negotiations. President @vonderleyen and Prime Minister Johnson will discuss the state of play tomorrow afternoon.

— Michel Barnier (@MichelBarnier) December 4, 2020

However, Barnier has confirmed earlier reports about talks between BoJo and the EU Commission President Urusla von der Leyen expected in the morning, as the top negotiators apparently need to take a step back and let the leaders take a shot at discussing the “state of play”.

The news sent the pound sharply lower…

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…we suspect this won’t be the end of cable headline risk overnight.

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Update (1320ET): Opening up investors to more Brexit headline risk, reporters are now claiming that Boris Johnson and Ursula von der Leyen will speak by phone on Saturday if negotiators are unable to break the deadlock tonight.

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Update (1145ET): The ‘positive’ Brexit deal reports are piling up, making the usual rounds of top Brexit reporters.

EU contact close to talks: “Both sides are giving it their all. We’ll try and get this done this weekend if at all possible” /1

— Katya Adler (@BBCkatyaadler) December 4, 2020

We look forward to hearing how everything fell apart again over the weekend.

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Update (1120ET): Sky News is reporting that Brexit talks will restart tonight.

BUT I’m now told talks will resume again tonight 🤷🏼‍♂️ https://t.co/QcJmBk86Cl

— Sam Coates Sky (@SamCoatesSky) December 4, 2020

Get ready for a weekend of leaked status reports as both sides continue bashing their skulls against a wall, appearing to have made practically no progress on the deal’s main sticking points, since the transition period began.

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Yesterday, we reported on chatter that the chances of a Brexit Deal before Jan. 1 – when the UK will finally complete its official separation from the EU – were “receding” as no real progress had been made on the deal’s biggest sticking points, which include: fisheries access, rules about a “level playing field” for businesses and issues of legal sovereignty.

Summing up the events of yesterday, Sky News reported that the Thursday talks “did not go well”.

But by Friday morning in the UK, the outlook had apparently improved somewhat after Reuters reported that a deal between the two warring parties might be “imminent”, and that investors could expect a resolution by the end of the weekend. Since we weren’t born last night, we understand that any deal optimism should be taken with a grain of salt.

Still more promising signs emerged as Sky News reported that Michel Barnier had cancelled a video briefing with 27 top EU diplomats from the bloc’s remaining member states, and was apparently delaying his return to Brussels to hang around for another “important day” of talks in London.

On the other side, a top No. 10 spokesman insisted that talks had reached “a very difficult point” even as the British team, led by Lord David Frost, was trying “extremely hard to bridge the gaps”.

Commentary from officials on both sides was notably vague, as Charles Michel, head of the European Council, refused to even confirm the next expected deadline, the European Council meeting set for Dec. 10, when asked by a journalist if that was the latest point a deal could be struck by. “It’s unfortunate that it took longer than planned but we’re still currently negotiating and Michel Barnier is leading the negotiations, so we’ll see over the next few days what the next steps are,” he said in a briefing on Friday.

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All the while, there’s been more chatter about Barnier digging in his heels, saying a “bad deal” now would be worse for the EU than a “good deal” next year, after the UK has been forced to contend with heightened barriers to trade with some of its closest economic partners. Brussels is even threatening to create serious ructions in European financial markets by cutting off the City of London’s financial industry.

On the British side, Tories and Boris Johnson have threatened to reactive the most controversial clauses of the “Intermarket” bill, which would effectively override the “Irish Backstop” fail-safe to try and force the EU to close the border between Northern Ireland and the Republic of Ireland, something politicians fear might lead to a revival of “the Troubles” – ie sectarian violence between Catholics and Protestants in Northern Ireland.

Assuming we don’t get a deal this weekend, Brussels’ new strategy is pretty clear: Hold out on a deal, wait for Britain to suffer the severe economic disruptions and financial hardships that economists have been doomsaying on for a few years now. Once the Tories have been suitably chastised, a chastened Lord Frost will perhaps return to the bargaining table.

Of course, the UK crashing out of the EU without a deal would be a double-edged sword for the bloc.

Plus, there’s reason to suspect that Boris Johnson, who has carefully cultivated his reputation for hard-nosed dealmaking, won’t ever cave.

Whatever happens, this is shaping up to be one epic game of geopolitical ‘chicken’.