Week Ahead - Brexit, EU Council & ECB, China Trade

“This is the final throw of the dice” a British source close to the negotiations said.

“There is a fair deal to be done that works for both sides but this will only happen if the EU is willing to respect the fundamental principles of sovereignty and control.”

EU Brexit negotiator Michel Barnier said that the Sunday talks with his British counterpart David Frost would show whether a new trade deal could be struck.

In a joint statement after their call, Johnson and von der Leyen said that “no agreement is feasible” if differences on the three thorny issues of governance, fisheries and competition rules, known as the level playing field, were not resolved.

Negotiations were paused on Friday after hopes of a deal earlier in the week evaporated, with the British team saying that the EU had made demands incompatible with its sovereignty and warning that the talks could end without agreement.

Mr Johnson and Mrs Von der Leyen have agreed to speak again on Monday night, the last scheduled meeting between the UK and EU.

Another UK source said that, if a deal was not agreed by then, the talks would probably collapse, but this was disputed by EU sources.

The Prime Minister will now press ahead by publishing two draft laws – the Internal Market Bill and the Taxation (Post-Transition Period) Bill – on Monday and Tuesday, which will breach international law by rewriting parts of the Withdrawal Agreement which governed the UK's exit from the EU in January in a move that could further strain relations.

Emmanuel Macron, the French president, had set the tone earlier in the week after a meeting with Alexander De Croo, the Belgian prime minister, declaring: “France will not accept a Brexit deal that does not respect our long-term interests.”

The point was made more forcefully on Friday by Clément Beaune, Macron’s Europe minister. “I still hope we can have a deal but we will not accept one that is bad for France,” he told Europe 1 radio. “If there were a deal and if it wasn’t good, we would oppose it with our veto right.”

The contrast could not have been greater with the relative silence of other European leaders — Angela Merkel, notable among them — who have refrained from providing a running commentary on the talks. “For the chancellor, and that hasn’t changed in recent weeks, the willingness to compromise is needed on both sides,” the German leader’s spokesman, Steffen Seibert, told a briefing a few hours after Beaune’s interview. ‌‌“If you want to have a deal then both sides need to move towards each other. Everybody has their principles — there are red lines, that’s clear — but there’s always room for compromise.”

Brace yourself for a parliamentary stand-off.

Much of the action in the Lords and the Commons this week will revolve around the UK Internal Market Bill, where the government is pledged to reverse extensive changes made by peers.

(This is the bill which contains measures that overrule parts of the withdrawal agreement signed with the EU last year.)

Normally, peers gracefully hoist the white flag, if MPs don't accept amendments they've made to legislation; but this time, the controversial law-breaking powers in the bill looks set to galvanise them into resistance.

On Monday, the government majority in the Commons will vote to reject the Lords amendments; on Wednesday peers may put them, or a version of them, back in again, and on Thursday MPs will take them out for a second time.

This could go on for some time. (Remember, a bill has to be approved by both houses, before it can become law.)

And the same arguments will probably be reprised with this week's other big measure, the Taxation (Post Transition Period) Bill, where the same law-breaking issues are said to apply - although, because its a money bill, the Lords can't amend it.

We expect a no deal, but no tariffs scenario (effectively a last-minute extension of the transition period) with a framework paper for further negotiations being agreed upon before New Year

Should the no deal, added tariffs scenario, against our expectations, unfold, then the GBP would sell-off swiftly into the deadline, but we expect it to be a massive “buy the rumour, sell the fact” event with a sharp move higher in EUR/GBP followed by a clear GBP recovery as markets will quickly chase the momentum towards a deal as both parties will suddenly have clear incentives to cooperate around a deal.

 12/ So, why the big row now? The optimists on the EU side say it's all a straw man to create the cover for a deal by mid-week. The pessimists warn the divergences are very real and there's a 'tough road ahead'. The UK insists it's serious and the EU must budge from these demands.— Nick Gutteridge (@nickgutteridge) December 6, 2020 

The European Union will leave Poland and Hungary out of its economic recovery plan if the two countries continue to resist efforts to link the disbursement of 1.8 trillion euros of funds with rule-of-law provisions, a French cabinet minister said.

European Affairs Minister Clement Beaune said such a move was legally complex, but possible.

“Our position is clear: we will not sacrifice either the recovery or the rule of law,” Beaune told the Journal du Dimanche. “There is no question of reviewing the mechanism which links the two.”

“It’s not a threat but the direct consequence of the absence of a new budget if they maintain their veto on the package,” he said.

Of late, he has said France’s President Emmanuel Macron needed his head examined and in a reference to European leaders: “You are fascists in the true meaning of the world. You are veritably the link in the Nazi chain.”

“We see ourselves nowhere else but in Europe. We contemplate to build our future together with Europe.”

Furthermore, he claimed: “We believe that we do not have any problem with any country or institution that cannot be solved through politics, diplomacy and dialogue.”

He also urged the EU not to be a tool of “explicit hostility” against Turkey.

decide whether or not to impose sanctions on Turkey for its aggressive policy in the Eastern Mediterranean and violation of Greece and Cyprus’ maritime zones.

The Council already agreed at the beginning of October that the EU would latest at its December meeting make use of the full panoply of sanctions available to it if Turkey continued with its unilateral actions and breach of international law.

The European Parliament has in a resolution adopted by 631 votes called for the Council to impose tough sanctions on Turkey in response not only to its illegal actions in the Eastern Mediterranean but also its activities in Varosha, a fenced-off suburb of Famagusta in Cyprus, seized after the Turkish occupation in 1974.

Robert Redfield, director of the Centers for Disease Control and Prevention, said Americans faced a winter like no other because of high infection rates across the country.

“The reality is that December, January and February are going to be the most difficult time in the public health history of this nation, largely because of the stress that it is going to put on our healthcare system,” Dr Redfield said.

Congressional negotiators have made progress on how to divvy up around $1.4 trillion to be spent by Sept. 30, 2021, the end of the current fiscal year, according to a House of Representatives Democratic aide.

But more granular details are still unresolved and votes by the full House and Senate on a massive funding bill may come close to bumping up against that Dec. 11 deadline.