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Brexit trade talks: the three big sticking points explained



Sustained by takeaway burgers, Brexit negotiators tried and failed in late-night talks on Sunday to solve persistent disagreements that have dogged future-relationship discussions since they began in March. 

Michel Barnier, the EU’s chief negotiator, warned EU parliamentarians and ambassadors on Monday morning that outstanding issues could still sink the talks, despite the vast bulk of an EU-UK trade deal having been drafted.

The fate of the agreement now rests on whether the EU can obtain satisfactory guarantees that the bloc’s companies will be able to compete with British rivals on a level playing field, and on whether the two sides can reach an understanding on fishing rights in UK coastal waters. 

Here are the problems that negotiators are striving to solve:


Mr Barnier told national ambassadors at Monday morning’s closed-door meeting that the two sides remained “objectively” far apart on the fishing issue.

The disagreements concern not just quotas and access rights to UK waters, but the fundamental question of the EU’s demand to link a deal on fish to the wider economic partnership.

The negotiations are broadly over how much of the €650m-worth of fish that EU boats catch annually in UK waters should be returned to UK fleets, both within the deep sea 12-200 nautical mile zone and the shallower coastal 6-12nm zone for smaller boats.

A person familiar with the talks said the UK had offered three years of “status quo” access for the 12-200nm zone, but no access at all for 6-12nm — which is particularly politically sensitive for France and Belgium where small family-run boats are key to coastal communities on both sides. The zone is also home to lucrative species such as scallops and langoustine.

After the three years proposed by the UK, it wants to revert to annual negotiations — a position the EU rejects. Britain also rejects EU demands to link fishing access rights to the wider trading partnership, which the EU wants in order to be able to take retaliatory measures in non-fishing sectors if there is disagreement on fishing rights.

Although the UK proposal would allow three years of access rights to the 12-200nm zone, the proportion of stocks EU boats would be able to catch would be significantly reduced.

The EU calculates that the UK proposal amounts to it surrendering 80 per cent of the €630m-worth of fish caught each year in the 12-200nm zone, so almost all of the non-coastal stocks quotas, in exchange for three-years fishing access to those waters.

By contrast, the person added, Mr Barnier has offered to cede €87m in deep sea stocks and €15m in coastal stocks, which even if expanded upon slightly — as some fishing member states expect — still places the two sides on what one EU diplomat conceded were “different planets”.

The discussions appear to have been further antagonised by a new UK move to ensure that after January 1 foreign-owned vessels registered in Britain would no longer qualify as British for the purposes of obtaining fishing quota. 

The move has particularly concerned the Dutch and Spanish, with one EU diplomat saying in moving to curb international ownership UK prime minister Boris Johnson was “doing a Maduro” — a reference to the self-sufficient economic policies of the Venezuelan leader Nicolás Maduro.

UK officials said that Britain had long been clear that vessels should have genuine economic ties to the flagged country, adding that this was also a concern for EU countries such as France.

UK officials said they had wanted to discuss the issue with Brussels for months but that this had been hampered by the EU’s unwillingness until recently to negotiate on the basis of joint legal texts.

Level playing field

The EU insists that any agreement must commit both sides to detailed, enforceable restrictions on state aid to make sure the UK cannot use subsidies to hand its companies an unfair advantage — Mr Barnier has said this is vital given that the trade deal would grant tariff-free access to the EU’s single market.

The bloc is also insisting on safeguards to tackle competition distortions that could arise if EU and UK labour and environmental laws diverge over time. 

Brussels wants the right for EU companies to challenge alleged level playing field violations in the UK courts. The two sides are split more generally over how any LPF guarantees would be enforced in the UK.

The EU also wants the right to take rapid unilateral measures to protect its market — for example by imposing tariffs on UK goods — if it thinks the UK is guilty of backsliding on regulatory commitments. Brussels argues that traditional arbitration processes are too slow to protect sensitive sectors.

But Britain counters that the demands stray beyond trade deals the EU has signed with other countries and are an affront to its sovereignty. 

One idea the two sides are examining is the creation of an “evolution mechanism” that would foresee consultations if the two sides’ regulatory standards diverge, with either side able to curtail access to its market as a last resort. 

But Britain has argued that the EU proposals are too prescriptive and would pressure the UK to copy and paste EU rules.

Governance and dispute settlement

Brussels wants to be able to quickly take action against the UK if it breaks commitments it has made under the trade deal. The issue that has become even more relevant since Mr Johnson decided in September to violate last year’s divorce treaty with the EU with new laws that override the withdrawal agreement in relation to Northern Ireland. 

