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How UK-EU trade deal would change relations between Britain and Brussels

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The future relationship deal close to being struck between the UK and the EU would bring far-reaching changes, as both sides are forced to adapt to the end of Britain’s 30-year membership of the European single market.

The trade agreement between London and Brussels is expected to offer UK and EU companies preferential access to each other’s markets, compared with basic World Trade Organization rules — ensuring imported goods will be free of tariffs and quotas.

But economic relations between the UK and the EU from January 1, when the deal would take effect, would be on more restricted terms than they are now. 

A trade agreement along the lines of the one being negotiated between the two sides will leave Britain facing a 4 per cent loss of potential gross domestic product over 15 years compared with EU membership, according to the UK’s Office for Budget Responsibility. Failure to secure an agreement would have led to lost potential GDP of almost 6 per cent, the fiscal watchdog estimated.

Below are some of the benefits conferred by the mooted UK-EU future relationship deal, which also includes security co-operation — and the key areas in which Britain’s links with the bloc will fall short of existing arrangements.

Containers are unloaded from ships at the port of Felixstowe © Neil Hall/EPA/Shutterstock

1. Trade in goods 

The EU and UK’s starting point for the future relationship talks was that they should lead to a deal with no tariffs on trade in goods between the two sides. They also wanted no quantitative restrictions on the volume of goods that could be sold free of tariffs. 

That was negotiated, meaning the deal was set to go beyond what the bloc has done with any other advanced economy outside of the European single market. 

But the expected agreement is still a very different state of affairs to membership of the EU single market and customs union.

Once implemented, from January 1, a hard customs and regulatory border will exist between the EU and the UK, and goods will face checks and controls that can only be smoothed at the margins by co-operation. 

2. Fair business competition

The EU’s offer on tariff-free trade was contingent on the UK agreeing to uphold a “level playing field” on fair business competition in areas such as environmental standards and labour rights.

Brussels has also been keen to ensure the UK does not have unfettered scope to disburse state aid to prized industries, giving them a competitive advantage. 

This issue of the level playing field was one of the most vexing strands of the talks, and the likely outcome aims to ensure that the two sides’ companies will engage in fair competition.

But, crucially for the UK, it will not be required to follow EU rules directly or be subject to the jurisdiction of the European Court of Justice.

Being outside the European single market has other regulatory consequences for Britain. For example, UK businesses will no longer be able to assume that product authorisations from British watchdogs will allow their goods to be placed on the European market. 

A British fishing boat off the south-east coast of England © Glyn Kirk/AFP/Getty Images

3. Fish

The mooted deal creates a transition period during which the EU fishing boats’ quotas in UK waters will decline compared with their current level.

EU boats at present catch about €650m a year of fish in UK waters, but this is set to fall by perhaps as much as 25 per cent with the knock-on effect of boosting how much British boats can catch.

For the EU, the outlined agreement would mean its boats have guaranteed access to UK waters during the transition. Once the period is over, access will in principle depend on annual negotiations between both sides. Those talks will also determine the overall quantities of different species that can be caught.

For the UK, the deal is set to enshrine the principle that Britain is now outside the EU’s common fisheries policy: an independent coastal state with sovereignty over its waters.

4. Financial services

The City of London will exit the EU’s single market for financial services at the end of the Brexit transition period on December 31.

Both sides have said that the new market access arrangements for UK and EU financial services companies should be based on unilateral decisions by Britain and the bloc. 

These so-called equivalence decisions involve each side evaluating whether the other’s financial services regulations are as tough as its own.

Banks and traders have acknowledged that the proposed system is more piecemeal than existing arrangements, and less stable. 

Ending free movement for EU nationals in the UK was identified by the British government as one of the benefits of Brexit © Oli Scarff/Getty Images

5. Migration

Current British and EU expatriates have their rights safeguarded by the UK’s 2019 withdrawal agreement with the bloc, but big changes to migration arrangements take effect from January 1.

Britons will no longer have the benefit of European freedom of movement: the right to go to any EU member state and seek to work and live there on the same basis as the country’s own citizens. 

Instead, Britons will rely on a visa-waiver programme to travel to the EU for short stays, and on member states’ national rules for the right to work. 

Ending free movement for EU nationals in the UK was identified by the British government as one of the benefits of Brexit, allowing the country to devise a new immigration system. 

6. Security

The EU and the UK have been at pains to emphasise the importance of continuing co-operation in the fight against terrorism and organised crime, although talks in this area were complicated by Britain’s determination to escape the jurisdiction of the ECJ.

But ahead of the breakthrough in the talks which have taken the two sides to the cusp of announcing a deal, EU chief negotiator Michel Barnier confirmed that they had found ways to maintain “close co-operation” on key matters including the work of the bloc’s crime-fighting agencies Europol and Eurojust, and the sharing of criminals’ DNA data.



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French Greens given a grilling over meat-free school lunches

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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. 

Farmers released herds of cows outside Lyon city hall to protest against the removal of meat from school lunches
Farmers released herds of cows outside Lyon city hall to protest against the removal of meat from school lunches © Olivier Chassignole/AFP via Getty Images

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.” 



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ECB signals rising concern about eurozone bond market sell-off

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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

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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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