German leaders demand Brexit clarity from new British PM

[July 13, 2016]  By Elizabeth Piper, Kylie MacLellan and William James

LONDON (Reuters) - German leaders stepped up the pressure on Britain's incoming prime minister Theresa May on Tuesday by demanding she swiftly spell out when she will launch divorce proceedings with the European Union.

"The task of the new prime minister ... will be to get clarity on the question of what kind of relationship Britain wants to build with the European Union," Chancellor Angela Merkel told a news conference.

Her finance minister Wolfgang Schaeuble said clarity was needed quickly to limit uncertainty after Britain's shock choice for 'Brexit', which has rocked the 28-nation bloc and thrown decades of European integration into reverse.

May, 59, will on Wednesday replace David Cameron, who is resigning after Britons rejected his advice and voted on June 23 to quit the EU. On arriving and departing from Cameron's last cabinet meeting, she waved a little awkwardly from the doorstep of 10 Downing Street, shortly to become her home.

She will face the enormous task of disentangling Britain from a forest of EU laws, accumulated over more than four decades, and negotiating new trade terms while limiting potential damage to the economy.

The pound was up 1.2 percent against the dollar at around $1.3150, boosted by the appointment of a new prime minister weeks earlier than expected after May's main rival dropped out.

But it remains more than 12 percent below the $1.50 it touched on the night of the June 23 referendum, reflecting concerns that Brexit will hit trade, investment and growth.

The German leaders spoke after May's ally Chris Grayling appeared to dampen any hopes among Britain's EU partners that her rapid ascent might accelerate the process of moving ahead with the split and resolving the uncertainty hanging over the 28-nation bloc.

Grayling, the Leader of the House of Commons, said there was no hurry to invoke Article 50 of the EU's Lisbon Treaty, which will formally launch the process of separation and start the clock ticking on a two-year countdown to Britain's actual departure.

"I think Article 50 should be triggered when we're ready. The most important thing right now is we do what's in our national interest," Grayling told Sky News.

"We get ourselves ready for the negotiation, we decide what kind of relationship we want to negotiate, and then we move ahead and trigger Article 50. We'll do it right, we'll do it in a proper way, we'll do it when we're ready."

RECESSION WARNINGS

Cameron and a host of ministers, policymakers and think-tanks had warned Britons before the referendum that going it alone would plunge the economy into a self-inflicted recession by cutting it off from the world's biggest free-trade bloc.

They ignored him, delivering a surprise outcome that reflected anti-establishment sentiment and deep disenchantment with an EU that the Leave campaign portrayed as bureaucratic, undemocratic and mired in permanent crises.

Bank of England Governor Mark Carney said on Tuesday that the expected economic hit from Brexit could prompt the central bank to provide more stimulus. It is due to announce on Thursday whether it will cut its key interest rate, which has remained at 0.5 percent for more than seven years, or take other action.

The chief investment officer of BlackRock, the world's biggest asset manager, predicted Britain would fall into recession in the coming year.

"Recession is now our base case," Richard Turnill said. "There's likely to be a significant reduction of investment in the UK."

NEW IRON LADY?

May, who had favored a vote to stay in the EU, was left as the last woman standing after three leading rivals from the referendum's winning Leave campaign self-destructed in the course of a short-lived leadership race.

Britain's Home Secretary Theresa May, who is due to take over as prime minister on Wednesday, waves as she leaves after a cabinet meeting at number 10 Downing Street, in central London, Britain July 12, 2016. REUTERS/Paul Hackett

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Her last rival, Andrea Leadsom, dropped out on Monday, removing the need for a nine-week contest to decide who would become leader of the ruling Conservative Party and prime minister.

May will become Britain's second woman prime minister after Margaret Thatcher. One veteran of Thatcher's cabinet described her last week as a "bloody difficult woman", a comment that may have helped her by implying comparison with the "Iron Lady".

She has served for the past six years as interior minister, regarded as one of the toughest jobs in government, and cultivated a reputation as a tough and competent pragmatist. She has already been likened to Germany's Merkel for her cautious, low-key style.

Apart from the task of leading Brexit, May must try to unite a fractured party and a nation in which many, on the evidence of the referendum, feel angry with the political elite and left behind by the forces of globalization and economic change.

Among her first acts will be to name a new cabinet which will need to find space for some of those who campaigned successfully on the opposite side of the referendum.

That could mean significant roles for Grayling and former Defence Secretary Liam Fox, two Leave advocates who threw their support behind her leadership bid.

Both are seen as candidates to head the Brexit ministry she has promised to create to oversee divorce negotiations with the EU, while Foreign Secretary Philip Hammond and Business Secretary Sajid Javid are tipped as contenders to replace George Osborne as finance minister.

May has adopted the mantra "Brexit means Brexit", declaring on Monday there could be no second referendum and no attempt to rejoin the EU by the back door. "As prime minister, I will make sure that we leave the European Union," she said.

She also made a pitch for the political center ground, calling for "a country that works for everyone, not just the privileged few".

Cameron, 49, is leaving the top job after six years during which his government engineered a return to growth after the financial crisis, at the price of deep and painful budget cuts.

Having lost his gamble on the referendum outcome, he departs just over a year after leading his party to an outright election victory, a result that freed him from the burden of governing in coalition and should have kept him in power until 2020.

TV footage showed a large blue removal fan arriving at Downing Street.

Cameron's spokeswoman said May and Osborne were among those who praised him at his last cabinet meeting for guiding the country to "a better place", as the other ministers banged on the table in appreciation.

(Additional reporting by David Milliken, Huw Jones, Ana Nicolaci da Costa, William Schomberg, Andy Bruce, Michael Holden, Tom Koerkemeier, Joseph Nasr and Paul Carrel; Writing by Mark Trevelyan; Editing by Pravin Char)

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