EU unveils minimal Brexit safety net for no deal

A no-deal Brexit would mean disruption for the economy and citizens, said Commission vice president.

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A no-deal Brexit will be no picnic — especially for Britain’s lucrative financial services industry.

That was the warning from the European Commission Wednesday, laid out in its emergency contingency plans for a no-deal scenario, 100 days before the U.K. is due to leave the EU.

Commission officials said they had made only the most basic provisions for business-as-usual to continue in the financial sector — as regards the central clearing of derivatives, certain over-the-counter derivatives contracts, and central depository services.

For everybody else, it’s potentially lights out — a message that Brussels wants banks, insurance companies, asset managers, and the rest to hear loud and clear.

The EU’s contingency measures, covering 14 policy areas, illustrate that there are indeed ways to mitigate some of the potentially disastrous effects of the U.K. crashing out without a Withdrawal Treaty on March 29. But Commission officials stressed that they could not prevent all of the negative fallout and they warned against any suggestions — already circulating among some hardline Brexiters — that simply walking away would be better than the deal negotiated by Prime Minister Theresa May.

“We are mitigating against no deal,” Commission Vice President Valdis Dombrovskis said at a news conference. “But in terms of disruption to the economy, disruption to the citizens, I think it’s clear what the order of preference is — and clearly remain is better than leave and deal is better than no-deal.”

Dombrovskis also warned that a no-deal scenario could present obstacles to the U.K. achieving the optimum future economic relationship with the EU. “Should it come to no deal, yes there are certain mitigating measures,” he said. “But they are still not allowing the advantages of a proper Brexit with a deal and then of course moving to the proper work on our future economic relations.”

However, officials who described the no-deal package notably declined to address the politically sensitive question of what would happen along the border between Ireland and Northern Ireland. The Commission punted that question to Dublin, warning that all EU countries would be obligated to reinstate customs regimes with the U.K. in the event of a no-deal departure.

They also sidestepped discussion of the impact on the EU’s own budget, which would potentially face large shortfalls in 2019 and 2020 if the U.K. refuses to pay its share of the bloc’s seven-year financial plan which began in 2014. Though one EU diplomat said such a move by the U.K. would rapidly poison the situation. “It’s going to get nasty,” the diplomat said.

Despite those omissions, the Commission’s presentation on Wednesday was a clear air-raid siren for Brexiteers who are urging Theresa May and her government to stop trying to convince the U.K. parliament to ratify the 585-page Withdrawal Treaty that was agreed last month and instead just walk away.

“Contingency measures cannot reproduce a Withdrawal Agreement and a transition period,” an EU official said. “Contingency cannot equal membership of the European Union.”

The measures would be “by definition and, by a rule, temporary in time and unilateral in nature,” the official said, adding: “This is very much a damage limitation exercise. If we were to come to a no-deal scenario, a hard Brexit, there will be negative consequences. We cannot mitigate all of those by contingency measures.”

By some analysis, the measures announced by the Commission were softer on the U.K. than had been expected — allowing, for instance, the central clearing of derivatives in the U.K. to continue for 12 months, for central depository services to continue for 24 months and, in the aviation sector, for flights between the U.K. and EU to continue for a year. The contingency plan also appears to give U.K. hauliers somewhat greater allowances for trucking cargo on EU roads.

But overall, the emphasis by Brussels was on its one-sided approach to the emergency planning. In some cases, such as the provisions on the derivatives industry, the measures look as though they would facilitate a large-scale shift of financial services business to the European Continent from Britain.

The Commission, in its presentation, also pointedly noted that the mitigation of some potential problems — such as the provision of residency rights for U.K. citizens living in the remaining 27 EU countries — would have to be handled by national capitals, and that Brussels could offer limited, if any, guarantees.

“There are limits to what we can do from an EU perspective,” one official said. “What we can do is encourage all member states to deal with this matter in as clear and efficient and as citizen-friendly fashion as possible.”

In response to questions, Commission officials waved off any suggestion that some sectors of U.K. society might find the contingency provisions more appealing that the Withdrawal Treaty, saying life would be worse for almost everyone.

“The EU single market will fall away on the 30th of March and we will fall back on much more basic, international conventions, some of them many many decades old,” an official said. “So, I think, all-in-all: no.”