LDN - Business

No-trade deal Brexit fears rise as talks stuck on state aid

[September 04, 2020] By Guy Faulconbridge, Gabriela Baczynska and John Chalmers

LONDON/BRUSSELS (Reuters) - The chances of Britain leaving the European Union without a trade deal have risen sharply as negotiations have been threatened by London's insistence that it have full autonomy over its state aid plans, negotiators and diplomats said.

The United Kingdom left the EU on Jan. 31, turning its back after 47 years on the post-World War Two project that sought to build the ruined nations of Europe into a global power.

The British exit followed more than three years of wrangling over an exit deal since the 2016 referendum that sent shockwaves through global financial markets. Since Brexit, talks on a new trade deal have so far made little headway.

But fears in London, Brussels and other European capitals are mounting that a British exit without a trade deal could sow yet more economic chaos amid the turmoil of the coronavirus crisis which has hammered European economies.

"The chances for a deal, or a no-deal, are 50/50," said one senior EU diplomat.

"There has been absolutely no movement from the British side in the talks. It this approach doesn’t change quickly, we won’t be able to negotiate a deal in time."

As investment banks, diplomats and even Downing Street officials try to come up with a broad sense of how likely a no-trade deal Brexit could be, many see a crunch looming unless something gives.

Failure to reach a trade deal could hammer financial markets as nearly a trillion dollars in trade, from car parts and medicines to lamb and fish, would be thrown into turmoil.

"Sooner or later, the UK should clarify what they want. It's not possible to leave the European club and at the same time keep all the benefits," European Council President Charles Michel told reporters.

"We have no certainty that we'll reach a deal. I hope it will be possible - but not at all cost ..."

STATE AID

Prime Minister Boris Johnson's office said the EU needed to show more realism in the talks.

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An illuminated British flag is seen at 10 Downing Street on Brexit day in London, Britain January 31, 2020. REUTERS/Toby Melville

"Our goal remains to reach an agreement, and we'll continue to work hard to do that, but we've been clear there is lots of work still to be done. We need more realism from the EU, and them to show they understand the fundamentals of our position as an independent country," Johnson's spokesman said.

The current sticking point is state aid.

The bloc's Brexit negotiator Michel Barnier went to London on Tuesday to tell his UK counterpart, David Frost, that Britain must move on state aid, or there will not be an agreement, according to EU diplomats.

Afterwards, Barnier said London had not shown enough flexibility and creativity on fair competition, fisheries and solving disputes in order to seal a deal on new trade ties by a "strict deadline" of end-October.

"The feedback after Barnier’s talks with Frost in London on Sunday was negative, there has been no breakthrough," said a second European diplomat.

"The Commission now worries the next negotiating round will end up with nothing," the diplomat said. "If the UK doesn’t move a bit on the state aid thing, we have a problem."

Britain does not want to allow Brussels authority over its state aid rules, stoking one of the bloc's greatest fears: that it shall one day face strong competition from an economy just outside its borders.

Senior officials in British Prime Minister Boris Johnson's office see only a 30%-40% chance that there will be a Brexit trade agreement due to the impasse, the Times reported.

Asked about the report, Johnson's spokesman said: "I'm not going to get drawn into percentages.

(Writing by Guy Faulconbridge; Editing by Kim Coghill, James Davey and Alison Williams)

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