EU Summit what to watch

EU Summit: what to watch

Summary

Prime Minister Theresa May has seen off Westminster rebels to win a crucial vote on the Brexit bill. Now all she must do is get the EU to agree to her blueprint at next week’s Summit. Here are 4 points to watch.

• Not the Brexit Summit

The first thing to bear in mind is that this not ‘The Brexit’ summit. At the top of the list of topics for discussion on the Summit’s home page is migration. Talks during a hastily convened ‘mini-summit’ on the subject to be held over the weekend, to enable Germany’s Chancellor Merkel to resolve a political crisis over asylum seekers, will almost certainly spill over into the 28^th-29^th June meeting. This suggests even more time will be devoted to the matter than initially planned. Economy and Finance are next on the agenda, followed by Security and Defence. Brexit is second-to-last. Or rather it would be last, were it not for an item called ‘Euro Summit’: “Finally, the Euro Summit will in an inclusive format…discuss the reform of the economic and monetary union”.  The probability of a breakthrough is thereby moderated, even before discussions begin, by the finite amount of time for finely balanced discussions on all topics, but particularly Brexit.

• Impasse

Once talks get around to Brexit, the government’s key aim will be to secure agreement on all the withdrawal issues by the time of the EU’s October Summit. The autumn meeting was originally intended to finalise a withdrawal treaty covering citizens’ rights, financial commitments, the Irish border/transition deal, including customs and a political declaration, chiefly on free trade. However, none of the above will be discussed if the EU fails to agree on Theresa May’s Brexit blueprint. To say that scepticism abounds on whether it will be possible to move on to a withdrawal treaty is putting it mildly. ‘Impasse’ is an apt word to characterise the stage to which discussion between the EU and UK on all key Brexit issues have reached. If a resolution could only be reached on the most angst-ridden issue of all, optimism would increase on the rest.

• A hard border issue

The Irish border issue crystallises seemingly intractable difficulties in agreeing how Britain will leave the European Union. No one wants a return to a “hard border”, but all parties have consistently failed to reach consensus on an alternative, so in fact, a hard border may be exactly what happens, at least initially. Because the government rejects the EU’s stipulation that Northern Ireland must retain the same customs and regulations—because it would require a border between NI and the rest of the UK—the EU insists border checks will be mandatory. Brussels has dismissed the government’s technology-based solution, of which few details have been published, as “fantasy island”.

• Deadlock

Deadlock on NI/customs is the reason for the low probability of agreement assigned to next week’s talks by the media, large swathes of Westminster, and indeed by financial markets. Even after Thursday’s blistering rip by the pound, in reaction to increasing votes by Bank of England policymakers to hike rates, the pound against the dollar remains over 7% lower from the year’s highs in April. Both GBP/USD and the Bank of England’s broader Currency Index remain almost 11% lower than on the night before the Brexit vote results were released. The pound’s persistent devaluation is effectively the post-Brexit discount the market applies to Britain’s economy. Stronger odds of a softer Brexit would almost certainly have narrowed the discount by now. Sterling will be the preeminent market to react if the government leaves Brussels next Friday with no agreement.