Barnier ends market optimism with warning over ‘no-deal’ Brexit

Luke James
Brussels correspondent
Michel Barnier’s comments on the likelihood of a ‘no-deal’ Brexit have sent mixed messages to markets (Reuters)

Michel Barnier has ended a wave of market optimism about the prospects for a deal by delivering a sobering message about the state of negotiations.

The EU’s Brexit chief sparked a surge in the pound after saying the bloc is ready to offer “a partnership with Britain such as has never been with any other third country.”

His comments were leapt upon by traders as a sign that the risks of a ‘no deal’ Brexit were diminishing. That saw the pound jump 1% to €1.11 and $1.30 Wednesday.

MORE: Pound rises as EU’s Barnier hints at ‘ambitious’ Brexit deal

But Barnier has brought expectations back down to earth today with a new warning that a ‘no deal’ scenario remains possible.

“Our responsibility is to be well prepared for all possible outcomes in any case,” he told German broadcaster Deutschlandfunk.

“This includes the no-deal scenario…because at the moment we are not ready to reach an agreement. So we have to be prepared.”

The pound is now in retreat from its overnight rally.

Yahoo Finance chart showing the how the pound has moved with Michel Barnier’s comments

Political analysts have pointed out the markets badly misjudged the significance of Barnier comments, which were made during a press conference in Berlin.

The French politician had made a similar statement in an article published in August, writing: “I am sure we can build a future partnership between the EU and the United Kingdom that is unprecedented in scope and depth.”

Barnier’s warnings over the differences that remain between the two sides were also overlooked Wednesday. But he made the challenges that lie ahead clear Thursday.

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Progress on the Withdrawal Agreement, which is 80% complete, is being held back primarily by a failure to agree on a backstop solution to avoiding a hard border in Ireland.

Barnier has made clear there will be no deal without a backstop and said Thursday: “British politicians must take responsibility for their own decisions.

“…We need to find a solution to control the movement of goods without rebuilding the border between Northern Ireland and Ireland.”

The French politician also delivered a blow to the key element of the prime minister’s Chequers plan for the future relationship, which would see the UK remain in the single market for goods only.

Dominic Raab and Michel Barnier will meet again Friday in a bid to reach a Brexit deal (Reuters)

He said: “We are ready to build this strong and once-in-a-lifetime partnership. But it can not be built to the detriment of who we are. The internal market, the home market, is indeed our most important asset.”

Barnier, who is tipped to become European Commission president, dismissed a suggestion that Brexit talks had become a poker game, saying negotiations were “far too serious” to be talked about in such terms and would produce “no winners.”

The interview gives a good indicitation of what issues Barnier will discuss with Brexit Secretary Dominic Raab when they meet tomorrow in Brussels.

MORE: Brexit talks ramped up to once a week until the deadline for a deal

Yahoo Finance UK revealed yesterday that the talks will be weekly until a deal is reached or talks are abandoned.

The deadline was the European Council on October 18, but has been pushed back until mid-November to give both sides more time to reach a deal.

As a result, a special European Council is likely to be arranged for November at which Brexit will be the only agenda item, Politico EU reported Thursday.