Boris Johnson warned last year that a no-deal Brexit would represent “a failure of statecraft for which we would all be responsible”. On Wednesday, over dinner in Brussels, that statecraft will be put to the ultimate test.
Mr Johnson’s dinner meeting with Ursula von der Leyen, European Commission president, is seen as a last chance to salvage trade talks and put the UK’s post-Brexit relationship with the EU on a solid footing. The political and economic stakes could hardly be higher.
Ahead of the talks, both sides circled the wagons. Mr Johnson’s cabinet was said by Downing Street to be “united” behind the prime minister and his threat, if necessary, to take Britain out of its post-Brexit transition period without a trade deal on January 1.
Meanwhile, Germany, a massive exporter of goods to the UK, put on a show of unity with France, whose president Emmanuel Macron is resuming his familiar role as the tough man of Brexit.
Detlef Seif, chief Brexit spokesman of Angela Merkel’s CDU party, said: “It’s certainly true that France is more affected by the fisheries issue than Germany, so obviously they have a different view.
“But the idea that there are differences between Merkel and Macron on this is just a figment of the Brits’ imagination.”
The German and French leaders have agreed not to speak individually to Mr Johnson — an idea discussed in Downing Street — but to leave the endgame to Michel Barnier, EU chief negotiator, and Ms von der Leyen.
British attempts to drive a wedge into the unity of the EU27 have been a consistent but unsuccessful feature of the Brexit saga.
Katja Leikert, chief CDU spokeswoman on Europe, said: “We have to show the UK the red card whenever they try to bilateralise the talks.” A senior French official said: “There is a negotiating team. Full stop.”
Mr Johnson on Tuesday night met David Frost, his chief negotiator, in London to see whether a “landing zone” for a deal could be identified — if both sides are prepared to move.
Mr Frost spent Tuesday morning with Mr Barnier identifying the outstanding areas of disagreement before they are finally elevated to the political level with Mr Johnson and Ms von der Leyen on Wednesday.
British officials insisted that the talks in Brussels over dinner would be a “real negotiation”, while EU diplomats said they were intended to unblock the talks with details to be hammered out later by Mr Barnier and Lord Frost.
Downing Street insisted that the detailed negotiations could not drag into 2021, although EU officials maintained that substance rather than timing was key.
While the question of fisheries remains unresolved, both sides agree that a deal over access and quotas is possible. It is the question of the fair competition “level playing field” — and its enforcement — that remains the biggest problem.
Brussels wants to make sure it will be able to react to any large gap in ambition between the EU and UK’s environmental or labour standards by reducing market access for British goods.
It has proposed an “evolution mechanism” under which the two sides would hold consultations if one side was worried that its businesses were being put at a competitive disadvantage.
What would a no-deal mean?
Tariffs on UK exports to the EU of as much as 40 per cent. Agriculture and fisheries would be hit especially hard: (EU duties on UK scallops would be 20 per cent for example, and 15 per cent on sausages).
Disruption to co-operation in the fight against terrorism and organised crime because existing arrangements for information sharing would lapse.
The EU would lose fishing rights in UK waters, with future access hinging on annual negotiations with the UK under the United Nations Convention on the Law of the Sea.
Trade would be hit by the full force of new customs and veterinary checks at the border and at company premises.
Cross-border workers would face increased bureaucracy in securing access to benefits and pension rights.
Disruption to trade in civil nuclear materials and to the cross-border energy market.
Lost opportunities for UK scientific researchers to work together with European counterparts.
Should it be established that there is a real problem but talks fail, the disadvantaged party could impose tariffs or other measures to re-level the playing field.
The UK insists that, while it is ready to agree not to weaken existing regulatory standards — a principle known as non-regression — the EU plans go far beyond this.
“What the EU has proposed is not non-regression but de facto alignment,” said a UK official.
Linked to this are EU demands — also resisted by the UK — for either side to be able to punish the other if it violates its commitments. Under such a system, the EU could hit imports from one sector to counterbalance British rule-breaking that affects another.
The UK sees the cross-retaliation idea as disproportionate, arguing that it would lead to an unstable and unpredictable trading relationship.
The two sides are also at loggerheads over attempts by Brussels to exclude EU-level spending from joint commitments on state aid. EU negotiators argue that, within the union, EU level funds such as its regional aid money are exempt from state-aid restrictions.
The level playing field issue cuts to the heart of Mr Johnson’s dilemma — the one he used to claim Britain would never have to face — that full sovereignty over UK rules means less access to the EU single market.
The economic risks of failing to compromise were laid bare last month by the independent Office for Budget Responsibility, which estimated that there would be a 2 per cent hit to the British economy next year if no free trade deal was signed, equivalent to £40bn, on top of earlier Brexit and coronavirus-related losses.
Businesses have become increasingly alarmed as the days ticked by without a deal, causing a panic among companies that still lacked the necessary details to plan for UK-EU border controls.