One crucial disagreement is over Britain’s resistance to cross-retaliation powers that would, in the event of a dispute, allow either side to take action against one economic sector to punish rule breaking concerning another.

An example often cited by EU officials is that tariffs could be imposed on UK manufacturing should Britain renege on any fisheries agreement. 

Mr Barnier told MEPs and ambassadors on Monday that the UK was still resisting this kind of “cross suspension” weapon. 

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ECB signals rising concern about eurozone bond market sell-off




The European Central Bank has indicated it will increase the pace of its emergency bond purchases to counter the recent sell-off in eurozone sovereign debt markets if borrowing costs for governments, companies and households continue to rise.

Philip Lane, chief economist of the ECB, said on Thursday that the central bank was “closely monitoring the evolution of longer-term nominal bond yields” and its asset purchases “will be conducted to preserve favourable financing conditions over the pandemic period”.

The ECB has pledged to ensure financial conditions encourage investment and spending, helping the eurozone economy to make a swift recovery and lifting inflation towards the central bank objective of just below 2 per cent.

To achieve this, Lane signalled that it would rely on its pandemic emergency purchase programme, under which it plans to spend up to €1.85tn on buying bonds by March 2022. There is just under €1tn of that amount left to spend.

“We will purchase flexibly according to market conditions and with a view to preventing a tightening of financing conditions that is inconsistent with countering the downward impact of the pandemic on the projected path of inflation,” he said.

Eurozone government bonds fell to their lowest levels for almost six months this week, and while Lane’s comments caused a brief rally on Thursday afternoon, prices then resumed their downward path.

Bond yields move inversely to prices, so the sell-off is pushing up the cost of borrowing for governments, which must sell vast amounts of extra debt this year to cover the cost of the coronavirus pandemic and its consequences.

Germany’s 10-year bond yield has risen to its highest level since last March, while the French equivalent returned to a positive yield for the first time since June and Italian sovereign yields hit their highest level since November.

ECB president Christine Lagarde said in a speech on Monday that policymakers were “closely monitoring” the rises. 

Isabel Schnabel, another ECB executive board member, said in an interview with Latvian news agency Leta published on Thursday: “A too-abrupt increase in real interest rates on the back of improving global growth prospects could jeopardise the economic recovery.”

Lane gave more detail of how the ECB defines “favourable” financing conditions, saying it would track the availability and cost of bank lending and market-based funding — in particular, the risk-free overnight index swap curve and the GDP-weighted eurozone sovereign bond yield curve, which have both risen in recent days.

He warned of the need to avoid “a mutually-reinforcing adverse loop” in which banks interpret lower borrowing demand as a negative signal about the economy and companies interpret a tightening of bank lending conditions as a worrying sign about the outlook. 

Eurozone bank lending to the private sector grew by just under €12bn in January, down 75 per cent from the average monthly loan growth last year according to data published on Thursday.

Much of the slowdown was because of a sharp fall in net lending to insurers and pension funds. Lending to non-financial companies also retreated slightly, while lending to households still grew but at its slowest rate since last April.

Krishna Guha, vice-president at Evercore ISI, said “ECB jawboning” was “having little effect” and “the next step — in our view presaged by Lane — is for the ECB to dial up the pace of its [bond] purchases”.

Last week the ECB spent a net €17.3bn on its emergency bond purchase programme, up slightly from the previous week but still well below the levels of last April, during the previous sell-off in government bond markets.

Frederik Ducrozet, strategist at Pictet Wealth Management, said the ECB was likely to wait until it was clear the bond market sell-off was a lasting shift before increasing its emergency bond buying above €20bn per week. But he said that “will bring the risk of disappointment [for investors] — because you have to walk the walk as well as talk the talk as a central bank”.

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Armenia’s prime minister claims military is plotting a coup




Armenia’s prime minister has claimed the country’s military is plotting a “coup,” and taken to the streets with his supporters after senior army figures in the former Soviet republic called on him to resign.

Nikol Pashinyan has faced months of protests demanding he step down after the defeat of Armenian forces in a six-week war with neighbouring Azerbaijan that ended in November.

The army weighed in on Thursday, calling on the prime minister to quit after he fired the first deputy chief of staff for criticising him.

A letter to the prime minister signed by 40 senior officers warned Pashinyan not to use force against demonstrators, but did not say whether the army would act to remove him from power.

“The current government’s ineffective management and serious mistakes in foreign policy have put the country on the brink of collapse,” the officers wrote on Facebook.

Pashinyan later fired the chief of the general staff, Onik Gasparyan, ordered police to secure government buildings in Yerevan and told his supporters in the capital’s Republic Square to avoid violent clashes.

