Above: File image of Michel Barnier addressing the media © European Union, Source: EC - Audiovisual Service / Photo: Mauro Bottaro
The EU's Chief Negotiator Michel Barnier has given a speech in which he signalled a key deadline for the EU-UK Brexit trade negotiations will fall in October, which should mean currency markets start to prepare for heightened volatility in Sterling around this time.
Speaking at the European Policy Centre - a Brussels-based think tank - Barnier said EU negotiators are awaiting "clear signals" the UK is ready to work on an agreement that respects the Political Declaration struck by the two sides last year to "the letter".
"If we get this signal next week and make concrete progress in July all the better," said Barnier.
Repeating a line that was familiar in the Withdrawal Agreement negotiations, Barnier said "the ball is in the UK’s court", adding that the UK is showing no willingness to engage in some key areas.
Negotiations between the two sides have reached something of an impasse, with the UK arguing the EU is being unreasonable in requiring them to follow EU law on competition and standards. The UK argues that the EU has already struck free trade deals with other countries without making similar demands.
Fishing is another sticking point for the two sides, with the UK realising this to be one area of advantage given the dependence of EU fishing fleets on UK waters.
But perhaps the most important development of Barnier's address was regarding the timelines involved in the process: "In any case the real moment of truth will be in October," said Barnier.
Important EU-UK meeting with @vonderleyen @eucopresident and @BorisJohnson. The European Parliament wants an ambitious and comprehensive agreement, in line with the joint commitments made in January. Pacta sunt servanda.— David Sassoli (@EP_President) June 15, 2020
Joint statement → https://t.co/L1JYUVdx37 pic.twitter.com/lTLaYYfK5B
A new round of negations are due in July, but because October will now by judged by foreign exchange markets to be a new 'cut off' date, we would therefore expect October to be another key month for Sterling, with losses likely over the preceding weeks as is typical of the currency's Brexit playbook.
"Obviously we have to compromise if we want to reach a deal," added Barnier. The Chief Negotiator was clearly in full negotiating mode when he observed the EU has shown "openness in some key areas but we have not received the right answer from UK".
On the matter of fisheries Barnier said "my openness to work on the mix of parameters to find a compromise... we are open to find compromise."
There has been some talk of an EU compromise on the issue of fishing for some time now, however it is believed some northern coastal states, lead by France, are maintaining a hard line that the EU's fleets should maintain unfettered access to UK waters.
The UK argues such a privilege is only reserved for full EU members, something EU negotiators are quite happy to remind the UK of when other industries are being discussed. Surely France, Belgium, Spain and the Netherlands will have to fold on their position or risk entering WTO trade terms in 2021 where the UK regains absolute control of its waters?
On the matter of level playing field provisions, Barnier reflected that the UK's opposition to adopting rules and regulations seemed to not apply to the UK's ambitions in negotiations with Australia, New Zealand and Canada which is an astute reflection and one the UK's team lead by David Frost will have to formulate a riposte to.
Based on the content of the speech we have two takeaways: 1) the deadline to watch falls in October, we imagine this would come in the form of an EU Council meeting dedicated to the trade negotiations and 2) the sticking points hardly look insurmountable, therefore it would take some spectacular failure for both sides to start 2021 trading on WTO terms.
Indeed, to us it seems the sticking points in the Withdrawal Agreement were far more complex, yet a deal was ultimately done and the odds of a free trade deal being struck between the EU and UK are high, even if Sterling markets don't yet agree.
The UK and EU injected fresh momentum into efforts to secure a trade deal during a high-level meeting between UK Prime Minister Johnson and senior EU officials in June, with Johnson saying the prospects for an accord are "very good."
Both sides acknowledged there would be no extension to the current transition period, while committing to a series of face-to-face intensive negotiation rounds in July.
June 22 saw Johnson and his counterparts EU Commission President Ursula von der Leyen, EU Council President Charles Michel and EU Parliament President David-Maria Sassoli look to break a deadlock that had built up between the two negotiating teams.
Media reports following the meeting said people with "knowledge of the conversation" from both sides said the intervention has injected fresh momentum into the deadlocked negotiations.