The British Chambers of Commerce said that businesses still had insufficient official information available in 24 critical areas, which has undermined their ability to prepare for January 1.
James Sibley, head of international affairs of the Federation of Small Businesses, said that it was “deeply concerning that, more than four years on from the referendum, small firms still have so little clarity around what our trading relationship with the EU will look like when the transition period ends in 25 days’ time”.
Reporting team: George Parker, Daniel Thomas and Chris Giles in London; Jim Brunsden and Sam Fleming in Brussels; Guy Chazan in Berlin and Victor Mallet in Paris
French Greens given a grilling over meat-free school lunches
Grégory Doucet, mayor of Lyon, said he had no inkling that the school lunches served up in the French city this week would put him at the centre of a political storm.
But the decision by the environmentalist mayor that children should be offered just a single lunch option — one without meat — prompted immediate denunciations from French government ministers, and protests by farmers who responded by releasing herds of cows outside city hall.
The ruling — which Doucet said he took for a limited period to avoid long queues for multiple menus that would bunch pupils close together during the Covid-19 pandemic — has set carnivores against vegetarians, town against country, and right against left.
“It touches a lot of topics deeply rooted in French political culture,” said Vincent Martigny, politics professor at the University of Nice. “Everybody knows we should be eating less meat, but we’re still a very traditional food culture in France, quite conservative. If you don’t eat meat and drink wine, you’re not very French.”
Doucet and his Europe Ecologie-Les Verts (EELV) , which took Lyon from the centre-right in local elections last year, say the row has more to do with June’s regional elections and the presidential and legislative polls due in 2021.
“They’re targeting the ecologists because we’re the biggest threat,” Doucet told the Financial Times.
Even so, a mini-campaign by some ministers in President Emmanuel Macron’s government to curry favour with conservative voters and paint the Greens as crazed ideologues quickly spun out of control and exposed divisions in the cabinet.
Gérald Darmanin, the hardline interior minister, denounced the Lyon Greens for what he called a “moralistic, elitist policy” to deprive working-class students of meat. Julien Denormandie, who holds the agriculture portfolio, leapt to the defence of farmers, calling the decision “shameful” and saying: “Let’s stop putting ideology on our children’s plates!”
Environment minister Barbara Pompili, however, said she was sorry to hear a “prehistoric debate” full of clichés about the supposed nutritional inadequacies of vegetarian food. Macron eventually had to tell them to stop disagreeing in public as he called for an end to the “idiotic” argument.
The school meals controversy is the latest manifestation of a long-running debate in France and abroad over the environmental sustainability of meat consumption by an increasingly wealthy and numerous world population, given the land taken up by cattle and their greenhouse gas emissions.
Doucet, a “flexitarian” who said he tried to limit his intake of meat and fish, has campaigned to reduce consumption of animal protein and provide more vegetarian meals in schools, but he said his immediate priority was to ensure the meat served comes from local farmers.
He also pointed out that Gérard Collomb, his centre-right predecessor as mayor, had made exactly the same decision for a single, no-meat menu acceptable to the largest number of school pupils during an early phase of the pandemic — and there had been no political backlash.
“When we took the decision, we didn’t think for one minute it would lead to a political polemic,” Doucet said.
Somewhat later than neighbouring countries such as the UK, France is in any case gradually coming to accept vegetarianism. The Michelin Guide this year for the first time awarded one of its prized stars of approval to a French vegan restaurant called ONA — for Origine Non Animale.
“People used to be treated as the village idiot if they were vegetarian,” said Jean-Pierre Poulain, a sociologist specialising in food at the University of Toulouse. “That’s no longer the case.”
The change was slow in coming, said Poulain, but as in other urbanised societies, French city dwellers anthropomorphised pets, idealised wild animals and no longer automatically accepted the legitimacy of killing animals to eat them.
As mayor of Lyon, Doucet has also found himself at the heart of another contemporary debate — this time a particularly French one — about the role of schools and other state institutions in shaping the values and ideals of the nation’s youngest citizens.
Macron and his ministers, who are currently promoting legislation designed to curb Islamist “separatist” ideology and lifestyles, are demanding strict adherence to French secular values. As such they are reluctant to see the state’s prerogatives usurped by local governments with their own priorities.
Conservatives have already fulminated about the Green mayor of Bordeaux rejecting a public Christmas fir because he did not want to celebrate around a “dead tree”. Other Green civic leaders have refused to host the Tour de France cycle race in their towns because of the carbon footprint of all the accompanying motor vehicles.
On the right, the loss of meat as a choice for school meals is sometimes portrayed as another step towards the forced dismantling of the French way of life, but politicians wary of pointless conflicts are more phlegmatic about the affair.
“I don’t think the children of Lyon are going to die of anaemia in the days ahead, but I also don’t think this will do much to reduce greenhouse gases,” Roland Lescure, an MP with Macron’s governing La République en Marche! party, was quoted as saying in Le Parisien.
“Everyone is playing politics,” he added, “including the mayor of Lyon.”
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”.
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.
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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