Demonstrators at an opposition rally in Yerevan demand the resignation of Nikol Pashinyan. They cheered as a fighter jet flew overhead © Artem Mikryukov/Reuters

Describing the situation as “manageable” the prime minister denied he was planning to flee the country and said the army’s statement was an “emotional reaction” to a dispute over the defeat in the Nagorno-Karabakh conflict.

“We have no enemies in Armenia. I am calling for calm,” Pashinyan said, according to Russian news agency Interfax. “Of course, the situation is tense, but we need dialogue, not confrontation.”

He later took to the streets with several thousand supporters and a megaphone — an echo of the 2018 “velvet revolution” that swept him to power following a march across the country that galvanised popular support. A few thousand opposition supporters gathered at a different square and cheered as a fighter jet flew overhead.

Pashinyan has fought off calls for his resignation since signing a Moscow-brokered peace deal in November that cemented territorial gains for Azerbaijan in Nagorno-Karabakh. The mountainous enclave in the South Caucasus is internationally recognised as part of Azerbaijan, but is populated by ethnic Armenians who seized control after a war that broke out in the dying days of the Soviet Union.

Azerbaijan, a mostly Muslim country and a close ally of Turkey, launched an offensive in September with the aim of retaking the entire enclave. Armenia’s army was ill prepared for oil-rich Azerbaijan’s modern drone fleet and significant backing from Ankara.

More than 3,300 Armenian soldiers died in the conflict, with a further 9,000 wounded. Thousands of civilians were displaced, including some who set their own homes on fire as they fled land now under control of Azerbaijan.

Russia, the traditional regional power broker and Armenia’s most important ally, remained neutral even as several previous ceasefires failed and has deployed 2,000 peacekeepers to secure the region.

Pashinyan admitted the terms were “unbelievably painful for me and my people” but argued the concessions were necessary to prevent further losses.

The devastating defeat sparked fury among Armenians who stormed the country’s parliament and attacked its speaker, demanding the prime minister’s resignation.

Pashinyan backtracked on a pledge to step down after snap elections earlier this month and remained in office in the face of opposition from Armenia’s ceremonial president, three parliamentary opposition parties, and key church leaders.

The Kremlin said on Thursday it was “following events in Armenia with caution” but considered them “exclusively Armenia’s internal matter”.

Dmitry Peskov, President Vladimir Putin’s spokesman, told reporters Russia was “calling on everyone to be calm” and said “the situation should remain within constitutional limits,” according to Interfax.

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German accounting watchdog chief to step down in wake of Wirecard




The head of Germany’s accounting watchdog is to step down following mounting political pressure over corporate governance shortcomings exposed by the Wirecard fraud.

Edgar Ernst, the president of the Financial Reporting Enforcement Panel (FREP), said on Wednesday he would depart by the end of this year. He is the third head of a regulatory body to lose his job in the wake of one of Germany’s biggest postwar accounting scandals.

The collapse of Wirecard, which last summer filed for insolvency after uncovering a €1.9bn cash hole, triggered an earthquake in Germany’s financial and political establishment.

Felix Hufeld, president of BaFin, the financial regulatory authority, and his deputy Elisabeth Roegele were pushed out by the German government in January for failing to act on early red flags suggesting misconduct at Wirecard. Ralf Bose, the head of Germany’s auditors supervisor Apas, was fired after disclosing he traded Wirecard shares while this authority was investigating the company’s auditor, EY. The German government is also working to revamp the country’s accounting supervision and financial oversight.

Meanwhile, criminal prosecutors in Frankfurt are evaluating a potential criminal investigation into BaFin’s inner workings and on Wednesday asked the market authority to hand over comprehensive documents, the prosecutors office told the FT, confirming an earlier report by Handelsblatt. The potential scope of any investigation as well as the individuals who might be targeted is still unclear. BaFin declined to comment.

Ernst came under pressure as the parliamentary inquiry commission uncovered that he joined the supervisory board of German wholesaler Metro AG in an apparent violation of internal governance rules, which from 2016 banned FREP staff from taking on new supervisory board roles.

Last week, the former chief financial officer of Deutsche Post filed a legal opinion to parliament defending his move. He argued that his employment contract was older than the 2016 ban on board seats and hence trumped the tightened governance regulations.

The German government had subsequently threatened to ditch the private-sector body which currently has quasi-official powers.

In a statement published on Wednesday evening, FREP said that Ernst wants to open the door for a “fresh start” that would be untainted by the discussions around his supervisory board mandates. “FREP is losing a well-versed expert in capital markets,” the body said.

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