Brexit Briefing: EU Fears That Brexit Talks May Collapse

Talking Points

- EU chief negotiator Barnier wary over Brexit bill.

- UK Brexit secretary Davis prepared to leave the table.

- See the DailyFX Economic Calendar and see what live coverage for key event risk impacting FX markets is scheduled for next week on the DailyFX Webinar Calendar.

Chief EU negotiator Michel Barnier has warned that Brexit talks could breakdown unless other member states reign in their calls for an excessive divorce bill. According to The Guardian, EU Commission minutes show that Barnier is worried that unless other member states pay more post-Brexit, or receive less, reducing the UK’s bill, PM Theresa May would make good on her promise that no deal is better than a bad deal, a situation that neither side really wants.

And UK Brexit secretary David Davis added to the EU’s fears when he admitted recently that he was preparing for the possibility of leaving the EU without a deal, saying that he had a “whole unit planning for every possible option and every opportunity too, but my aim and my expectation is that we’re going to get a free-trade agreement.”

According to independent think tank Institute for Government, the divorce figures seen floating around in the media have a wide range due to varying methodologies for calculating the bill.

“The lower band EUR25 billion represents minimal obligations to the EU and maximum UK receipts, while the top-end EUR75 billion comes from maximizing the UK’s obligations and minimizing its receipts. The gross figures of EUR100 billion includes some extra obligations and does not take any account of any receipts owed to the UK.”

To add to the confusion over the cost of the UK leaving the EU, research by the Institute of Chartered Accountants in England and Wales shows the divorce bill could cost as little as £5 billion. The study showed three different cases: a low-scenario of £5 billion, a central-scenario of £15 billion and a high-scenario of £30 billion.

GBP meanwhile remains stuck in a rough 0.8400 to 0.8800 band against the single currency, with a sustained breakout of this range unlikely in the short-term. The EUR recently perked up on the back of better-than-expected economic data, although lowly inflation remains a worry, while GBP continues to shrug off weak economic data – April retail sales data aside – and continues to slowly claw back post-Brexit losses.

Chart: EUR/GBP Weekly Timeframe (June 2015 – May 19, 2017)

Chart by IG

Upcoming GBP/EUR Event Risk

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--- Written by Nick Cawley, Analyst

To contact Nick, email him at nicholas.cawley@ig.com

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